Monday, April 21, 2008

Metro needs a U.S. partner

If you're following Metro International, the world's biggest free daily newspaper publisher, you'll see reports later today about the company's first quarter financials. The headline will be that Metro had a loss of 5.6 million euros ($8.9 million U.S.), which was 36 percent better than during the same quarter a year ago.

A year ago, Metro was in a free fall, with a CEO who had one foot out the door. No leadership was on the horizon. A year later, Metro has a new CEO, former Danish TV executive Per Mikael Jensen, who is straightening out the company's finances by closing unprofitable titles and investing where growth is likely. He's even cutting back on expenses at company headquarters. It's the kind of story smart investors crave — an undervalued company on the way up.

The one country where Metro seems to have the most problems is the U.S., where its three editions lost a combined $3.2 million in the first quarter. Sales were down 5.7 percent in the quarter excluding the 12 percent impact from the depreciating U.S. dollar.

Real sales were down 12 percent in Philadelphia and 8 percent in Boston. However, New York was flat — not bad considering the advertising slump all media faced in the Big Apple. Metro noted that a new Scarborough study it commissioned found it was the most-read free newspaper in New York City, a slam on competitor amNewYork.

In one of his first moves as CEO, Jensen put the three U.S. editions up for sale in mid-January. But three months later, it appears there are no buyers.

What's next for these editions?

Previous CEO Pelle Törnberg said he had a policy of shutting down titles that didn't make money after three years. He didn't apply that rule to the prestigious U.S. market. Philadelphia began in January 2000 and hasn't made money. Boston began in May 2001 and hasn't made money. New York, which launched in May 2004, isn't profitable but is the closet to making money.

For Metro to call itself a "global" or "worldwide" newspaper company it needs to be in the United States. So Metro under Törnberg was willing to lose money in order to stake its claim in the USA.

Today's financial report also notes that Metro is losing less money in the U.S. after the layoffs of 27 of its 138 employees. At the moment, Metro Boston lacks a publisher and Philly editor Ron Varrial is covering for New York. Georg Tsaros, from Sweden, is the interim publisher in New York. There are a few other blank spots in the papers' mastheads.

The bright spot in Metro's report was its Canadian joint venture. Sales surged by 23 percent, from $12.3 million to $15.3 (U.S.). While Metro is having problems in the U.S., it says its Toronto and Montreal editions "deliver good profit margins while the new start-ups in Ottawa, Vancouver, Edmonton, Calgary and Halifax invest in readership.

COMMENTARY: Metro needs to find a partner in the United States. It should look at its experience in Canada. If it were to pair up in the U.S. with a big national newspaper chain (MediaNews, Gannett, McClatchy, Tribune, Lee, Journal Register, etc.) it could expand effortlessly, allowing paid papers to go free. Free means more people see print ads and those ads work better.