Sarkozy’s Analysis of French National Newspapers – Under Capitalization And Circulation Too Low– Is Best Proven By The Nonsense Now Going On At Le Monde

Philip M. Stone January 18, 2008

French President Nicolas Sarkozy moved stock markets and caused panic attacks throughout the French public broadcasting scene with his New Year comments on how he wants to change the face of French broadcasting, but hardly reported was that he wants his government to fix the problems facing national newspapers, too.

His bottom line in a rambling discourse was that French national newspapers today are suffering because their circulations are too low – the closing of so many newsstands meaning “a newspaper buyer has to go out of one’s way to find a newspaper” -- and also that the country’s antiquated distribution system needed reform – “We want to make it possible for the press to be better circulated.” He also said that newspapers need more capital investment, and he would have his government take a look at all of that this year, and try and come up with solutions.

Those comments came at a sensitive time because Le Monde, France’s most respected newspaper usually found within most lists of the world’s top five newspapers, is going through a strange capitalization issue right now – the minority shareholders – big media companies --  who are rich are willing to put more money in but the majority shareholders – the staff who are poor -- are not willing to take the money since it would mean they would lose their majority shareholding, and that, they fear,  could affect editorial independence. As this is being written it is still stalemate.

Lagardère, the largest French media company, currently holds 17% of Le Monde and Prisa, the Spanish media group that owns 15%, have proposed a €75 million ($100 million) recapitalization plan, but it would mean that the staff that through various associations now owns 60.4% of the newspaper would become minority shareholders. To answer sensitivities on editorial integrity, both minority shareholders said the staff could still elect their own editor, and to further ensure editorial integrity the idea is for the well-respected Prisa to overlook editorial independence with Lagardère basically looking after the company’s business affairs.

The Le Monde journalists seemingly just don’t believe that very close Sarkozy friend Arnaud Lagardère, chief of group that bears his name, can really keep his fingers out of their editorial pie.  Lagardère has not been shy in the past  protecting Sarkozy editorially, (a Paris Match editor lost his job a couple of years back in just such a spat), and the journalists fear such pressures at Le Monde if they are not in control.

But there are real economic problems at  play here that the journalists cannot ignore. The newspaper is spending more than it takes in, losing around €10 million ($14.3 million) last year. It had a debt of around 150 million ($215 million) before it sold off its regional newspaper division on New Year’s Eve for €91 million ($132 million.

Le Monde last received a much-needed capital inflow -- some €65 million (then around $85 million) -- in 2005 with both Lagardère and Prisa putting in some €25 million each.  The newspaper also had to bite the bullet, implementing 200 job cuts, but it has since gone through a successful relaunch, although at the same time it has been musical chairs with the editorship, and its chairman and deputy editor resigned at the end of 2007.

The journalists have basically voted against two financial solutions -- reducing costs by €10 million ($14.3 million) but that means job losses, and the capital investment, but that means losing control and they have no appetite for either. So where to go from there?

The issue for Lagardère and Prisa is simple – why throw good money after bad if they are not in the position to financially control the company. Yet the majority shareholders (staff) believe if they give up that control then the editorial integrity of the newspaper is at risk (as well as some of their own jobs). Thus the stalemate.

With that in mind it’s worth seeing how banker Edouard de Rothschild eventually came out on top when he bought into Libération. He made his first investment of €20 million in January, 2005 with few people understanding what he hoped to achieve. His right-of-center politics and Libération’s were about as opposite as they could be but he agreed he would keep his fingers out of the editorial pie, the staff would basically hold a veto over any major changes he proposed, and even though the newspaper was hemorrhaging red ink, cost-cutting really wasn’t on the agenda, at least as far as staff was concerned. It basically looked like the banker’s money was flowing down a sinkhole.  But he knew that was just round one.

Sure enough once that money was gone management came back asking for more. He gave another €15 million but in return demanded and got the resignation of Serge July, the newspaper’s co-founder and editor for 33 years who basically had hardly allowed de Rothschild into the Libération building, so bad was the relationship.  July’s departure caused several top journalists to quit, too, but that was okay, the newspaper had to shave further costs, anyway. That was round two.

A few months later and bankruptcy was knocking on the door. Rothschild this time played real hardball. In addition to the 56 jobs that had gone earlier he wanted to cut another 100 of the 280-strong workforce although that number finally was reduced to around 80. And most important -- no longer would staff have veto power over his decisions. For that he would give another €5 million and other investors would provide €10 million. The board, meeting for the sixth time in just two months, had little choice but to accept, knowing full well if they didn’t then the newspaper would close.

And the financial results from all that? The newspaper says it probably broke even last year, after losing €3 million in 2006, and €13 million in 2005 and while it may no longer be considered editorially “Maoist” it certainly remains very left of center. The message is quite clear – when professional managers rather than journalists make the business decisions, newspapers, even French national newspapers,  can be profitable.

But if that model doesn’t work for Le  Monde then the newspaper could always ask President Sarkozy to revisit an idea first floated by the previous Chirac government. Culture Minister Renaud Donnedieu de Vabres then proposed that “newspapers of opinion” establish either an industry-wide financial foundation or that each newspaper establish its own financial foundation and he would officially interpret those contributions made by individuals or companies to such foundations as being eligible under his culture department patronage to be tax free. In other words, newspapers seemingly were considered charity cases!

Such an idea is merely an extension of the French tradition of subsidizing the newspaper industry.  Subsidies, which reached close to €300 million ($420 million) in 2007, include everything from paying a percentage of the cost of a new printing plant, to subsidizing newsprint, to exemption on paying corporation tax if the money is reinvested in five years.

No matter how this all works out – and there is convertible debt being held by Prisa and Lagadère that will give them more control anyway within the next five years – there is one basic economic lesson that Libération brings to the table for the Le Monde journalists to ponder: Money really does speak louder than words.