Monday, July 23, 2007

Metro International loses ground

Metro International, publisher of 70 free dailies worldwide, is in a nosedive as it looks for a new CEO to replace Pelle Törnberg (left), who announced Feb. 13 that he would be stepping down. Word is that a new CEO will be named within days. Good thing, too, since Metro's second-quarter financials (released today) are a disaster.
    • Metro reported a profit of $900,000 in the second quarter, compared to $4.6 million in the same quarter last year. Sales rose, but expenses are growing much faster.

    • The company's three U.S. papers still haven't made money. In fact, they're headed in the opposite direction. In the second quarter, Metro U.S. lost $2.07 million, up 92 percent from the $1.08 million loss reported in the same period last year. U.S. revenues grew by 12.6 percent, from $8.6 million in Q2 2006 to $9.7 in Q2 2007. But that 12.6 percent increase, while good compared to the rest of the U.S. newspaper industry, is not nearly enough to cover soaring costs. None of these papers are start-ups in their early fledgling years. Philadelphia is seven years old, Boston six and New York three. They should be making money by now. Since they're not, management should either shut them down or make radical changes.

    • Even in Sweden, where Metro started, profits are down — from $5.5 million in Q2 2006 to $3.9 million in Q2 2007.

    • In Spain and France, where other free dailies have taken off, Metro is getting pounded to the point that margins are at 3 percent.

    • How much money can Metro lose? On page 12 of today's report management reveals that they used another $10 million on the company's $90 million line of credit from Sweden's Nordea Bank. The total draw is now $57 million.
Whether the rest of the free daily industry likes it or not, Metro International is the leader in our sector. So it's disappointing to see these results. They create a ripple effect -- ripples that turn into waves for others.

We can just imagine what the guys at Dagsbrun, the Icelandic phone company, are saying to themselves. They're the guys funding the Russel Pergament's BostonNOW. Pergament wants to launch similar NOWs in other U.S. cities with their money. They're probably saying, "Wow! $57 million? What are we getting ourselves into?"

Billionaire oilman Phil Anschutz may have figured out the same thing awhile back. He was supposed to fund 70 free dailies across the country (if you believed the hype), yet he stopped at No. 3 in Baltimore in early 2006. Anschutz has money to burn ($7 billion at last count), but he's nobody's fool.

We're bullish on the future of free dailies but the future probably isn't these corporate, top-down, one-size-fits-all papers. Pergament has a good feel for Boston, where he has worked for many years, but would he give Fort Worth, Texas, or Columbus, Ohio, a paper residents would embrace? That's what's tricky about this business. It's a local business.

And that's good. The cost of starting a daily newspaper has never been cheaper. Yes, it takes millions, but not hundreds of millions. This would open the door for some truly local players to get into the newspaper business and start eating away at ad dollars now going to paid dailies.

As for Metro, a lot depends on who will become its next CEO. The tone he or she strikes from the first day will be crucial.