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Jon Lund, the head of the Danish Internet Advertising Bureau, and I had dinner in Norway last week and he told me the chilling story of the crazy free newspaper war in Denmark that almost killed everyone involved. I thought it was an important cautionary tale of Free gone wrong, and I encouraged him to write it up on his blog.

He did, and it is indeed grim reading. I’ve excerpted (and lightly edited) the basic story below, but it’s worth going straight to the source to get Jon’s analysis, along with a lot of links to other reports on this disaster.

Short form: the attempt by a half-dozen newspaper publishers to “out-free” a free Icelandic paper that entered the market (backed by Morten Lund, who made a fortune as an early investor in Skype) ended up costing the collective newspaper industry in Denmark more than $150 million dollars and the bankruptcy of three newspapers.

Morten Lund has also been chronicling this disaster, confessional style, on his blog (see here and here).

And yes, this all started with the same Icelandic investors who helped take down the world economy.

The Popping of the Danish Free Newspaper Bubble

(everything from here on is from Jon)

“Double free”
On October 6 2006 “Nyhedsavisen”, a new Danish daily newspaper hit the streets. A quality newspaper staffed with 100 journalists and ambitions of being the largest Danish newspaper with a daily circulation of between 500,000 and 1 million readers (total Danish population equals some 5.5 million). The newspaper would feature an editorial mix prioritizing both prize-winning critical journalism and stories close to the everyday life of ordinary Danes.

The pricing of Nyhedsavisen was simple: it was free. And, as something entirely new: it was going to be delivered to the homes of all Danes – at no cost. Not only the newspaper itself was free, delivery was free as well. It was in effect “double-free”.

The front-page of an October 2006 edition of Nyhedsavisen

Icelandic intrusion
Behind the Nyhedsavisen launch was the Icelandic media group Dagsbrun owned by Icelandic investment company Baugur group. During 2005 Dagsbrun had researched the European market in order to find the most suitable country in which to try to duplicate the success of Icelandic newspaper Frettabladid. And Denmark was chosen.

Frettabladid was founded in 2001 and had managed to be the best-read newspaper among the Icelandics (total population: 320,000) battling the only other Icelandic newspaper Morgunbladid by employing for the first time the “double-free” model.

The business model
Nyhedsavisen aimed at having three different revenue streams, the first one being the traditional newspaper model, where advertisers pay to have ads in the newspaper. If you’re able to get 1 million Danes to read your newspaper, you’re able to sell those eyeballs to advertisers as well.

The second revenue stream also aimed at advertisers, but not by offering advertising in the newspaper itself. Instead, Nyhedsavisen would take advantage of the fact is had a direct contact to all Danish households before 7:00 in the morning. Nyhedsavisen would take what would normally have been a cost – the distribution – and turn it into an independent revenue-stream, making money from distribution of printed advertisement catalogues and brochures alongside the distribution of Nyhedsavisen itself.

The third revenue streams would stem from the other Danish media. Out of the 100 journalists, 35 were employed at the news network part of Nyhedsavisen, a bureau in the newspaper which should deliver and sell news wire services to other Danish media.

Flooded with newspapers
Nyhedsavisen thereby aimed to compete with the entire existing Danish newspaper industry, including the three large nationwide dailies Berlingske Tidende, Politiken and Jyllandsposten, the two nationwide tabloid-papers Ekstra Bladet and BT and the existing free daily newspapers delivered through public transportation or handed out on the streets, MetroXpress and (Berlingske owned) Urban.

And all of these took the threat seriously, and decided to fight the intruder in an attempt to defend their position on the Danish media market.

Right after the initial announcement of the double-free newspaper, Berlingske Tidende (the oldest Danish newspaper, first published 1749) answered back launching their own “double-free” newspaper, “Dato”. This they did on August 16 2006, some two month before Nyhedsavisen would eventually launch. This was Berlingske’s second free newspaper, the first being the “single-free” Urban (which again was launched in 2001 in response to the launch of MetroExpress).

The day before, however, the regional daily Nordjyske introduced two free newspapers on top of the paid daily Nordjyske. Centrum Miórgen was single-free, distributed in the morning traffic, whereas  Centrum Aften was freely delivered in the afternoon in northern part of Jutland. The day after (August 17) the publisher behind Politiken, Jyllandsposten and EkstraBladet, JP/Politikens hus launched their double-free daily “24 timer”. And on August 21 MetroXpress launched an afternoon-edition in supplement to the usual MetroXpress morning edition.

When Nyhedsavisen finally arrived, Denmark was flooded with newspapers. On top of my paid subscriptions I’d now find both Nyhedsavisen, 24timer and Dato in my mailbox, and on my way to work I’d be able to read both Urban and MetroXpress in the metro. On my way home, I’d be able to read the afternoon-edition of MetroXpress.

The immediate effect of all this was twofold: the average Dane was getting weary of all the papers he suddenly was forced to have inside his home – and the price of print advertising went down in response the massive growth in supply.

