Read all about it in your Metro

Metro International's aggressive expansion policy has seen its free paper establish its brand in cities worldwide.

by Nick Loney, World Business
Last Updated: 23 Jul 2013

Less than 15 minutes after the first edition of free newspaper Metro hit Stockholm's streets and subway stations on 13 February 1995, its backers were certain they were on to a winner. "We printed 125,000 copies and they were gone almost immediately. It was a big hit with younger readers, female readers - people who don't usually buy newspapers," says Sakari Pitkanen, editor-in-chief of Metro International. "Small advertisers loved us too because they soon found that if they put an ad in Metro, their products would fly off the shelves. Pretty much everybody else hated us."

Stockholm's Metro was in profit "more or less from day one", according to Pitkanen. Buoyed by its success, the company embarked on an aggressive expansion policy and 12 years later, the title is firmly established as an international brand, with 70 editions in 19 countries (though not in the UK - the Metro free morning newspaper familiar to Londoners is owned by Associated Newspapers).

Its remarkable success, and that of free newspapers more generally, has provided a much-needed boost to a newspaper industry struggling against competition from the internet, improved mobile phone technology and greater access to satellite television and radio. But this success has also posed a threat to traditional newspapers: in many cities where free papers have been launched, paid-for titles have reported a significant decline in sales.

Metro didn't invent the idea of a free daily newspaper (see box), but it was arguably the first company to fully understand its potential. In 1997, less than two years after Metro was first published in Stockholm, the company launched Metro Prague, which was followed in 1998 by editions in Budapest and Gothenburg. In 1999 the paper appeared on the streets of Helsinki, the Netherlands and Malmo, and in 2000 in Chile, Philadephia, Toronto, Rome, Milan, Warsaw and Athens.

The pace hasn't slowed since: between 2005 and 2006 alone, 23 new editions were published. Last September, the company's third quarter statement revealed that Metro editions operating for more than three years had collectively improved their operating profit margin by 30% year-on-year. All titles over three years old are in profit. Overall, profits remain relatively low due to heavy investment in new launches, but the company says that in coming years it aims to expand at a more "cautious" rate and focus more on profitability.

That such an innovative newspaper company should emerge in Sweden is a curiosity. Despite a Freedom of the Press Act dating back to 1766, the Swedish media industry has been characterised by its conservatism. "Apart from Albania, Sweden was the last European country to have commercial TV and radio," says Pitkanen. "The Social Democrats ran the country for 23 years and they regarded the media as something that needed to be controlled. Until 1988, we had only two TV channels and three radio channels."

Historically, Swedish newspapers have had a strong regional and local presence, with some publications reaching 90% of households in their target area. However, the vast majority supported either the Conservative or Liberal parties; the Social Democrat party, perhaps because of its antipathy towards the media, lacked a strong newspaper presence.

Its solution was "very Swedish", says Pitkanen: "The Social Democrats decided that the state would subsidise every second newspaper in the major cities. So we had one regional or local newspaper that was either Liberal or Conservative and which made money, and one Social Democrat paper that lost a lot of money but which survived thanks to the state."

Pelle Anderson was a 19-year-old journalism student in 1973, when he attended a lecture on newspaper economics. The lecturer said that subscription revenues for a typical Swedish daily roughly matched distribution costs, with most of the profit coming from advertising. If that was the case, one student observed, newspapers could be given away free provided they were guaranteed to reach their target audience - the profit would come purely from the advertising.

As a left-wing activist who spent little time on his studies, Anderson was attracted to the idea of a free newspaper. "It was at a time when people believed you shouldn't have to pay for public transport," he says. But he let the idea lapse and left college to become a typographer for Maoist newspaper Gnistan. Several years later he joined Dagens Nyheter, Stockholm's biggest daily, as an editor and designer. While he was there, the newspaper surveyed its readers to ask why they hadn't renewed their subscriptions. "They received two answers: 'I can't afford it and I haven't got time to read the paper'," says Anderson. But despite this, "the newspaper became more and more expensive, and thicker and thicker".

