Ouch! Metro goes from black to red

This is not pretty. Metro International, the chain that thought it knew everything about free dailies (heck, it claimed to have invented them -- 30 years after somebody else did), had a remarkable setback in the first quarter of this year. Metro has been gradually reducing its losses and reported a profit in the previous quarter, it's first profit since its founding in 1995. So it seemed that Metro was out of the woods, and the first large-scale free daily company was making money. Not so fast! In the first quarter of this year, Metro's loss was $14.3 million.

What were the causes? Parsing Metro's quartly financials, it appears:

• Metro Sweden lost some ad reps, and they took some accounts with them. "Inadequate management" was also to blame, Metro says.

• In Spain, where Metro faces a lot of competition from home-grown papers, advertisers are demanding lower rates.

• "The U.S. market underperformed our expectations due to tough local market conditions."

Metro's other problem -- its CEO, Pelle Törnberg, has announced that he's leaving, and no successor has been named. It's a company adrift.

COMMENTARY: The fact that Metro is in trouble shouldn't be a cause of celebration by others in the free newspaper industry. Yes, Metro has been arrogant (remember the Philly transit scam?) and their papers have been terrible editorially. And they don't know how to sell.

But Metro, by virtue of the fact that it has editions in so many countries, generates headlines. If they go under, then the advertising industry might write off free dailies due to the sins of Metro.

Not only will Metro's troubles frighten advertisers, but what about those of us who rely on the capital markets for funding? Metro's problems will be projected upon us, even if we have been making money from the beginning.

Our hope, here at free-daily.com, is that Metro hires a strong, dynamic CEO immediately, and that the company finds a way to get back into the black. Perhaps that means closing some editions in the U.S. -- so be it. Financial discipline is important.

And a word to Dagsbrun, the Icelandic phone company that wants to roll out 10-12 free dailies in the next three years. Listen, billionaire Phil Anschutz had even grander plans -- 70 editions. He stopped at No. 3. His papers are all losing money. They also are having no impact on their audiences. (He has a conservative daily in San Francisco -- yet nobody there is reading Examiner editorials and deciding to recall Nancy Pelosi or Dianne Feinstein!). This isn't an easy business. And after a few quarters of bleeding millions of dollars, what will you tell your shareholders?