Metro Newspaper Case Analysis

Essay by hyaliteUniversity, Bachelor'sA+, November 2009

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Modern Times Group, a subsidiary of Kinnevik group In 1995, they set out to change the newspaper business by offering a free morning paper called the Metro. Metro started in Sweden targeting urban transit riders. Their sole means of dispersal was through the metro system; both on the trains as well as the platforms. Their main target markets were two-fold: employed readers with high income, as well as younger readers with disposable income. These are the two groups advertisers were eager to reach. The results were staggering. One analyst of the media, Alan Wilson, felt that Metro had single handedly changed the reading pattern of Swedes. He also felt it was the only paper any of the young people read. Metro achieved growth in several different markets that, at one point, was thought to continue indefinitely. However, with their increases in popularity, they also increased their awareness to competitors.

Metro's niche strategy was based on developing each newspaper into the leading newspaper within their market. They wanted to take their original Stockholm model, and replicate it in other untapped markets. Metro received an initial competitive advantage because competitors didn't take them seriously; mainly because they were a free newspaper. Their competition didn't believe that a paper without subscriptions, nor single copy fees could, compete, let alone be sustainable. It simply wasn't taken seriously. These competitors felt ad revenue on its own couldn't result in enough revenues to achieve profitability. However, once competitors understood the legitimacy of Metro's model, they started to implement free newspapers of their own.

Metro quickly felt increased competition in several of the newer markets they explored. In a few markets, they even lost their rights to the Metro name. No longer could Metro expect to enter untapped markets without competition. To attempt to compete, Metro was forced to slash the price they charged for advertisements. At one point these discounts were up to 90%. The Metro business model was under financial duress due to increased competition. This intensified competition forced Metro to restructure its strategy at the business level.

Analysis of Strategic TendenciesMetro was located in the media industry and introduced a new, revolutionary, product in the newspaper business. It created a new market segment in the newspaper industry, and transformed this industry by defining and marketing a new type of demand structure. This offered them the allowance to find a new niche and provided a unique channel to their customers.

Traditionally, the newspaper business relied on subscription-based circulation, which provided thorough, in-depth articles and news. Conversely, the metro had simplified news briefs revolving around stories from across the world. The Metro also excelled at providing high-color photos, tables, charts, and graphs to go with their articles. It seems as though Metro's focus is more on advertising and marketing their paper than it is on serious content. This seems rational because it allows them to target more advertisers, which is precisely where their income is derived from. Yet at the same time several competitors still viewed it as a newspaper with strong editorial content.

Competitive advantage can only be achieved if a business system creates superior value for its buyers. Metro's business system is quite distinct and has advantages in its resource, activity system, and product offering. Successfully utilizing these had allowed them to provide their customers with superior value.

Metro has many valuable resources in capital and finance. Also, metro's relationship with publishers from prior activities in the television and media industry, as well as the printing and distribution industries, has given them distinct competitive competences. The Kinnnevik Group has been able to successfully leverage their capability to create and market innovative products that are positioned in niche markets, such as the Metro newspaper.

With regards to Metro's activity system, Metro outsources its printing and distribution to keep operating costs at a minimum level. These costs savings are of the utmost importance in the newspaper industry. They also purchase news stories and photos from third parties, sometimes as a licensing arrangement. However, management and editorial processes are generally taken care of in-house. Using a combination of these processes has allowed them to have a unique blend of activities that has ultimately resulting in Metro creating a distinct competitive advantage.

The main concept of product offering is to supply a product or service that couples well with the environment that the firm and product live in. One main feature of that Metro's product is able to offer is price, or lack thereof. At first, the competition was unaware that Metro was a threat. Then, they were unsure of how to attack a paper that did not command compensation from its customers. One undervalued advantage of not charging for the paper was that it allowed its distribution network to be virtually unhampered by its customer's income. Anyone was able to pick up the paper and read. After a period of time, competitors wised up that if the newspaper could be in circulation, the audience was significantly increased. This increased audience allowed Metro to demand more dollars per square inch of advertising space, which in turn increased revenues.

Another huge feature of the product was convenience. Imagine that you're running late on your way to work, and don't have a chance to buy a paper on the way to the subway. Or you forgot to bring change to buy a paper for the dispensers on the street. With Metro, this was no longer a worry, as a paper would always be provided to you each and every day, whether you're riding the subway to and from work, running errands, etc. This convenience was a huge initial advantage for Metro, while at the same time cannibalizing sales of single-copy papers for these same individuals.

Analysis of ConsequencesThere were several consequences of Metro's business system. A positive of their system is a narrow, well defined niche, which helped them in the beginning. The negative of this is that there was a very low set of barriers to entry. The low barriers of entry is what allowed Metro its great success and the ability to expand as quickly as it did. However, without securing exclusive rights to metro systems, and securing lucrative licensing deals with publishers, Metro has failed to increase any barriers to entry. Ultimately this ended up harming them greatly, as competition was able to enter the markets. To further compound the problem, the competition they were attracting was typically a spinoff of a local or regional traditional paper, with resources that made Metro's local resources pale in comparison. This, coupled with the convoluting nature of their niche market causing a steep decline in advertising revenues, resulted in a serious decline in profitability. The only newspaper to meet its profitability target of three years for Metro was its original paper in Stockholm. Building up barriers to trade could have seriously dampened competitions ability to adapt as quickly as they did.

The second consequence is that the wow factor decreases every time Metro launches a new edition in another metro market. This is a result of Metro's uniform style of paper across the board resulting in something less than innovative.

ConclusionsIf Metro wants to continue their niche market philosophy, they should bullet into the market to set up relationships with advertisers in advance of entry, basically resulting in less reaction time for their competition. Another option is to find a compliment to their current product, or a product with synergies. One example would be a supporting internet blog or newspaper. This could help customers maintain brand loyalty, as well as exposing Metro to another unsaturated market of revenues. The Metro newspapers in the transit systems could advertise the web link so that readers could read the metro, even when they're not on the go. Advertising revenues on the internet is an ever-increasing opportunity that several large newspapers are being force to entertain for sustainability purposes. A third option is a joint venture with who Metro believes are future competitors. Making agreements with these companies would allow them to create synergies with that company's existing newspapers, while still allowing Metro to entertain full market share in their niche market. They could use articles from the local newspapers to keep costs down, and enjoy economies of scale even within the local markets. The result is a mutually positive relationship for both companies, which allows each to expand revenues while avoiding outside competition.

Metro can diversify by relying on their past experience and expertise in media and television, to spin their products by cross-advertising them in the Metro newspaper. Additionally, they could advertise their Metro newspaper across their various other forms of media and television.

Another recommendation is for Metro to branch out into complimentary market segments. Since Kinnevik has several media outlets, they should be able to structure other newspapers that fit in with their competences. An additional factor of creating newspapers with synergy to Metro is that it creates economies of scale. This could be done by partnering up with an existing newspaper in a new market, or a completely new newspaper. This also would increase both brand awareness and brand loyalty.

The final recommendation for Metro is to restructure their business model to build in barriers of entry by restructuring the way they enter into markets. By creating more strategic alliances and partnerships, they can maintain a more monopolistic approach on their niche market segments. This allows them to have far more consistent revenues, which in turns makes the business more appealing to investors.

bibliographies:"Case: metro a modern newspaper for a modern people" by H. A Hazard