The Lemon Dealers

June 27, 2007 • Media Economics • by

Der Tagesspiegel, June 27, 2007

The Swiss print market is in turmoil: German news magazine Der Spiegel launches a new regional supplement in Switzerland, German publishing giant Springer buys Swiss TV guides, and a freebie has the largest circulation in the country.

There is something odd happening in the state of Switzerland. Only a few days ago, German news magazine Der Spiegel launched its first regional supplement, a 50-page review of Switzerland – an example for yet another German media giant reaching out to its neighbour’s small, but obviously lucrative print market. The time for this couldn’t have been better chosen, now that two of Spiegel’s direct Swiss competitors, news magazine Facts and weekly business paper Cash, have just ceased operation.

There are other indicators for the extreme seismic shift the Swiss media scene is experiencing at the moment, a situation that prompted Matthias Hagemann, publisher of Basler Zeitung, to speak of “an earthquake of magnitude 12”. At the end of May, Tamedia, publisher of Zurich’s largest daily newspaper (Tages-Anzeiger) und the largest free paper in Switzerland (20 Minuten), took over Espace group – owner of the two main papers appearing in Switzerland’s capital Bern, Berner Zeitung and Bund. Shortly afterwards, publishing house Ringier sold its TV guides to German publishers Springer and Bauer – not before, it is worth noticing, Ringier-owned tabloid Blick had launched a veritable campaign against “the Germans”, who were portrayed as secret invaders of their small southern neighbour. In addition, in the greater area of Zurich, the two local competitors that share the rule over this territory, the publishers of Neue Zürcher Zeitung (NZZ) and Tages-Anzeiger, are fighting a fierce battle for supremacy, either taking over one by one the last local papers that have preserved their independence, or fighting them by launching regional editions of their flagship titles. Since world-renowned NZZ has had its rude awakening caused by a catastrophic loss of readers, its new management has started modernising the paper, obviously realising that even they cannot keep their faithful readership happy just by offering first-class coverage of international affairs.

Upon careful analysis, there are two driving forces behind all this. On the one hand, Switzerland’s print media are undergoing an overdue process of concentration that gives foreign competitors the chance to make a bargain here and there. (Just keep in mind that while the city of Berlin, with its 3.4 million inhabitants, seems to consider its nine daily newspapers already as the ultimate in journalistic choice, the 4.8 million people living in German-speaking Switzerland still can choose among dozens of daily print titles.)

On the other hand, consumers seem to be increasingly less inclined to pay for their journalistic content. That is why the fiercely competitive segment of high-quality print products is currently witnessing such a struggle for survival. Cash and Facts are the first victims of this, but other quality titles, and countless regional papers, have already been hit hard by a truly dramatic decrease in circulation, losing their readers to the Internet, and probably forever.

Very much in contrast to this, free paper 20 Minuten has seen a truly meteoric rise, having become the title with the largest circulation in Switzerland, currently standing at 550,000, an all-time high reached only a few days ago. And because this very special segment of the print market is promising handsome profits indeed – in German-speaking Switzerland alone, advertising income reaches 120 million Swiss franks – others are jumping on the bandwagon, such as mid-day freebie heute and free business paper Cashdaily – which are already battling it out between them in Zurich and environs. Sacha Wigdorovits, former project manager of 20 Minuten who today works as a PR consultant, is preparing the launch of yet another free paper: .ch – a title with a planned circulation of a few hundred thousands, 70% of which are intended to reach their readers through direct home delivery. Whether this actually is going to happen remains to be seen, however, because so far, the success of the freebies has been mostly based on their “just in time” delivery – i.e. on the fact that they are available just when and where they come in most handy: at the stations and in the trains and buses, where people’s need to kill a few minutes is greatest.

At present, Tamedia is working on another free paper to complement its 20 Minuten. But even though advertisers obviously seem attracted to the format, it is still rather questionable whether the Swiss market could sustain two or even three additional titles. Kurt W. Zimmermann, columnist and former manager at Tamedia, compares the situation to boxing: “While the contender is certainly in a less favourable position, the current title holder has all the advantages.” Moreover, with this glut of free print titles the large publishing houses run the real risk of cannibalising their own quality products.

But why is it that so many people seem to be quite happy with these inferior brands of journalism? Mainly, because of the fact that the market for print products functions, at least partly, like a “market for lemons”. This is how US economist George A. Akerlof describes markets whose participants have only little information about the actual quality of the goods on offer – effectively removing quality from the set of competitive factors. On such markets, products tend towards inferior quality exactly because of this lack of information. As soon as the buyers realise this, however, their willingness to pay for such goods is greatly diminished – in the context of freebies meaning that they are less and less inclined to “invest” their reading time in the product. An effect that doesn’t go unnoticed by the sellers, of course, who have even less of an incentive to put higher-quality products on such a market, and so on. A downward spiral ensues which leaves buyers with only inferior products to choose from – the “lemons”.

What is surprising, at first glance at least, is the fact that it is Switzerland, of all places, which is acting as a kind of pioneer in the field of free papers – quite in contrast to the country’s tradition of solid, high-quality journalism. On closer inspection, however, the reason for this becomes clear: while in Germany the big publishing houses joined forces to nip the trend towards free papers in the bud, Tamedia, the most aggressive player in German-speaking Switzerland, has conquered the segment early on, strengthening its position ever since.

For the moment, therefore, it looks as if the small country of Switzerland will continue to serve as a laboratory for the media industry; one likely to be observed very carefully from abroad. The next trend, media expert Zimmermann is convinced, could be the launch of free Sunday papers – another segment that promises handsome profits. Two of those have been around in Switzerland for quite some time now, Il Mattino and Il Caffé. But since they are published in Southern Switzerland in Italian, so far they have been mostly overlooked by the media strategist in the German-speaking north.

Translation from German: Oliver Heinemann
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