As of 2016, how well had Axel Springer turned disruptive technological change into sustainable change within its core German market? What are the three most

CASE: E-610

DATE: 11/03/16

Ryan Kissick (MBA 2014); Robert A. Burgelman, Edmund W. Littlefield Professor of Management; and Robert

Siegel, Lecturer in Management, prepared this case as the basis for class discussion rather than to illustrate either

effective or ineffective handling of an administrative situation.

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AXEL SPRINGER IN 2016:

FROM TRANSFORMATION TO ACCELERATION?

Mathias Döpfner, chief executive officer (CEO) of Axel Springer SE, had successfully

transitioned the German publishing house through a major digital transformation in the world of

journalism. Given the massive disruption that had occurred over the previous two decades with

how people consumed news, this was no small feat. During this time, many newspapers,

magazines, and journals failed to keep up with the rapidly changing industry. Historically, print

advertising constituted the majority of revenue for large publishers. But the digital revolution in

journalism meant that print advertising revenues dropped precipitously. According to the

Newspaper Association of America, American print advertising revenues fell from $44.9 billion

in 2003 to $16.4 billion in 2014. 1 This downward trend in print advertising revenues happened

around the globe, with traditional publishers cutting thousands of jobs. And many publishers

were forced to declare bankruptcy during this period.

In spite of these industry headwinds, Axel Springer was thriving. As of the middle of 2016, the

company’s main newspaper, Bild, had a print circulation of close to 2 million and more than

340,000 digital subscribers, far more than competitor publications such as Süddeutsche Zeitung

and Frankfurter Allgemeine Zeitung. Axel Springer’s annual revenue had grown from €2.1

billion in 2009 to €3.3 billion in 2015 (see Exhibit 1 for Axel Springer’s historical revenue and

Exhibit 2 for Axel Springer’s historical EBITDA). In 2009, digital media constituted 21.2

percent of the company’s total revenue 2 ; in 2015, digital media constituted 61.7 percent of the

company’s total revenue (see Exhibit 3 for Axel Springer’s digital revenue as a percentage of

1 Dan Kennedy, “Print Is Dying, Digital Is No Savior: The Long, Ugly Decline of The Newspaper Business

Continues Apace,” WGHB News, January 26, 2016, http://news.wgbh.org/2016/01/26/local-news/print-dying-

digital-no-savior-long-ugly-decline-newspaper-business-continues (July 16, 2016). 2 “Axel Springer 2010 Annual Report,” Axel Springer, http://www.axelspringer.de/dl/431754/Annual_report_2010

_Axel_Springer_AG.pdf (July 16, 2016).

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Axel Springer in 2016: From Transformation to Acceleration? E-610

p. 2

total revenue over time and Exhibit 4 for Axel Springer’s digital EBITDA as a percentage of

total EBITDA over time). 3

Döpfner had transformed Axel Springer through a two-stage digital transformation strategy

process. Starting in 2006, Axel Springer first focused on organic growth and late-stage digital

acquisitions, which infused digitization into Axel Springer’s corporate culture. 4 In 2013, the

second stage centered around Döpfner’s mission to become “The Leading Digital Publisher”;

Axel Springer would be defined not by its distribution channels, but by its (content) brands and

services. 5

Having successfully transformed Axel Springer from a print-only company to a thriving print

and digital media conglomerate, Döpfner wanted to accelerate Axel Springer’s growth even

further. He believed that Axel Springer was well positioned to succeed not only in their core

German market, but also more broadly on the world stage. Through a series of strategic

initiatives and acquisitions, Döpfner felt confident that Axel Springer could engage consumers

far beyond Germany’s borders with content that spanned many languages.

Yet he knew this path to becoming a global media powerhouse would not be straightforward,

especially given the rapid changes occurring within the media and publishing realm. In a world

in which people were consuming content from a variety of sources—traditional print media and

digital news sources, such as social media, e-mail, news alerts, or mobile applications—Axel

Springer would continuously need to assess how it provided content to consumers as well as who

it considered competition.