Anderson left Dagens Nyheter in 1988 to co-found a design company and over the next few years found himself thinking again about the idea of a free daily. He talked about it to Robert Braunerhielm, an ex-colleague at Dagens Nyheter, and Monica Lindstedt, a publisher and former lecturer at the Stockholm School of Economics. In October 1992, the three put forward a proposal to Stockholm's transport authority Storstockholms Lokaltrafik (SL) that it should both allow distribution and finance the project. But finance from SL was not forthcoming. After several rejections, the three approached media company Modern Times Group (MTG), which agreed to provide Skr50 million ($7.3 million).

But SL was still not convinced and set down a number of requirements. The first was that the newspaper should be of a sufficiently high standard, the second that, through the paper, SL would have its own information channel, and, finally, that the paper would not cost the Swedish taxpayer anything, meaning that the paper's owners would have to meet any additional clean-up costs incurred by SL. In August 1993, Anderson, Braunerhielm and Lindstadt formed launch company AB Stockholms-Notisen, investing a third each. But the negotiations with SL dragged on until September 1994, when a formal agreement was signed. Five months later the first Metro was published.

Despite its immediate appeal to young people and small advertisers, others were sceptical about Metro's long-term prospects. Senior media figures are said to have laid bets on how long it would last, while larger advertisers gave the paper a wide berth. But the following year Sweden's official newspaper audit revealed that Metro had made significant inroads into Stockholm's daily newspaper market. "We'd achieved what everybody had been talking about for years, but nobody dared to try," says Pitkanen.

Metro's expansion into other countries was fuelled by the belief that the business model was good enough to be replicated anywhere in the world. "The idea was that you have a newspaper in a box. You open the box and you get the same Metro, wherever you are." Pitkanen says that most of the preparation needed to establish a new Metro was done in the early 1990s, in the period before Metro Stockholm was launched. "I think I could go anywhere in the world and launch a paper within a week. I just need a crack team of five or six people. We started the Metro in Toronto in four days - and we did it with three Swedes, two Brits and a Finn."

But it wasn't always easy. Launches in Switzerland and Argentina failed, and an afternoon paper in Stockholm closed after a few months. Metro also failed to win the lucrative contract to distribute a free newspaper through the London transport system. Associated Newspapers, which publishes the London Evening, was chosen instead, and its Metro, which is now distributed across the UK, has since become the world's biggest free daily paper. The huge German market, too, remains frustratingly elusive.

However, Pitkanen says that despite these setbacks, the company's biggest mistake was not having enough confidence in its own product. "We listened too much to people who said we needed to have 10 pages of sport in one country or needed to go tabloid in another," he says. "Our concept is so strong, I believe it can overcome any local difficulties."

However, although Pitkanen gives the impression that launching a free daily newspaper is a foolproof way to make your pile, this has not been the experience of other companies. The performance of free newspapers in other parts of the world has been variable and even Stockholm's two other freebies are both losing money. Most industry experts agree that the free newspapers are a much tougher business proposition than Metro's giddy rate of expansion implies. Pitkanen concedes: "Gaining readers isn't hard, but it's a mistake to think that just because you've got readers you will make money. You could be read by everybody in a city and still lose money."

Pitkanen says that Metro's less successful rivals have made two mistakes. "The first is that many of them have replicated the cost-base of a traditional newspaper and spent money on things that don't directly contribute to the business," he says. Certainly, nobody could accuse Metro of that: its Stockholm headquarters have the atmosphere and decor of a slightly upmarket student paper. "The articles wouldn't be any better if I had a bigger office," says Pitkanen. Metro also sweats its staff: its main rival, Dagens Nyheter, employs around 300 journalists; Metro Stockholm has just over 30.

The second mistake, according to Pitkanen, relates to purity of motive. "A lot of companies launch a free paper as a defensive move to protect their real asset - the paid-for paper. This is an odd way of behaving, launching a business to protect another business. It never works in the long term," he says.

