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The Norwegian company's bold transition to the Web is now a model for media groups around the world

OSLO - On December 1, Schibsted officially took over Leboncoin, a French online gem specialized in classified ads. Already a Leboncoin shareholder, the Oslo-based media group put down another 200 million euros, including 140 million in cash, to buy the company outright. A nice deal indeed for the 30-person French start-up with an annual turnover of 40 million euros.

This pricey buyout of Leboncoin is emblematic of Schibsted's strategy. For the past several years, the Norwegian company has been a model for media groups around the world. "It is looking toward the future and isn't afraid to invest outside its traditional activities," explains Peter M. Zollman, founder of the Miami-based consulting firm, AIM Group.

Like many other media groups, Schibsted began as a simple newspaper company. Founded in 1849, it grew out of the , still a leading Norwegian daily. Since then, it has bought the tabloid VG, the top-selling paper in Norway with a daily circulation of 260,000; expanded to Sweden, where it owns the best-selling daily Aftonbladet (350,000 copies); and has since moved southward to the rest of Europe; and beyond. Today, Schibsted employs 7,500 people in 26 countries.

Going digital

But the real reason the Oslo group is increasingly used as a model, is its standout success transitioning to the Web. Its digital activities are currently valued at 425 million euros, accounting for 29% of the group's total turnover (1.46 billion euros in 2009), the highest proportion for any major group from the so-called "legacy" media. Moreover, Schibsted's online activity is also extremely profitable: having generated 59% of its 95 million euros in earning last year.

Has Schibsted found the winning formula that CEOs are so desperately looking for at this transformative moment in the media business? Its strategy is based on two elements: reinforcing its leading newspapers' websites and developing a strong online classified ads section. It is a vision that began several years ago: Kjell Aamot, the visionary and charismatic CEO (who gave his position to Rolv Erik Ryssdal at the beginning of the year), understood early on the revolution that the Internet would bring. The group's leading papers like VG launched their websites as early as 1995.

"We started early. In 2000 we created a separate company in order to be more mobile and responsive. We didn't downsize during the 2001 crisis, nor in 2009 for that matter," explains Torry Pedersen, VG"s Executive officer. The tabloid's website is today by far the industry leader in Norway with 3,7 million unique visitors a week. Not bad for a country of 4.8 million residents! It became profitable in 2003 and generated 36 million euros in revenue last year.

The recipe for success is not necessarily about the amounts that are invested, which according the VG"s boss "aren't huge, just a few million euros." It has more to do with making yourself essential – without fear of cannibalizing the newspaper. "If Norwegians think something important is going on, they have to go to VG Nett," says Pedersen.

As an example of its agility, during the eruption of the Islandic volcano in April, VG Nett set up a hitchhiking system in the span of just seven hours. "This initiative allowed thousands of Norwegians to go home," he says. VG Nett also figured out early how to charge for some of its services, like transmitting soccer games, subscribing to its dating site or its weight-loss groups (which brought in 200,000 clients). These activities represent 20% of VG Nett revenue. "We cannot copy newspapers' business model on the Web," he says. "You need multiple streams to create revenues."

An online yard sale

The other aspect of the Schibsted strategy looks equally promising and was also built step-by-step. The online classified ads section was launched in 2000 with the Norwegian website FINN. The website became instantly successful, again without fear of cannibalizing its newspapers where classifieds represented up to "30 or 40 % of revenue", says Ryssdal. In 2003, they bought the Swedish company Blocket, whose approach Schibsted then adapted everywhere possible following its two basic principles: proximity and extreme simplicity in using the ads.

"It's an online yard sale," says Olivier Aizac, the creator of Leboncoin, who used Blocket as a model. In November, Schibsted CEO Rolv Erik Ryssdal had to defend the high price paid for the French site: "We are very happy with this deal. Leboncoin is a real trend in France and its development potential is huge." The website, which was launched in 2006 gets four times as many hits as its top rival eBay, France (4.5 billion per month).

By now, Schibsted has launched "Baby Blocket" in 17 different markets. In 2006, it bought Trader Classified Media's activities in Western Europe and in Latin America. And it won't stop there. "We have launched seven Blocket clones this year, and there will be more next year," says Terje Seljeseth, Schibsted Classified Media's Executive Officer.

For now, this section only generated 300 million euros in turnover, "only" 21% of the group's total revenue. But it's the group's cash cow, accounting for more than half of its profits last year, with margins often exceeding 40%.

Schibsted wasn't spared by the financial crisis. In 2008, while ad markets were on a historic downfall, the group's financial results suffered. Investing, experimenting, taking risks also means exposing yourself to backlashes. The Sesam search engine, launched in 2005 and shut down in March 2009, cost about 60 million euros according to Arild Nysaether, a financial analyst for Fondsfinans in Oslo. But the crisis also highlighted another major asset of the group: its impressive reactivity. It didn't wait to start a important restructuring plan (closing its Segundamano classified ad papers in Spain, cutting 1,400 jobs), to give up its non strategic activities (television, databases), pushing for an increase in capital. As a result, Schibsted came out with record results this year, without giving up on the possibility of investing in forward-looking activities. At VG, the website's staff went from 50 to 100 in five years, while that of the print version dropped from 460 to 320.

Tablets of hope

But Schibsted can't afford to be complacent. Even though its newspapers are leaders in their market, they still represent about 70% of the revenue and are affected by the worldwide decline of press distribution. Even its Internet activities remain fragile. "Audiences can dwindle quickly, as we've seen with Nettby," says Arild Nysaether. Less than a year ago, the social network launched by VG had about 800,000 active users, or about a quarter of Norway's adult population. But it was crushed by Facebook in just a few months, so much so that VG decided to shut it down at the end of the year.

The group has started working on new ideas to keep monetizing its success. "We're thinking about how to make people pay for our online content; we don't believe in paywalls but we will try different models and subscriptions on the iPad," says Ryssdal. Like elsewhere, they are putting great hope in tablets and last week they launched paying iPad applications for VG and Aftonbladet. "In 2011, we will concentrate on cell phones, tablets and Web TV," says Pedersen.

It may not have won the war, but Schibsted is certainly ahead of the game. "Of all the media groups out there, it's the one with the best vision of the future," says Zollman. But don't go running to Oslo in search of miracles: Schibsted bosses are said to have stopped giving out their secrets to other media groups.

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