Against this backdrop, Döpfner wondered how Axel Springer could sustain its powerful brands

and monetize its digital content. Companies such as Facebook, Twitter, and Snapchat, none of

which had been founded as traditional news companies, were on Döpfner’s radar. Döpfner

elaborated:

My number one priority [as of 2016] is to define the rules with social media

companies. Millions of people are consuming content on Facebook and other

social media platforms, and it’s important that we take a fair share of the business,

including data access and advertising revenues. It’s also critical that we maintain

sales of our own content and services, including subscription models. Social

media is the distribution of the future, and if we don’t figure out the right business

model—a way to monetize our digital content—we are in danger. 6

In addition to the threat posed by large technology and social media companies, Döpfner

wondered how Axel Springer could successfully enter foreign markets, including the United

3 “Axel Springer 2015 Annual Report,” Axel Springer, http://www.axelspringer.de/dl/22446733/Axel_Springer_

Annual_Report_2015.pdf (July 16, 2016). 4 For further information, see “Axel Springer in 2014: Strategic Leadership of the Digital Media Transformation,”

GSB No. E-522, p. 1. 5 Ibid.

6 Interview with Mathias Döpfner on September 22, 2016. All quotations are from this interview unless otherwise

noted.

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Axel Springer in 2016: From Transformation to Acceleration? E-610

p. 3

States. Axel Springer had established itself as a leader in the German media market, yet Döpfner

knew that success outside of Germany was an entirely different challenge with a new set of

competitors and consumer tastes.

Finally, in an increasingly complex and global media industry, Döpfner wondered how Axel

Springer could continue to provide value to its many business units and subsidiaries. He

explained:

Throughout Axel Springer’s digital transformation, it’s been important to make

sure that we are one company with one set of fundamental values and some

cultural common denominators that make people say, “I’m proud to be part of

Axel Springer.” Yet it’s also important to make sure that we’re structured in a

way that creates the most value for Axel Springer, whether that’s bringing worlds

together or instead creating clearly delineated power centers. For me, this is

always a tough question and top priority.

By the end of 2016, Döpfner was thrilled with Axel Springer’s progress over the past decade and

optimistic about the company’s prospects of becoming a global and digitally focused company,

yet he knew that navigating this complex environment would require overcoming many

challenges. Adding to Axel Springer’s urgency were vast declines in print advertising revenue;

global spending on newspaper print ads was expected to decrease by 8.7 percent in 2016, which

would be the largest drop since the global recession in 2008. 7 With these massive industry

headwinds, Döpfner needed to figure out how to monetize Axel Springer’s digital content on a

grand scale, and quickly.

TURNING DISRUPTIVE INTO SUSTAINING TECHNOLOGICAL CHANGE

The Evolution of Journalism in a Digital Era

Near the end of the 20th century, new technology began to change the landscape of media and

journalism across the world. The evolution occurred primarily due to the proliferation of

personal computers and increased access to the Internet, then continued in the 2000s with the

emergence of smartphones. 8 Prior to this digital revolution, most publishing houses operated

through a similar business model. They generated editorial content through employed

journalists, aggregated reach, and monetized the printed content through sales, advertising, and

classified revenues. 9 However, the raft of technological innovations drastically shifted this

traditional model, resulting in new media distribution strategies and vastly different consumer

preferences.

Using their smartphones, tablets, or personal computers, consumers could access news and

media content from anywhere they liked (see Exhibit 5 for a summary of where Americans

7 Suzanne Vranica and Jack Marshall, “Plummeting Newspaper Ad Revenue Sparks New Wave of Changes,” The

Wall Street Journal, October 20, 2016, http://www.wsj.com/articles/plummeting-newspaper-ad-revenue-sparks-

new-wave-of-changes-1476955801 (October 21, 2016). 8 Ibid.

