On the internet, content may be king but connecting users is the key to building an empire. The Norwegian media giant Schibsted learned this lesson the hard way, and then used it to thrive in an online news market where many others have failed. Through the lens of his new book, The Content Trap, professor Bharat Anand discusses Schibsted’s resounding success, how bringing users together drives revenue, and the importance of media companies adopting a digital-first approach.
November 23, 2016 by Bharat N. Anand
Brian Kenny: The newspaper business just ain’t what it used to be. It doesn’t seem to be getting any better. According to Pew Center Research, weekday circulation for US papers fell 7 percent in 2015, and Sunday circulation fell 4 percent, both showing their greatest declines since 2010. At the same time, advertising revenue fell nearly 8 percent from 2014 to 2015. There’s even a website, Newspaper Death Watch, launched in 2007, that chronicles the closure of newspapers in the US. It lists hundreds of titles that are no longer in circulation. It’s no coincidence that these declines roughly parallel the rise and prevalence of smartphones and tablets, but does this mean game over for newspapers, as Rupert Murdoch predicted in 2010? Or does it mean that only the most adaptable news organizations will survive? Today, we’ll hear from Professor Bharat Anand about his case entitled “Schibsted.” I’m your host, Brian Kenny, and you’re listening to Cold Call.
Bharat Anand examines competition in information goods markets, with a primary focus on media and entertainment. He’s also the faculty chair of HBX, Harvard Business School’s online education platform, and the author of The Content Trap: A Strategist’s Guide to Digital Change, which is a very appropriate topic, given the case that we’re about to discuss here. Bharat, welcome.
Bharat Anand: Thank you, Brian.
Kenny: Tell us, how did the case start? Who’s the protagonist, and what’s the challenge?
Anand: The case is set a few years ago. The CEO was Kjell Aamot. The current CEO is Rolv Erik Ryssdal. In many ways, the challenge that Mr. Aamot was facing is a challenge that Mr. Ryssdal, or any number of CEOs of newspapers, might be facing today. There’s a longer-term challenge, which is: how do you manage the transition of a news organization online? That story obviously is still playing out. There was a near-term question. The question that Schibsted management had to confront was: should they allow Google to crawl their websites or not? That’s a question that obviously remains relevant today, in a slightly different form, as newspapers, for example, debate whether to allow other aggregators like Facebook to access their content at given terms. It’s a real dilemma.
Kenny: This is kind of your area of expertise. What prompted you to focus on Schibsted?
Anand: I’d been teaching media and digital strategy for several years, partly in the context of the second-year MBA course I was teaching here at Harvard Business School, Corporate Strategy. I was always on the lookout for interesting cases. Companies that have gone beyond the pale, companies that are trying to innovate, companies that have done interesting things, not just in the US but around the world. About a decade ago, there was a cover story by The Economist on newspapers. Schibsted was profiled quite importantly in that story, so that caught my attention. Literally around the same time, a former student of mine who had taken the Corporate Strategy course reached out to me. He sent me an email, and said, “Professor Anand, I know you’re always on the lookout for some interesting cases. Here’s this company in Norway which I know about because I just helped them do a deal. They seem very interesting. You might want to think about looking at them.” It intrigued me, and I started doing a little more research.
Kenny: One of the things that I really enjoyed about the case was this sort of sweeping history that you give of the newspaper business, which I found very interesting. I’d like you to revisit that a little bit with us.
Anand: News, in some sense, goes back a long way. In the case, we talk about newsletters going back to the days of Caesar, when you had handwritten gazettes, distributing official political and social news, for contexts involving gladiatorial contests, to military campaigns.
Kenny: The sports page, right?
Anand: Yes. Then, of course, there were several key moments in the history of newspapers over the last 300 years. There was first Gutenberg and the printing press, which allowed the mass production of news. It was first weekly, and then later daily. During the American Revolution, newsletters played an important role, in particular The Boston Newsletter, as it was called. As newspapers became more influential, questions immediately arose regarding freedom of the press. Sweden was one of the first countries in the mid-1700s to pass a law protecting the press, and the US followed suit.
Then, there was the introduction of the telegraph, in the mid-1800s, which was very interesting because in some sense it’s almost the analog of what’s happening today. It was viewed as an opportunity and a threat by newspapers. Six newspapers get together in the New York area to share the cost of telegraphic reports. That came to be known as the Associated Press. Early twentieth century, you had commercial advertising becoming more common. News shifted from more local to a wider reach. Because they now had a revenue stream, it shifted also, not just from political news to more entertaining news. You had penny papers. Then, you had a period of consolidation in the mid-twentieth century.
