Looking after the next generation

If publishers want to be successful in the digital business, their corporate culture must undergo profound change. Whereas in the "good old days" there was a significant change every quarter of a century or so, when a new printing press was purchased or lead typesetting was adopted, today change can be felt on all fronts and is continuing to accelerate. Good relationships with a system supplier that used to guarantee state-of-the-art technology are no longer enough. This makes it clear that publishers do not have rapid change in their DNA, and must adapt, learn and unlearn. This cannot be accomplished overnight. However, in order not to miss the boat and fall behind, change is bought in. In recent years, the large publishing supertankers have surrounded themselves with a fleet of small and agile start-up speedboats, and this development has accelerated in recent years (see overview "Start-up investments by Swiss publishers").

Advertising space against shares

Publishers have a unique advantage when buying young companies: instead of having to reach into their capital coffers, they can often exchange considerable shares for advertising space. This is known as media for equity and benefits both sides: companies can thus bring the advantages of their products to consumers at low cost and publishers can conserve their capital. Although the term sounds American, it is mainly used in Europe. Unlike in the USA, where venture capitalists have learned to invest in very young companies and grow them, there is often a financing gap here, especially for new companies, in order to boost growth until they become interesting for investors. Because media for equity models are ideally suited for this, but cannot be used by media companies in all cases where there is a need, corresponding funds have now been created. Several media companies provide advertising inventory (preferably residual inventory, of course), which is then invested in start-ups that are also outside the direct interest of the media companies.

The best-known examples in Germany are Seven Ventures, a wholly-owned subsidiary of ProSieben Sat.1 Media AG, whose most striking showpiece is the Zalando TV commercials with the screaming women. In 2011 alone, Zalando commercials worth around EUR 35 million are said to have been played up and down on the three ProSieben Sat.1 channels, which were offset via a participation model. GMPVC German Media Pool and Leverate Media are also active in this area, as is the outdoor advertising entrepreneur Dirk Ströer, who invested in young web companies through his investment company and in return plastered the billboards with posters of these web start-ups. However, this is not without risk: if a start-up does not take off, the shares for which media services have been used become worthless. There are also reports that existing advertising customers have threatened to withdraw their budgets because a media company has boosted a competitor with a media-for-equity investment.

Similar strategies

A survey conducted by Werbewoche among the three major publishers Tamedia, Ringier and NZZ initially reveals many similarities in their approach to start-ups. All of them have been using media-for-equity models for some time. Frank-Rainer Nitschke, Head of New Business at NZZ, emphasizes that this is not just about residual inventory, but "of course also about premium inventory", because they also want to "give the investments the right stirrup to get ahead". According to Thomas Kaiser, Chief Digital Officer at Ringier, the focus is on "media for equity", for which Ringier's entire media portfolio (print, online, radio) can be used. However, it is "of central importance" that the companies have functioning conversion processes and customer experiences, as this is the only way that media services can benefit customers and start-ups. And at Tamedia, Gabriele Ottino, Head of Digital Strategy at Tamedia, confirms: "If we can help start-ups to accelerate their growth, we will use our media services." All three emphasize that they also offer their investments additional services from their own company, such as traditional marketing, e-commerce, finance and online advertising marketing, etc.

It is also important to share experiences within the portfolio companies in order to learn from each other without having defined a formal incubator system. All three are also explicitly not active as financial investors. They decide on startup investments on a case-by-case basis and have not defined a fixed fund or founded any subsidiaries for this purpose. It is also clear that companies in the initial seed phase are not in demand. Tamedia states: "We require a convincing founding team and initial sales or successful pilot projects." Those who are not financial investors, but rather strategic investors, hope to gain a competitive advantage from investments. NZZ-Nitschke, for example, says: "Ideally, we aim for a majority stake as soon as the investment is sustainably profitable." And at Ringier, Thomas Kaiser explains that they initially aim for minority shareholdings in order to promote and focus on the entrepreneurial freedom of start-ups. In the longer term, Ringier is also aiming for majority shareholdings in strategically interesting start-ups.

Tamedia on course abroad

On the question of expansion abroad, namely the D-A-CH region, Ringier says that there are no concrete plans for this. At NZZ, Nitschke acknowledges that this is becoming increasingly important and that the company is also active in this area (for example with the 20 percent stake in Berlin-based Bettermarks GmbH acquired last year), before adding: "However, we are also committed to our Swiss roots." Meanwhile, Tamedia is clearly on an international course: "Tamedia Digital wants to continue to grow, also internationally" and is working on further expanding its international presence. All three Swiss publishers do not have their own representative offices in Silicon Valley or other start-up centers, but emphasize good relationships and partnerships. There are words of appreciation from all sides for the state innovation promotion program CTI (Ringier-Kaiser: "Fundamentally important for the innovative strength of the Swiss economy, this is the only way we have a chance to survive in the dynamic international context.") and other venture capital initiatives, such as Swisscom, are also commented on favorably.