9 Ibid.

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Axel Springer in 2016: From Transformation to Acceleration? E-610

p. 4

received their news content from 1991 to 2012). Consumers could browse media content on a

variety of channels, such as dedicated news websites, search engines, mobile applications, blogs,

and social media, many of which were free for consumers to access (see Exhibit 6 for data

relating to global trends in news consumption). Content was also available in a variety of

formats, including text, pictures, and videos, all of which could be accessed at the click of a

button. The ubiquity of news content allowed for a new type of news aggregator, such as the

Huffington Post, which collected content from across the Internet and then monetized the content

without having to generate the content themselves. Technology companies, including Apple and

Samsung, also began to include native news aggregator applications on their mobile devices.

In addition, many sites allowed non-journalists to contribute content, many of whom were not

paid by the corporation. For example, in the early 2010s, Forbes developed a platform whereby

thousands of individuals—business leaders, authors, academics, and other topic experts—could

contribute content on the Forbes.com website, without serving as full-time employees. 10

Using

the contributor model, companies could generate new content at a much lower cost, and they

could vastly increase the number of contributors publishing on their platform. 11

The rise of social media also played a dramatic role in the digital revolution of media and

journalism. Instead of simply absorbing media, consumers were actively involved in the creation

and distribution of content. Social media platforms allowed users to share stories publicly and

see what their friends were reading or watching. More and more companies incorporated social

media features into their media distribution, encouraging users to share and comment on news

stories. In this way, news shifted from a private read to a communal experience. Social media

also drove a shift towards the personalization of news content, in which consumers could access

media specifically targeted to their unique preferences. For example, Facebook’s proprietary

news feed algorithm ensured that users were shown only the content that mattered most to them

while filtering out the material that was of less importance. 12

Axel Springer’s History: The Early Years

Axel Springer was founded in Hamburg, Germany in 1946. Publisher Hinrich Springer and his

son Axel created the company as a means to bring popular content to the German people. 13

By

1959, Axel Springer had established itself as one of the major players in the German industry

with several popular publications including Nordwestdeutsche Hefte, Hörzu, Hamburger

Abendblatt, Bild, Die Welt, and Berliner Morgenpost. These offerings spanned a variety of

genres, including news, popular culture, and political commentary.

10

Lewis DVorkin, “Inside Forbes: In Journalism, What’s New Is Actually Old… and ‘That’s the Way It Is,’”

Forbes, May 29, 2012, http://www.forbes.com/sites/lewisdvorkin/2012/05/29/inside-forbes-in-journalism-whats-

new-is-actually-old-and-thats-the-way-it-is/#2683f8ac359f (August 2, 2016). 11

Jeff Sonderman, “What the Forbes Model of Contributed Content Means for Journalism,” Poynter, May 29, 2012,

http://www.poynter.org/2012/what-the-forbes-model-of-contributed-content-means-for-journalism/173743/

(August 2, 2016). 12

Victor Luckerson, “Here’s How Facebook’s News Feed Actually Works,” Time, July 9, 2015,

http://time.com/3950525/facebook-news-feed-algorithm/ (July 17, 2016). 13

For further information, see “Axel Springer in 2014: Strategic Leadership of the Digital Media Transformation,”

GSB No. E-522, p. 2.

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Axel Springer in 2016: From Transformation to Acceleration? E-610

p. 5

Throughout the next few decades, Axel Springer expanded its reach to attract an even broader

audience, developing a portfolio of magazines for sports, automobile, photography, and

international art enthusiasts. By the 1990s, Axel Springer’s publications had distribution in more

than 20 countries around the globe, and the company had established a presence in radio as well

as television. 14

Digital Evolution at Axel Springer

When Mathias Döpfner became CEO of Axel Springer in January 2002, he had a clear vision for

the company: Axel Springer would be the winner of digitalization in the European media

business. 15

In January 2006, however, Germany’s antitrust body blocked Axel Springer’s

attempt to acquire Germany’s biggest television broadcaster, ProSiebenSat.1, which prompted