Kenny: At some point along that journey, it became more than just a source of information. It became a business, and it developed a business model. There was no turning back once that shift happened.
Anand: That’s right. Advertising was obviously critical in this whole process, because you shifted from essentially news organizations getting political patronage, to now having an independent revenue stream.
Kenny: I’d like to talk specifically about Schibsted and how they started. They were around for a long time and saw many of these changes firsthand.
Anand: Yes. They started about 170 years ago. It was a family-run company. They had a newspaper called Aftenposten, which was their flagship paper. The translation of that is “afternoon post.” Around the time of the Second World War, there was another newspaper in Norway called Verdans Gang, VG, started by resistant records. After the war, VG experienced a bit of trouble, was acquired by Schibsted, who now had two newspapers. Both with pretty different cultures, pretty different views. In the early 1990s, Schibsted goes public. That obviously marked a turning point for the company. Around the same time, the last family CEO, whose name was Tinius Nagell-Erichsen, created what’s now called the Tinius Trust, which had a major ownership stake in Schibsted. But one of the things that they were trying to do was also protect the independence of the newspaper. This combination of sort of going public as well as safeguarding the long term ownership interest through voiding shares essentially turns out to play a critical role in what comes afterwards.
Kenny: It was also around that time that they, themselves, had a turning point. They made some careful strategic choices that propelled them to a different level. Can you talk about those?
Anand: There were a few interesting events that took place in the early 1990s. Management gets together and tries to figure out what the impact is of the internet on the news business. There was a recognition within Schibsted that this might severely impact all the revenue streams, circulation, advertising. There was a feeling that, “We don’t want to be the dinosaurs anymore. We are the new dinosaurs, in a sense. What can we do to get beyond that position?” There was that recognition that there’s something big happening. The second is intention. They decided to take aggressive positions in the online market to deliver growth. This is partly triggered by the fact that they are a public company now, so they have to deliver growth to their shareholders. The third was an organizational decision, which is they decide in part to build up many of these online initiatives outside the traditional newspaper.
Kenny: Things were good for a while, until roughly around 2001, when we all know that the internet bubble burst, and a lot of businesses faced a reckoning.
Anand: Yes. They engage in many new initiatives, many investments during the period of the 90s: an online news initiative, an online classifieds site, a search engine, a portal, a free paper. As you said, Brian, 2000, 2001 was a turning point not just for Schibsted, for the entire industry. Huge losses for the newspaper business, partly because they realized that advertising revenue streams, which they had hoped would really be a major source of revenue online, turns out to dry up. Most newspaper retrench, cut back investments. That’s what the shareholders, in fact, were urging them to do. Schibsted decides to invest more. This was important because they incurred even greater losses than many other newspapers. It was a crisis in the management and boardrooms. The board, by the acknowledgment of Kjell Aamot, had lost trust. Most of them were of the opinion that Aamot should resign.
Kenny: Those were dark days, obviously, for him in particular, but what was the move that they made that helped to turn things around?
Anand: It’s very interesting. At this point, they had started investing in online classifieds. Now, online classifieds, classifieds in general, account for about 40 percent of the revenue for a typical newspaper.
Brian: That’s remarkable.
Anand: Probably more than half the profits, because all you need is a sales force. The way they had started this initiative was interesting. They had gotten together with several other newspapers in Norway, and were of the opinion that before we actually create an online classifieds site, we needed to have trust with readers. How do we get trust? We get it from the print brand. Several newspapers across Norway first create a brand called Fin, which they then take online. The idea was to go national. The dot com bubble burst, most of the other newspapers feel there’s no future. They essentially reallocate the ownership shares in the online classifieds site, in Fin, which turned out to be one of the best things that happened for them.