The three publishing houses also attach importance to promoting internal innovation and Tamedia in particular is also active externally. Last year, for example, a hackathon was held as part of the Open Development Project, and this will be followed next October by Hack Zurich in collaboration with ETH Zurich. Since this spring, there has been a company-wide innovation fund to which more than 80 proposals for new projects and process innovations have already been submitted. According to Frank-Rainer Nitschke, a culture has developed at NZZ that allows for innovation, so that "employees from all possible areas feel called upon and enjoy bringing ideas to management". Ringier also wants to "promote an open and, above all, entrepreneurial culture and cultivate internal and external networks". When it comes to concrete goals in the digital sector, Tamedia in particular is very specific: "Our medium-term goal is to generate around 50 percent of Tamedia's total earnings with the digital sector." This goal is to be achieved through organic growth and acquisitions.

Axel Springer has already made purchases from Switzerland

This goal has already been achieved at Axel Springer Verlag, which is regarded by many in the German-speaking world as a role model in dealing with the digital media business. This is primarily due to the work of CEO Matthias Döpfner, who has consistently focused the Group on digital over the past twelve years. The (temporary) highlight of this strategy was probably the sale of the regional titles to the Funke Group (previously WAZ-Verlag) last summer on the grounds that it would not be able to achieve a leading market position in this regional business. Döpfner is continuing to drive forward the digital transformation and has launched a clear challenge with the new company motto: "The leading digital publisher". He emphasizes that the entire company must be digitally oriented, which is why there is no special representative for the digital sector on the management board, for example. Last year, the share of digital media in Group EBITDA rose from 49.4 percent (in 2012) to 61.8 percent and 70 percent of advertising revenue came from the digital business, which accounted for 47 percent of total revenue. Growth is achieved both organically, by expanding print to digital, and through the acquisition of investments. On the one hand, there is Axel Springer Venture GmbH, which prefers to invest in more mature new companies in the media sector. On the other hand, Axel Springer has entered into a joint venture in Berlin with Plug and Play, a well-known accelerator from Silicon Valley. The aim is to identify and connect entrepreneurial talent and successful business concepts at a very early stage.

At the annual press conference at the beginning of March this year, Döpfner said: "If digitalization is so essential for us, we must also be successful as founders or early investors in earlier phases of the business. We cannot leave this to others. As the core DNA of the company, we must also succeed." This makes it clear that in the race for digital business, Swiss publishers will also have to further expand their start-up commitments and become increasingly active as early investors in the future in order to defend their home market: Axel Springer already went on the start-up hunt in Switzerland in 2008, when the two projects Partyguide. ch and Usgang.ch were taken over.

Christoph J. Walther

No Silicon Valley in Switzerland

Silicon Valley is the epitome of a lively start-up scene. From a purely external perspective, however, the area south of San Francisco hardly differs from the suburbs of other major American cities. There are three main characteristics that distinguish the Valley from Switzerland:

Talent: Because Silicon Valley has long been considered the Mecca for software developers, there are a particularly large number of them here. This makes it easier to find talented specialists for new projects. Meanwhile, there are notoriously too few IT specialists here and those who want to recruit them globally fail due to rigid labor market regulations, which often severely hinders small companies in particular, such as start-ups.

Money: If you invest in the right start-up early on, you can make a lot of money. And where there are many start-ups, there are many venture capital firms that try to invest the money entrusted to them in the companies of tomorrow as early as possible. In order to specifically promote these companies and breed their success, start-up centers are operated (so-called incubators or, in later phases, accelerators). If you want to play a part here (from Switzerland, for example), you not only need capital, you also need to invest at least one to two years in building up networks of contacts in order to receive early indications of future opportunities through various informal channels. In our country, as examples from the media industry show, investors prefer to wait until new companies have established themselves and proven themselves for the time being and the rearing of start-ups is left to the incubators (co-)supported by the public sector.

Culture: Compared to Switzerland in particular, the attitude to life is more optimistic and risk-taking. If it doesn't work out there, it will work out with the next attempt - no bad luck. The mindset is emphatically market-oriented. The saying goes: if you give a Swiss start-up two million, it will optimize the product over the next few years. In Western America, the same amount of money would have been spent within three months and market share would have been gained.

This mixture of success factors is difficult to copy and yet there is no shortage of attempts (including in Switzerland), as a new Silicon Valley is being proclaimed: None of these copies has yet succeeded in eclipsing the original. Nevertheless, from a media perspective, Silicon Alley in New York City is remarkable. While Silicon Valley's origins lie in chips, computers and hardware, New York is all about media and marketing, for which the Big Apple has long been known. In Europe, start-ups thrive primarily in the tech city of East London and in the Scandinavian and Baltic countries, as well as increasingly in Berlin. cjw