Döpfner to reconsider Axel Springer’s digital strategy. 16

Turning his attention to online

channels, Döpfner challenged Axel Springer to generate half of its revenue and profit from

digital products within the next 10 years. This was a tall task given that less than 1 percent of the

company’s revenue came from digital products in 2006. 17

Yet, Axel Springer was able to achieve these goals by focusing on three success factors: not

fearing self-cannibalization from print to digital divisions; accepting diverse and entrepreneurial

personalities; and not allowing the creation of silos within Axel Springer. 18

Döpfner did not

want winners or losers to emerge within the organization; as such, he infused a digital culture

within each of Axel Springer’s three key business segments: classified advertisements,

marketing, and paid content. The classified advertisement segment generated revenue primarily

through job, car, and real estate advertisements. The marketing segment earned revenue from its

advertising clients, whereas the paid content segment generated revenue through paid readers

and viewers. As of 2015, the classified advertisement segment comprised 23 percent of Axel

Springer’s revenue, while marketing and paid content made up 27 percent and 48 percent,

respectively. 19

With employees singularly focused on what was best for the company as a whole, Axel Springer

was able to recognize unique opportunities for growth that blended the worlds of digital and

print. Ulf Poschardt, editor-in-chief of Axel Springer’s WeltN24, explained the company’s

unified approach: “A few years ago, I started a blog on Porsche. It started as a personal side

project, but it quickly became very popular with thousands of readers. So we decided to create

official digital and print products focused on Porsche, and advertisers came to us immediately.

This is just one small example, but it shows the integrated way that we looked at new

opportunities.” 20

14

Ibid, p. 3. 15

Ibid, p. 7. 16

Ibid, p. 7. 17

Ibid, p. 8. 18

Ibid, p. 8. 19

“Axel Springer 2015 Annual Report,” Axel Springer, http://www.axelspringer.de/dl/22446733/Axel_Springer_

Annual_Report_2015.pdf (July 16, 2016). 20

Interview with Ulf Poschardt on September 22, 2016. All quotations are from this interview unless otherwise

noted.

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Axel Springer in 2016: From Transformation to Acceleration? E-610

p. 6

Pioneers in Paid Digital Content

Döpfner knew that Axel Springer’s digital evolution would require much more than simply

moving content from print format to the Internet. The company had to experiment with new

distribution and monetization models, partnerships, and content solutions. Jan Bayer, president,

Paid Models, and member of the company’s Executive Board, explained Axel Springer’s

pioneering attitude in its digital endeavors:

When we introduced a paid component to our digital products in Germany, we

expected the other publishers to do the same. We were convinced that journalism

could only be a viable business if people paid for it. It’s not possible to finance a

newsroom and a worldwide network of correspondents with advertising only. At

least that’s the case in a comparably small market like Germany, where language

differences pose a natural barrier for reach. In the end, we were the only

publisher in Germany to introduce paid content. Obviously, there was a risk. If

you are the only one offering paid content, free content is your biggest

competitor. But we trusted that we had a premium product—something that

people would be willing to pay for. We were proved right. Eventually other

publishers followed the same path. 21

One of Axel Springer’s first digital solutions, iKiosk, was released on December 12, 2011. 22

Ulrich Schmitz, chief technical officer (CTO) of Axel Springer’s Electronic Media Division,

described the product: “iKiosk is a distribution platform for full newspaper and magazine

editions, but in PDF format. It started with our own publications, and step-by-step we added

almost the entire German market on iKiosk. Almost every major publication is now on iKiosk.

Essentially, people could pay to get the entire edition of the publication they wanted. It was a

natural transition from print.” 23

Less than three years later, Axel Springer, in conjunction with the New York Times, invested €3

million in the Dutch start-up Blendle, a company that described itself as the “iTunes for

journalism.” 24

Whereas iKiosk only allowed users to purchase the entire edition of a publication,

Blendle allowed users to pay on a per-article basis. Döpfner explained the investment, “As a </p

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