Shall I shoot myself in the foot?...

How should Edipresse, the publisher of conventional newspapers and magazines, face the competition from free dailies for advertising revenues needed by its daily Lausanne newspaper Le Matin?

New low-cost competition is about as popular with managers as a stoned android knocking at the door. But at the end of the day, it has to be faced. Such was the situation of Theo Bouchat, the head of Le Matin, the leading paid-for daily newspaper in Lausanne. Le Matin is published by Edipresse, one of Switzerland's  top  publishers, with activities in both newspapers and magazines. The challenge to it came in the form of the appearance on scene of a new breed of newspapers, ones that are not paid for but are distributed for free.

Switzerland is known as a difficult – because saturated – media market. The Swiss read voraciously, eagerly view television and the proportion of them that is connected to the Internet is relatively large, at least for Europe. That puts advertisers in the position of being able to place their ads elsewhere than just in newspapers. Even so, this had not dissuaded Norwegian free press (the kind that distributes newspapers without charging) behemoth Schibsted from launching its Zurich flagship daily, 20 Minutes, in December 1999. Global free press leader Metro, from neighboring Sweden, did not take this sitting down, and launched its own Metro edition for Zurich in January 2000, just one month later.  Both publishers then quickly expanded to other German-speaking cities in Switzerland: Bern, Luzern, Basel, and St Gallen.

That positioned a formidable threat at the doorstep of Le Matin's Theo Bouchat. The way he faced it was investigated by Professors Costas Markides and Daniel Oyon and what follows is a review of their recently published case study.

Traditional newspapers benefit from two revenue streams, advertising and circulation. Circulation is via both newsstand (single-copy) sales, and subscription (postal delivery or home delivery). Free dailies operate on thin ice, since they forfeit all circulation revenues in the belief that free distribution will garner a larger readership, and thus lure advertisers.

Free newspapers have existed in Europe since 1962, but saw strong development via the geographic expansion of the Metro and 20 Minutes models. These were implanted into large metropolitan areas, starting in 1995, in Northern Europe. Metro belongs to the eponymous Metro Group of Sweden, whereas 20 Minutes belongs to Schibsted, of Norway. See chart for comparative financials.

For a free daily to succeed, it must deliver a suitable audience to advertisers. Most free dailies in the various European capitals focus on a younger target group, since traditional dailies often do not click with this sort of buyer. Free dailies discovered that younger readers ride public transportation, and prefer lighter editorial fare for consumption during their morning commute to work. The freebies serve up short articles, few opinion or analytical pieces, and instead provide a flood of entertainment and lifestyle. Using this editorial mix, the free dailies have been able to capture sufficient readers to lure advertisers.

This limns out the situation that came to cause Bouchat distress. Conventional Swiss newspapers, like his Le Matin, had enjoyed  long runs of healthy profits while on a protected track, protected in the sense that  the launch of a daily newspaper requires a hefty investment, usually well above $50 million. But now Bouchat was confronting up-and-running freebies and the question posed him was, how to respond?

Taking a deep breath, we now undertake to face his problem in an orderly manner. As a first step, please consult our chart, accompanying, for a listing of possible reactions. It will be inferred from the chart that the problem we face is in the nature of a zero-sum game competition. The strategic choices are all difficult since their impact on the bottom line will certainly be negative – at least in the short and medium terms. So now, at the end of the day, the problem may be posed thus: How does a company shoot itself in the foot in the least painful way?

Case Reference: ECCH 309-003-1; London Business School; C. Markides, D. Oyon, L. Winig