The Future of Publishing: An interview with the CTO of Holtzbrinck Digital

Christian Gerlich during the interview with CDTM student Philip Stroisch

The publishing industry is undergoing a major change. Digital technology has cut the cost of distributing content, relocated revenue streams to new players, and challenged the gatekeeper role of traditional publishers. We met Christian Gerlich, CTO of Holtzbrinck Digital, to discuss some of the aspects of the future of publishing, hear the plans of Holtzbrinck and ask for some career advices for students aiming to work in the publishing industry.

CDTM: The ways of digital distribution for publishing houses are changing. How do you survive in a world where content is easy to copy and control of distribution is decreasing?

Christian Gerlich: We focus on customers: What is their primary interest? What do they expect? How do they want to experience the product? How can they be delighted? How can we enrich the content by intelligent services? Based on that, we monitor upcoming market trends and derive appropriate actions for the future. The trend goes in direction of multi-channel usage. In those areas we invest in R&D and evaluate different approaches. According to the monetization, some target groups are willing to pay for content, some groups are not and just try to copy the content like black sheep. There are approaches to impede and even prevent content copying, but it’s always a game of cat-and-mouse: we invest some money in mechanics to prevent people from copying our content, but not to the extraordinary extent. Whether customers are willing to pay as much for digital content as they used to pay for paper depends on the kind of content. It doesn’t work for standard news, but it does for quality journalism, and we experience that for example with the weekly appearing newspaper DIE ZEIT.

What are the main challenges that appear by digitalizing a publishing house? What mistakes should be avoided?

At least from my own experience, one of the main challenges is to find the right strategic approach to embrace change. Another challenge is to plan an audience targeted communication – it’s important that the majority of employees within the organization are motivated and you have their buy-in. The key prerequisite is to find people with experience in that area. During the last years, we have seen a strong trend in establishing job profiles like CDOs – Chief Digital Officers. These were mostly recruited from external to re-invent traditional companies and help them on the digital path. Implementing such a strategy is crucial for the success. Since February 2014,  we have established the new role of “Head of Digital & Technology” at the Holtzbrinck Publishing Group’s Executive Board to put even more focus on the “new normal”, as Peter Hinssen, a digital thought leader, says.

Many players in the publishing industry are entering new markets like e-commerce or social media. Holtzbrinck is investing in a variety of these areas. Are these investments able to fully compensate revenue losses in traditional business segments?

There is a dramatic change in the media industry. With digitalization and a shift form print to online, the classified revenue makers for classical newspapers just disappeared. The traditional classifieds section for pre-owned cars for example has been disrupted by digital services in Germany with offers from mobile.de, autoscout24.de and others. Another example from the dating market is parship.de, one of our Holtzbrinck Digital Portfolio companies. There used to be a lot of newspaper pages with partnership announcements, but digital services like Parship nowadays are even better from the product approach and the customer experience. Apart from that they generate more revenue than traditional newspaper ads. The difference is that in the print version it was just content. Now in the digital world content and services are combined in an intelligent way. If you enrich your product, you can increase your revenue and profitability.

Who are going to be the big money makers in the future of publishing? How about big money losers?

Companies like Google, Apple, Amazon and Facebook are doing a good job by managing to get a lot of reach and customer activation in a really intelligent way. This is their great potential. At Holtzbrinck we are currently putting focus on the education area and are establishing ecosystems in this business segment. Back in the days, you used to have a schoolbook with classical questionnaires, which you accomplished chapter by chapter. In the meantime in the digital world, we have intelligent algorithms running in the background that deliver synchronous feedback – whether you are right or wrong – and they adapt to the student. Sessions can be repeated to put focus at things that a student is not good at, so they can improve. This is combined with adaptive learning systems in a later step, so there are lots of opportunities and business growth potential in this area. All of the mentioned features are implemented in Macmillans Higher Education LaunchPad. When we talk about potential in terms of revenue, it highly depends on the business segment you are looking at. Higher education is highly regulated and all content is certified. There is no big risk concerning disruption like in other areas, where you have to rethink your business models in direction of for example Open Access. Concerning Open Access there will be an initial decrease in revenue, but if you manage to increase the reach in an intelligent way, the revenue can be even higher than before. So, there is always a chance. Whether a product is a hit or miss depends on the maturity level of your product. Think about the Lifecycle of the “Sony Walkman”: if you as an organization assume that your product still is generating  good revenues and you interpret a potential sales decrease in the wrong way, it may lead to a complete market loss. Just like it happened with the Sony Walkman, it has been completely replaced by the MP3-player. And here again follows the next disruption wave with music streaming services. Applying this to the publishing industry, there are some magazines with subscription models. If you have a rather elderly customer base that is not used to the Internet, your business won’t run for long. But this also depends on the time frame: There will always be a demand in the information area, but whether in written word or short video sequences, I can not forecast in detail. Trends forecast that the internet traffic will be caused by 70% due to video streaming by 2015. If you look at the traditional newspapers, the web-presences all integrate video formats, and the content format is getting enriched by other formats and layouts. It’s also about the monetization strategy, as most newspapers are still driven by revenue from advertisement – but this trend is hard to forecast. With lifecycles getting shorter and shorter, as a company you have to implement feedback loops and you have to be adaptive concerning market needs in order to survive.

Education is a growing field of business nowadays. 48 % of Holtzbrinck`s revenue in 2012 was generated by Macmillan Science and its education division. How do you adjust your services to a world of open education and increasing amount of free scientific content online?