Casualties and deaths
This free newspaper war went on for over two years and caused the entire industry to bleed.  On top generally declining circulation for all (paid) printed newspapers the cost of producing and distribution additional free newspapers added significant losses to the financial results.

Berlingske which was bought by British Mecom in early 2006 was barely profitable then decided in 2007 to back out of the war, closing down their double-free Dato, realizing a loss of $35 million. (Though Berlingske maintained their single-free Urban, continuing in the attempt to offer yet another free alternative to Nyhedsavisen).

MetroXpress shot down their afternoon edition after only three months, with losses of some $1 million.

After one year Nordjyske eventually also gave up on their Centrum Aften double-free, and merged Centrum Morgen with 24timer. (The Nordjyske engagement in the war however tried out a completely new initiative, editorially combining several print- and webtitles in a very interesting combination – for more see this post).

Show-down: Nyhedsavisen vs. 24timer
This left 24timer and Nyhedsavisen alone on the scene, trying to wear each other down. Nyhedsavisen were backed by the Icelandic investors, claiming they had “enough” money to carry on to the bitter end. In 2006, 2007 and 2008 the revenues of JP/Politikens Hus totaled a little more than $600 million, with losses of respectively $20 million, $25 million and $30 million each year, taking a quarter of the company’s market cap with it by 2008.

The costs of producing and distributing the double-free newspaper was – at least during 2007 – around $200,000 a day for each of the papers.

The free delivery was one of the main obstacles. It simply turned out for all of them to be extremely difficult to manage delivering the newspaper at peoples’ home before 7 in the morning. As a consequence JP/Politikens Hus gradually shifted the distribution of 24timer to the single-free handing out in the morning traffic. In March 2008 this shift was total.

This partial surrender from 24timer came after Dagsbrun/Baugur group in January found themselves forced to back out of the Danish market. Instead of abandoning Nyhedsavisen altogether, however, a new majority-investor, Morten Lund, entered the scene. Apparently 24timer didn’t find it necessary to keep up the pressure, reasoning a traffic-only existence would do enough harm eventually to kill Nyhedsavisen off.

In may 2008 24timer merged with MetroXpress. At that time Nyhedsavisen actually had managed to bring down the cost of delivery to some 20 cents per issue, only 25 percent more than the corresponding cost of distributing the newspapers in the traffic. But little it helped: on September 1, 2008 Nyhedsavisen was no longer able to pay its bills, and was declared bankrupt.

Today we’re left with but two remains from the Free Newspaper War: 24timer still lives on, partly owned by JP/Politiken. And the website of Nyhedsavisen – avisen.dk – has its own life, now under the auspices of Danish social network-publisher Freeway and a-pressen, the media division of the Danish Labour movement (!)

Could the “double-free” model have worked?
Despite the fruitless attempt to prove the double-free business model during the two years of free newspaper war, the conclusion is not entirely clear. Surely it didn’t work. But it might have functioned under other, less hostile, circumstances.

Particularly: the revenue streams from the traditional newspaper-advertising model dried up for Nyhedsavisen due to the fierce competition on the media market in which the excess of supply ensured radically low prices. Also the markets suspicion that Nyhedsavisen might not be able to make it also discouraged media agencies from engaging in longer-term Nyhedsavisen-campaigns.

Also, the distribution services never got to work: At first Nyhedsavisen was planned to be distributed in a joint venture with Post Denmark, the official Danish Post, who – on top of their knowledge and professionalism in distribution – had access to an essential asset: keys to all doors of the houses in the large cities. The use of these keys, however, was deemed illegal by the Danish Competition Authorities (after JP/Politiken and Berlingske had filed their complains – while these two ironically entered into their own agreement on swapping keys with one another). Also the massive demand for paperboys to actually deliver all the free newspapers around Denmark caused severe problems for the distribution (all the players were forced to import immigrant-labour from primarily Poland, who then worked their way around Denmark by night, trying to make sense of the signs in the streets in order to figure out their routes in order to deliver the free newspaper in their trolleys correctly).

Taking into account that the third revenue stream – the news network delivering and selling news wire services to other Danish media – for various other reasons didn’t turn out a cash-cow either, Nyhedsavisen was in effect left with no revenues at all.

From Box UK, a survey of business models used by the top Web apps, most of them variations of ad-supported Free and Freemium. In the chart below, the largest segment (ITA) is ad-supported, the second largest (ISV) is Freemium. After that is referral (ITR) and then the sale of virtual goods (IPV), such as the gifts in Facebook.

“We spent a few hours going through the Webware 100 Top Web Apps for 2008, analysing the business model(s) used by each. The chart below shows the results of this survey: 34% use Advertising, 12% a Variable Subscription model, and 8% each for Virtual Products (typically digital downloads), Related Products (typically a large software company offering a free product to attract you to their platform) and Pay-Per-Use.

Business Models

Meta-Models

The following business models can be applied in addition to most of the basic revenue models described above.