Axel Springer proves global intent with Politico deal

Axel Springer’s largest ever investment marks a milestone for the German publishing group’s bold but risky bid to become a digital media giant.

Politico, bought this week at a valuation some people familiar with the matter estimate at almost $1bn, is the latest in a series of US assets to be gobbled up by Springer. Another person close to the company said the valuation was lower, without specifying how much.

Since a 2014 joint venture with Politico that created Politico Europe, Springer has sought to expand within the US, buying newsletter business Morning Brew last year and Business Insider in 2015, while pursuing other targets including Axios.

This week’s deal is unlikely to be Springer’s last, according to people familiar with the company who say it will seek to press further into English-language markets or take Politico’s scoop-fuelled, insider style into more countries and languages.

“We are still at a very early phase of the development of digital journalism,” the company said. “Axel Springer aims to create the leading digital media publisher in the democratic world.”

Springer’s lofty global ambitions partly stem from defeat in a 2015 takeover battle for the Financial Times. After losing out to a last-minute bid from Japanese publisher Nikkei, chief executive Mathias Döpfner set up a venture capital arm to make bets on digital media start-ups based particularly in the US, taking minority stakes in companies including Thrillist and NowThis.

How the business now fares is a test of Döpfner’s argument that to survive in an increasingly competitive media landscape, the Springer empire will need to pursue investment and growth aggressively.

Two years after being taken private by KKR, little is known about the business’s finances. But its acquisitions make clear that Döpfner’s strategy is guiding Springer’s unusual trio of stakeholders. Döpfner and the founder’s 78-year-old widow Friede Springer each hold 22 per cent, with the chief executive exercising their combined voting rights. KKR owns the rest.

Under Döpfner the business has shed its local German newspapers as well as most of its media assets in eastern Europe. It retains two flagship German media businesses — Welt, a newspaper and television station, and Bild, the country’s biggest-selling daily.

“Mathias Döpfner is very ambitious,” said Sarah Simon, a media analyst at Berenberg, noting that Springer was one of the only traditional media companies to be succeeding in building a large, strong business. While much of its growth has come through acquisitions, she said, “they took the cash flow from the traditional print business and redeployed it in M&A, and they grew the digital business from there”.

Like several other global news organisations, Springer is attempting to shift from ad to subscription revenue, according to people familiar with the company. Its acquisition of Politico may therefore have to do with the US media company’s digital business model, which combines free content with a targeted product for paid subscribers. Subscription models are key for private equity companies that seek reliable sources of revenue.

“Springer is as much in search of growing its individual business as it is in search of business models and understanding of the digital economy,” said François Godard, a media specialist at Enders Analysis. “They must hope they can draw knowledge from [Politico] that they can draw to other parts of their business group.”

Welt’s attempt to combine video and newspaper readership failed, he argued, because website readers did not click on television clips featuring paid advertisements. Bild’s relative success, he said, still lagged behind Le Monde in France or The Times or the Telegraph in the UK in online subscriptions.

But Godard is sceptical of whether the group’s US moves will yield the results Springer seeks. It remained unclear, he said, whether the joint venture for Politico Europe had been successful.

Business Insider has grown rapidly under Springer’s stewardship, with the valuation of the digital news site founded by Henry Blodget rising almost fivefold to as much as $2bn. 

It has done so in part by learning from other content businesses, for example creating multiple online categories filled with special-interest content, a model known internally as “Netflix for news”.

There are no plans to merge Insider, Business Insider’s general news unit, and Politico, though they could potentially share ideas, a person close to the company said.

But the future ownership of Axel Springer remains unclear. KKR typically attempts an exit within five to 10 years. 

Berenberg’s Simon suspects the group may try to float the classified section of the company. Last year it tried to buy eBay’s classified business but lost out to rivals. 

“My guess would be that at some stage, if they can make the paid content business, ie the newspapers and the online stuff, big enough, they would probably separate the classifieds from that and have two separate entities,” she said. 

The news business was most likely going to remain private for years to come, said people briefed on the matter. Expansion away from the prying eyes of public shareholders is giving Döpfner the breathing space to plan for the longer term and set his sights on even bigger targets.