We always pursue a portfolio strategy to minimize risk. Within Macmillan we focus on two areas: science and education. In this highly regulated market, higher education and e-learning platforms create the most revenue by applying a B2B2C model. We have implemented new approaches and invested in companies like frontiers.org and formed an alliance with Macmillan’s nature publishing group as a reaction to the trend of open access in scientific research and publishing. We follow different strategic approaches with strategic growth focus on core business, the setup of efficiency programs and revenue analysis, but we also have implemented disruptive business models and are bundling those in Macmillan New Ventures, Digital Education and Digital Science. This special Macmillan group invests in companies which disrupt the Macmillan core business in order to gain experience and get insights by playing around with “eat yourself” aspects. It is better to build up the experience by your own, than being attacked by third parties.

Holtzbrinck has changed its organization from a decentralized structure to a structure aiming for synergy effects between its divisions. What role do you play in the process of restructuring and what are the challenges you are facing?

The key question is: how much centralization makes sense and how much flexibility should be given to the individual organization? Every single digital business needs its flexibility. Commodities, e.g. infrastructure or business systems like ERP, can be centralized but key decisions of digital businesses should be made by a single company. As CTO, it is my task to find synergies on a technology level between our companies. There are a lot of different approaches and experiences  in the usage of technology and I really enjoy seeing different approaches. By establishing a network and centers of excellence I try to help colleagues not to reinvent the wheel again and again. The biggest challenge is having the role of an ambassador between our investment managers and our organizations. If you have a background in finance you are number focused and used to a budgeting process once a year. If you come from technology, everything is agile nowadays. Some of our companies are establishing the whole enterprise very agile in terms of communications and transparency and I am trying to translate and promote such practices to our investment manager and CEO, which in some years might lead to a beyond budgeting or continuous budgeting process – however you may call it.

What is the overall role of Holtzbrinck Digital within the Holtzbrinck Publishing Group?

In 2013, we established three divisions bundling the different businesses of the Holtzbrinck Publishing Group. The first division covers different publishing houses including public publishing houses like S. Fischer, Droemer Knaur or Kiepenheuer & Witsch here in Germany. The second division, Macmillan Science and Education, is well known, e.g. for the Nature Publishing Group (nature.com). The third division is Holtzbrinck Digital, Information and Services, where we bundle our Internet businesses mainly in Germany, information services like die Verlagsgruppe ZEIT and service companies in the market research area with Prognos for example. In 2005, Holtzbrinck set itself the goal to generate 20% of their revenue by digital products until 2010. On the one hand, digital companies were incubated, on the other hand we invested in large Internet companies by founding the Holtzbrinck Ventures Fond which was completely owned by Holtzbrinck until 2010. The role of Holtzbrinck Digital is defined by being a pioneer in the overall publishing group and focusing on our portfolio companies on a strategic level. In terms of content, we are trying to focus on different verticals which are closely related to our core business, e.g. content advisory portals with gutefrage.net and helpster.de or self-publishing with epubli.de, as well as trying to build ecosystem for services around certain verticals. One example can be netdoctor.de, a content platform in healthcare, where we think off establishing services around in this market.

Holtzbrinck Digital is also known for investing in startups and acquiring young ventures. What is your strategy regarding further acquisitions and the development of your portfolio companies?

The focus of Holtzbrinck Ventures is the venture case: you invest a small share in startup companies and you bet on the company having a high risk profile. Looking at Holtzbrinck Digital, we follow a strategic approach. We want to evolve the companies over a longer period of time, therefore we invest a share of more than 50% so that we can influence or determine the strategy of the company. We look at the content strategy to see which services are required to build an ecosystem and then enrich it with parts of other divisions. As mentioned before health is a growth market and is in the beginning of getting more digital. Here we are investigating in how eco-systems with different players can be build up by an-organic growth. Apart from that we grow our digital publishing area and also focus on the education market and are planning to deliver additional services to our target groups.

You are focusing on two models regarding further growth of your digital business. What are these models about and how do they fit into the existing businesses of Holtzbrinck?

One of the key questions is: how do you earn money with a digital strategy? There are different models how content can be generated. On the one hand it can be user-generated by a community like it is done with gutefrage.net, on the other hand content is created by really good and experienced journalists, like at Die ZEIT. Hybrids are editor networks or paid content providers. The key question is: how can additional value be generated not only by offering pure content but establishing ecosystems with services? This high-level approach is the core principles for the further development of our portfolio strategy.

It’s 2050. Holtzbrinck is still one of the leading companies in the publishing industry and you are still part of the executive team. What is your working day like? How has it changed compared to today?

There will always be a dramatic demand for research, being one of our core businesses with a lot of traffic on these platforms. In terms of collaboration, business growth will be far more digitalized. Travel time will decrease due to work being done from home. It is really difficult to look that far in the future, but I think that education will still be necessary. Looking at most organizations which come from hierarchical structures, I think the agile leadership style will be established which means you will be working in a network. Having reached certain status levels within the organization will become less important. Command and control leadership style will most probably, not completely disappear, but will not be as relevant as today.

Since many CDTM students are interested to work at the intersection of media and technology, what would you recommend to students, who pursue a career in the area you are working in, in order to become successful?

It completely depends whether you want to start your own business or you plan to be part of a larger enterprise. If you are planning to be part of a large company, a really good starting point can be to work as the assistant of a managing director in order to gain experience on strategy, to get an overview of the business and to learn how to communicate efficiently with different target groups in an organization. Based on that experience, it is then quite good to get in a team lead position in the area of business development or something related that helps you apply what you have learned in your first position. I have experienced that with some former colleagues at the company I was working for before I joined the Holtzbrinck Publishing Group. If you want to found a company, it is another thing: it is really important to make a sound analysis of the market in which you are incubating your company. Have a lot of patience, lots of energy and also the power to be adaptive and go that way for many years. It is most important to have a deep understanding of your customers and to know what they need and also to have the ability to deal with breakdowns, in order to accomplish further breakthroughs.