They go online, they start seeing some nice growth, and that’s when they actually got scared. Part of the reason is, this was the first time they actually recognized clearly that classifieds is what we might call a “winner take all” market. You don’t compete neck and neck with your competitors for 35 versus 40 percent share. If you win in classifieds, you win the entire market. Part of the reason is it has this very interesting dynamic that we often refer to as feedback loops. If you think about the simple question, “Which classifieds site do you go to?” You’d go to the site where there’s the most sellers, the most advertisers. Where do the advertisers list? Where there’s the most buyers. More buyers, more sellers, more sellers, more buyers. If you win classifieds, you win the entire game. That’s when they recognized that there are some pure-play verticals that are growing pretty nicely as well, and this is not going to be the end game, where you have four players all giving up share. That’s when they start investing more aggressively.
Kenny: The other area that you address in the case, and this addresses the topic of your book as well, are the sort of challenges that they faced in bringing news online, and content online. Different than the kind of decisions that they make editorially with the paper. Can you talk about that?
Anand: There’s an organizational challenge to begin with, which is, “How do we create an online news site where we can borrow the content from print?” Which is the natural way to create it. There’s always a concern about, “What’s the price point at which we’re giving away news online?” There’s this classic cannibalization concern, which exists not just for news, but for classifieds, and frankly for almost any business that we encounter today. That’s the first challenge. The second is a challenge of mindset, which is in the early days everyone viewed the internet as essentially a distribution channel for news. Just make content, and just put it out there. This is about the time when they start realizing that we can do much more than this, that this is not just a channel of distribution. We can actually use technology in a way to even change the way we present news.
That mindset ends up being central to virtually everything they do afterwards. I’ll just give you some examples in terms of how it plays out. If you go to the Schibsted news sites today, for Aftenposten or VG, you see a few things that are quite interesting. The first thing you see is, there’s almost only pictures. There’s bold font. There’s almost no text. By the way, the story of how this starts is also somewhat interesting. One of their first hires was a photographer. He was coming from VG print. His name is Espen Egil Hansen. He’s today the Editor in Chief of Aftenposten. He says, “Wow. This is fantastic. I can just put pictures here.” Now, they start putting pictures, and as they start putting the more recent pictures, they’re just pushing the older pictures down to the bottom of the screen. The screen size gets longer and longer, and again, if you go to the websites, you’ll see that the length of the page is much, much, much longer than the page of almost any news site today. That happened almost by default. They didn’t have an IT team that was essentially taking the stories and nicely allocating it on different pages. The Editor in Chief, Tori Petersen, walks in and basically says, “What’s going on? This looks crazy.” They then shorten the page to make it more in line with other sites, and they find that traffic drops. They then run some experiments, and what they find is people like to click through, but they like even more to browse. It’s very interesting because today we now see infinite scroll in pages like Facebook and LinkedIn and so on. This was one of the first news sites which actually starts this.
Kenny: That’s mobile devices that really rely on that infinite scroll, too, so they were ahead in that game.
Anand: There are many other changes that they make as well. Again, part of this comes from hiring people who have no legacy or experience in newspapers. They’re just trying different things on the internet. One of them is, if you scroll down any screen on the VG or Aftenposten websites, you won’t see neat sections. “Here’s a politics story. Here’s a world news story. Here’s a local story.” You’ll see a mix up of different stories. Travel, culture, sports, politics. Again, sort of makes you go back and think about this idea of sections. Why did we have sections in newspapers? Part of the reason we had sections was essentially a coordination problem. You give the editors in charge of sports, and travel, and metro, and politics responsibility to come up with the different pages from their teams, and then you put them together. It turns out on the internet, you don’t need sections. You can move stories around almost seamlessly. Their idea is, “In every screen, we want something for everyone.” That’s part of the reason why they end up with the format they do.
Then, of course, you have interactivity, which is users could upload images, content, stories themselves. If you start looking at this, there’s a phrase that we now use a lot, which is being “digital first.” How can you actually take the internet, and new technologies, and not just use it as a distribution channel, but actually reimagine your content or your product? They exemplified this mindset. There’s the second tension that they talk about in the case, about trying to borrow content or assets from the print organization, but at the same time trying to forget certain habits. That tension really, again, is something that’s central, not just to Schibsted, but almost any organization today.
Kenny: How is that working out culturally at Schibsted? Is there a feeling of competition between these two groups, or do they see each other as interlocked?
Anand: That’s a great question, Brian. In the early days, the online sites essentially report to print. That turns out to be challenging because they have not proven themselves. There’s the fear of cannibalization. They then spin these online news sites and classified sites off. Probably the most important function that happened during that spin-off period was what happened in HR. You’re hiring people with, again, almost no experience in the legacy business. You can try new things. That’s what fundamentally changes the culture. They then, after a while, start reintegrating, after the online sites have proven themselves. At the same time, one has to be careful, because many other newspapers have tried this reintegration, and it hasn’t worked. You get completely consumed by print again.
