Managing Director & Partner
Value creation in the media industry depends on one’s perspective. In China, small-cap companies are the shooting stars, feeding that nation’s appetite for online activities and entertainment. At the same time, the US internet giants are driving massive value creation. In the traditional media space, however, companies are addressing declines in their legacy businesses and the need for transformation with varying levels of urgency.
Chinese companies hold six of the top ten spots in the media industry’s league table for the period from 2011 through 2015. (See Exhibit 1.) These predominantly small-cap stocks have benefited from the rapid rise in online penetration, mobile usage, and consumer adoption. Number one, Leshi Internet Information and Technology, has aggressively expanded into online content, applications, and devices, launching a brand of fast-selling smartphones in 2015. Number two, East Money, and number four, Hithink RoyalFlush Information Network, providers of online financial and trading information, have profited from the growth of the middle class and investor sophistication. For seven of the top ten companies, sales growth was the largest contributor to TSR.
Few traditional print publishers have made the transition to digital as successfully as Axel Springer, Germany’s largest newspaper publisher. With circulation and ad revenues of the print business declining, Axel Springer placed bets on online content, online classified and marketplaces, and digital marketing. The publisher, for example, bought Business Insider, a US online news outlet, and eMarketer, a media analytics firm, and acquired minority stakes in Thrillist Media, a lifestyle digital outlet for millennials, and in Airbnb. To help pay for these acquisitions, the company sold off regional newspapers and magazines and restructured. Also, it has relied on predictive analytics to control costs and manage sales risk.
The digital portion of Axel Springer’s revenues climbed to 62% in 2015, and its stock price has risen by around 40% since 2013.
Culturally, Axel Springer has eliminated the operational distinction between digital and print and encouraged executives to take more risks—and be willing to fail. In 2012, Mathias Döpfner, chief executive, sent three senior executives to live in Silicon Valley for nine months to learn from its startup culture.