Associated Press was accused of just such tactics late last year. Just as News International was about to launch a free evening newspaper for Londoners called thelondonpaper, Associated hurriedly came up with its own free title, London Lite. The capital's commuters, long used to having the paid-for Evening Standard as their only choice of evening newspaper, were suddenly assaulted by vendors thrusting free papers in their faces as they fought their way to the tube station. The battle between the two freebies is still raging.

Both thelondonpaper and London Lite, like Associated's Metro, are far more lightweight than any of their paid-for rivals. The same can be said generally of free newspapers across the world. Even Metro International's publications, though more substantial and heavyweight in tone than many others, have a fraction of the content of the bulkier paid-for titles such as the New York Times or the UK's Guardian.

This has led to claims that free papers will have a detrimental impact on the newspaper industry, both on profits and the quality of journalism. Veteran UK media commentator Roy Greenslade says: "Ultimately, they will breed in people the idea that news shouldn't cost anything, even that news is cheap. But, in fact, news, done well and properly, requires investment and money." Greenslade believes that this 'cheapening'of news will result in a decline in quality. "Free newspapers by their nature are light on journalistic resources," he said, "They will no doubt tell us what happened - but news should tell us how and why things happen. I fear that approach will be lost."

Pitkanen admits that free newspapers will never have the resources to dedicate as much journalistic time as paid-for titles to uncovering off-diary stories, but says that's not his problem. Metro's popularity shows that it is merely responding better than other titles to shifting demographics, he insists. "The paid-for newspapers in Sweden are definitely suffering at the moment. But whether that's because of us or because of their own incompetence is another question.

"Every time something new comes along, people in the industry throw their arms up and say 'it's the end'. Certainly, if newspapers carry on doing what they've always done, they will die. But it needn't be that way. They just need to be smarter and more responsive to changes in the market."

1973: Pelle Anderson, a 19-year-old Swedish student, learns at a lecture on newspaper economics that papers can be given away free and still make money

1988: Anderson leaves his job at Stockholm newspaper Dagens Nyheter to co-found design company Bark Anderson Design

1992: Anderson meets Monica Lindstedt and Robert Braunerhielm and begins discussions to launch a free Stockholm daily

1993: Anderson, Lindstedt and Braunerhielm form launch company AB Stockholms-Notisen

1994: AB Stockholms-Notisen signs an agreement with Stockholm's transport company Storstockholms Lokaltrafik

1995: Launch of first edition of Metro in Stockholm. The paper becomes profitable within a year

FREE DAILY NEWSPAPERS

The first free daily newspaper can be traced back to the 1940s, when publisher Dean Lesher launched the Contra Costa Times in Walnut Creek, California. In the 1960s, Lesher converted the paper, and three others in the same county, into paid-for titles. In the early 1970s, the University of Colorado kicked the student-run Colorado Daily off campus after it ran editorials criticising the Vietnam War. But it continued as a free tabloid with a renewed focus on the local community of Boulder. It still publishes today.

In subsequent decades, a number of free dailies opened in Colorado, many by University of Colorado graduates: Aspen (1979, 1988), Vail (1984), Breckenridge (1990), Glenwood Springs (1990), Grand Junction (1995), Steamboat Springs (1990) and Telluride. In 1995, the founders of free dailies in Aspen and Vail launched the Palo Alto Daily News in California. The paper was profitable within nine months of its launch, and the model has been replicated a number of times over the years by other publishers, including four in the San Franciso Bay area. Papers are delivered to public places, such as coffeeshops, restaurants, shops, gyms and offices.

Today, free newspapers exist in almost every European country and in several markets in the US, Canada, South America, Australia and Asia. Metro International is the market leader, with about 9 million copies daily. Estimates put the number of free papers given away daily across the world at about 34 million. As in Stockholm, some French and Italian cities have three free papers competing for readers, while in Seoul there are six.

But the arrival of free newspapers has inevitably led to publishing battles. Norwegian publisher Schibsted was forced to withdraw its Cologne edition of its 20 minutes newspaper after a bitter battle with local publishers, while legal issues stopped an Italian edition. And there are no longer any free newspapers in Germany or Japan - two of the world's biggest newspaper-reading countries.

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