Only close watchers of paid digital content (paywalls) will have heard of Piano Media, a little three-year old Eastern European start-up that has steadily been adding clients. Today, Piano leaps to the front of the paywall vendor line, announcing its acquisition of  Press+, the dominant provider in the United States.

That same little company also hired Kelly Leach, publisher of the Wall Street Journal’s European edition, as its new CEO, and plans aggressive expansion into Latin American and Asian markets where digital pay is just beginning to get serious attention from publishers.

If the transaction, being described as a merger, sounds like a minnow swallowing a whale, it is. Press+, which Poynter uses to solicit donations, is 8.8 times as big in revenues, Piano communications director David Brauchli said in an e-mail exchange. The transaction is being financed by 3TS Capital Partners, a Central European venture capital firm.

Press+ founders Gordon Crovitz and Steven Brill sold their company to RR Donnelley in March 2011, but stayed on as co-CEOs. With this sale they will step back from any operating role and act as advisers, Crovitz told me in a phone interview

“Growing the market outside the U.S.” is the next logical step for the business, he said, and it made more sense to seek a partner with international experience than to try to build that capacity on their own.

Press+ will continue to operate under its own name with the metered system for digital subscriptions and supporting software and analytics its main offering. Piano began with what it has called a cable TV-like model in which Slovakia’s leading media outlets (and later Slovenia’s) combined for a single digital subscription offering that gave access to all the publications.

Piano adapted its product line to individual publications in Germany and earlier this year Newsweek with “Piano Solo.” The original whole country model, “Piano National” could have appeal in Latin American, Asian or even African markets

I spoke to Leach by phone from London and asked why she would leave a high-profile Dow Jones executive position for Piano. “I really believe in the paid digital model, and I did when not very many others did…It’s an area I’m passionate about. We have seen this wave working its way around the world and at the same time we are realizing that digital ads alone won’t carry the day.”

Leach worked with Crovitz in the early 2000s, when he was Wall Street Journal publisher, and the Journal was among the first to introduce digital subscriptions. (Closing the Dow-Jones loop, she was recruited for the job by David Brauchli’s brother, Marcus, a former editor of the Journal and later the Washington Post).

Tomas Bella, founder and current CEO, will remain an investor but step aside from an operating position, the company said.

Besides having complementary strengths, both Press+ and Piano charge clients a percentage of digital subscription revenue. Some competing vendors like Syncronex. Media Pass and Tiny Pass instead offer a fixed licensing fee with add-on features.

Both Leach and Crovitz said their strongest selling point is that their 600-plus clients provides the broadest experience base and best analytics, allowing companies to grow revenues to a much higher level than they would with a less expensive system.

I also spoke with Matt Lindsay, president of Mather Economics, which advises publishers on digital and other pricing issues. He had not heard of the pending transaction but said it made sense.

“There’s still some growth left” in basic paywall adoption in the U.S. and Europe, Lindsay said, “but we are starting to reach the saturation point.” However there is a next generation of paywall issues including new product development, refining trial offers and linking digital and print subscription plans.

Crovitz said that the combined Piano/Press+ company will be positioned for that business and may have offerings for “the dozen or so big companies (including the New York Times) who cobbled together their own system” without a vendor template.

But the bigger and immediate opportunity will probably be the rest of the world, following the U.S. and Canada and now Europe in pursuing revenue from digital users.

“Asia is really ripe for this,” Leach said, “and they may not have made the same mistakes. For instance, in Japan, only a small fraction of content even appears online….So they haven’t trained the customer (as most U.S. publishers did) that online content is free and ad-supported.”

Piano Media and its venture capital backers are both based in Vienna. Leach said she expects to divide her time between there, New York, London, and Bratslava when not courting new clients.

The news marks the very fast development of digital paywalls from untested theory to standard strategy. It is only five years since Brill and Crovitz launched Press+ and three-and-a-half years since the New York Times and other U.S. publishers began charging for full digital access. At the time, the consensus view was that publications would be placing their digital audience numbers and digital ad revenue at risk if access was no longer free.