There’s a few things that help them. One, these sites are actually taking off because they had invested early. They’re actually proving that they can generate revenue…lots of revenue. The second is, in effect, they had a dotted line to the corporate center, meaning decision rights on what to do or what not to do rested with corporate, not with Aftenposten or VG print. The third is, you had internal competition. You had VG, for instance, being very aggressive online. That starts affecting the culture in the Aftenposten newsroom.
Kenny: Can we go back to that notion, then, in the book about recognizing and managing connections across users? Does that apply to what Schibsted is doing?
Anand: Yes. One of the main concepts that I talk about in the book is this tension between content and connections. As you mentioned, the title of the book is The Content Trap. One of the important traps is this mindset that companies, media companies and in fact, many companies have, that somehow the answer to try to succeed in a digital world, where there’s product clutter, is to produce even better content. This idea that somehow the best content will save us, or that’s the route to success. That often turns out to be wrong. Part of the reason is, as I point out in the book, in digital worlds, connectedness is a central feature of behavior. It’s something that we take for granted, but it turns out to have huge implications. In the case of Schibsted, there’s at least two ways this plays out. One, obviously, in classifieds. Classifieds is what you might refer to as a connected product. There’s connections between buyers and sellers. That’s essentially what drives success.
They first recognize this: that it’s actually the connected product that sits in the center of a newspaper’s success, financial success. Not just the content we produce in the newsroom. That idea then translates into the culture of the newsroom. The question they ask today when covering almost any major event is not, “What’s the best story we can put out?” But “How can we help readers help each other?” There was a very interesting example of that a few years ago. You had this volcanic ash crisis. Originated in Iceland, spreads over Norway and then all of Scandinavia and Europe. Air travel is disrupted. The most popular form of content that was put out on their websites had almost nothing to do with the volcano itself. You might think it’s about pictures of the volcano, or health implications. No. Air travel was disrupted. People’s one question was, “How do we get from point A to point B?” They start sharing messages and information, and Schibsted essentially creates an app within seven hours which allows people to communicate. That turns out to be the most popular thing. This comes back to this idea of connections, right? It’s all about user connections, and how do you tap into it, recognize it, exploit it?
Kenny: That’s great. You’ve discussed this in class. I’m curious about what kind of reaction you get from students when you talk about the case.
Anand: There’s probably two or three kinds of reactions. The first is sort of surprise that they invest so aggressively at a point when the rest of the industry is retrenching. When you dig into that decision a little more, you realize that it wasn’t just about beliefs and assumptions. Oftentimes when we think about corporate change, we rush to a solution. If you haven’t diagnosed the problem right, it doesn’t matter how smart we are. You might be barking up the wrong tree.
It’s a very sobering question about trying to make sure we actually even get the problem right. What is the problem you’re trying to solve? There’s this second principle, or tension, that comes out of the case quite clearly: how do you make sure you can innovate, but at the same time do it in a way that borrows certain assets? If all you’re doing is just setting up a startup venture far away from your core business, you’re no different than a garage entrepreneur. There’s nothing that says you’re going to succeed any better than them. The third really has to do with this idea of looking ahead, as opposed to looking backwards. The financials of most newspapers in the early 2000s did not indicate there was a crisis coming. That’s one of the big lessons about corporate change, which is if you wait for the problem to show up in your financials, it’s often too late.
Kenny: It’s too late. Yeah.
Anand: How do you do that while still trying to preserve what you have going for you? Frankly, it’s a case that many CEOs, many leaders, many managers, entrepreneurs often describe as inspiring for them, to think about new ways of doing business. It’s affected us as well, frankly, at Harvard Business School. It has deeply influenced my own thinking around change in the digital world, and being quote-unquote “digital first.” It did influence some of the choices we made in HBX as well.
Kenny: That’s fabulous. Bharat, thank you for joining me today.
Anand: Thank you so much, Brian.
Kenny: You can find the Schibsted case, along with thousands of others in the Harvard Business School case collection at HBR.org. I’m Brian Kenny. Thanks for listening to Cold Call, the official podcast of Harvard Business School.
Henry R. Byers Professor of Business Administration