Over the past decade, free newspapers have become as much of a fixture in a commuter's routine as a cup of Starbucks. Each weekday, around 44 million free dailies are handed out in 56 countries during rush hour. London has the morning title Metro and evening rivals thelondonpaper and London Lite.
In Denmark, commuters now have four freesheets to choose from, a sharp drop from the 11 available titles two years ago. The Danish situation is by no means uncommon. To date, 320 free dailies have been launched, yet a quarter of them have already folded. With the current slowdown in advertising revenues and consumer spending, this number could easily rise, forcing publishers to question the viability of this business model.
"There is a question-mark over the number of free newspapers that can profitably co-exist in one city," Nick George, the head of publishing at PricewaterhouseCoopers, says. "Current advertising market conditions for any newspaper are challenging as the credit crunch is taking its toll on overall advertising spend: we have seen some structural migration out of print and into online."
Piet Bakker, a free newspaper expert and an associate professor at the University of Amsterdam, agrees. "High competition and a bleak economic outlook make it a problematic market," he says. "The pressures on papers to give discounts are substantial and, as they have no other sources of income to fall back on, this could lead to problems, as it already has in some countries. In Sweden, Spain, Italy, the Netherlands and Denmark, discounts of up to 90 per cent have been reported."
Spain is a particularly hard market for free-paper publishers to crack. On top of the massive discounts, the commuter demographic is not necessarily advertiser-friendly. "Unlike the UK, people who take public transport are either immigrants or lower-class people with less education and lower incomes," Pedro Merino, the chief executive of Initiative Spain, says. "Everyone else likes to take their own car or motorbike to work."
The Spanish print market, which has been hit by a 21 per cent drop in adspend in the first quarter of this year, is also hampered by distribution problems. "At the entrance to every underground station in Madrid or Barcelona, you see one person in red handing out Che, one in blue for 20 minutos, one in green for Metro and one in yellow for ADN," Merino says. "All four titles are competing in the same space."
Free newspapers have certainly seen a drop in circulation as markets have matured worldwide. Between 1995, when the freesheet giant Metro International launched its first daily in Sweden, and 2000, circulation increased by 250 per cent a year. In the first half of this year, growth fell to an all-time low of 6 per cent. This will worry publishers, which already face steep set-up costs. According to Bakker, it can cost up to EUR20 million to launch a free daily. The break-even point will only come on average between three and seven years later.
Given the rocky financial outlook, smaller publishers might well reassess their foothold in the market. In the UK, bigger players such as thelondonpaper's owner, News International, and London Lite's publisher, Associated Newspapers, are not likely to throw in the towel so easily, even if their finances look less than rosy. News International for one saw thelondonpaper make £17 million losses in its first ten months of operations. "It would rather take a loss than potentially let a competitor get into a market-leader position," Paul Thomas, investment director for publishing at MindShare, says. "It's a small price to pay to protect its other papers. It also has very deep pockets."
While News International and Associated may be slugging it out for dominance in the afternoon, Metro has the morning market all sewn up and that, says Thomas, is unlikely to change. "As a brand, it is very established, and it has proved that you can be very successful in this area," he says.
Although Metro is not immune to the credit crunch - the company reported a net EUR1.9 million (£1.5 million) loss in the three months to the end of June, compared with a net EUR1 million profit in the same period last year - its publisher still sees room for expansion. "The economic downturn is mainly concentrated in Europe and the US, but there is potential in other markets such as South America, Russia, South Africa, Korea and China," the Metro International chief executive, Per Mikael Jensen, says.
To make a free title a success, it also pays to be an expert in the local area. "People have launched a paper and then realised that you need to specialise in free dailies," Jensen says. "Your set-up - staffing, distribution and sales - is very different. Associated has succeeded but many others have failed."
Advertisers, meanwhile, have not failed to see the attraction of free dailies. With the exception of Spain, this format can deliver a much sought-after demographic. "The readership is affluent and between 18 and 35," Jensen says. "Traditional newspapers have a hard time reaching that group."
Metro International claims that 74 per cent of its readers are under 49. In the UK, freesheets have become indispensable, not only for targeting that young demographic, but also for fast-turnaround sales.
"If you want to shift product and shift it very quickly, the only way to do it is through free papers," Thomas says. "The lead time on magazines is so long." This, along with competitive ad pricing, could be freesheets' saving grace. "As long as they are well targeted and keenly priced, advertisers will always use them," he adds.