Now roughly 600 U.S. and Canadian papers have such systems. Holdouts like Digital First, Advance, and Deseret are at least considering some variation. In our interview, Crovitz said that one of his company’s biggest achievements has been showing that paid digital can work for newspaper organizations of all sizes, not just the big guys like the Times, Journal and Financial Times

Brill and Crovitz, the New York Times and Piano also figured out early that there was lots more to successful execution than simply deciding whether to charge or not. Some flexibility in pricing and trial offers was essential, they could see, and digital pay could be closely tied both to management of print circulation and a next generation of specialty products.

The name Piano, according to a 2011 Nieman Lab piece by analyst Ken Doctor, was an allusion to integrating all these complexities — using ten fingers and both hands to produce a harmonious result.

In my view, legacy newspapers and magazines remained siloed by traditional print functions and provincial thinking until very recently. Now the notion has finally taken root that business model problems arrived earlier here than in other countries but that the search for potential solutions and associated business opportunities is global.

And if you accept that the industry has entered this new phase, little Piano swallowing U.S. leader Press+ is not as odd as it first sounds. Read more

CBS fired an opening salvo in what could become a disruption for network affiliated television stations.

WISH TV, the LIN Broadcasting owned station in Indianapolis will no longer be the CBS affiliate starting January 1, 2015. CBS is moving from LIN owned WISH-TV to the Tribune owned station WTTV, currently the CW affiliate. Tribune also owns the FOX station in Indy.

The move will cost WISH about half of its revenue, according to one media analyst, who added it will serve as a warning to other network affiliated stations. CBS is sending a signal that it is prepared to play rough when it comes to the percentage of revenue that local stations pass along from the retransmission fees that cable companies pay the local stations. In TV terms, the money that an affiliate pays a network is “network compensation” often called “net-comp.” Side note: A couple of decades ago, networks sent compensation to local stations and it is now the other way around.

Local stations hoped that agreements with cable companies would be a stable and significant new income stream. But now, networks, stressed by the high costs of athletic contracts, are putting new pressure on the affiliates to hand over more of the cable income. SNL Kagan, a leading media research firm, says within three to five years local stations may be handing over 50-to-60 percent of their cable retransmission income to the networks. The cost of resisting could be high.

CBS initiated the talks when Tribune approached the network about extending CBS agreements for other stations it owns. CBS spokesman Dana McClintock said the deal has been in the works “for months” and confirms that the cable retransmission fees were a key reason for the Indianapolis affiliate switch. McClintock also agreed that while it is unusual for CBS to change affiliates, it is not unprecedented. And he said cable transmission fees will become a bigger issue in future affiliate negotiations around the country.

Justin Nielson, Research Analyst, SNL Kagan

Justin Nielson, Senior Research Analyst for SNL Kagan told Poynter.org that he estimates a CW affiliate in Indianapolis generates $10-$15 million in annual advertising revenue. He estimates that a CBS affiliate generates $30-$40 million a year. “On top of that,” he said, “You would add the cable retransmission income, which would be significantly higher for a CBS station that has more viewers than a CW station.” Nielson said by losing the CBS affiliation, WISH will likely lose millions of dollars in revenue. How much depends on whether the station can land a new affiliation agreement with another network or whether it tries to “go it alone” as a fully independent station, which would be unusual.

WISH TV does not mention the affiliate switch on its website.  The soon to be new CBS affiliate announced the change on it’s co-owned FOX website.

Not only does WISH give up CBS programming including news and entertainment, in Indianapolis, it gives up Colts football.  CBS holds the rights to AFC games.

In a statement posted on its corporate website, Tribune said the new affiliation with CBS means it will add local news:

“This comprehensive agreement further expands our strong partnership with CBS and allows us to provide an array of outstanding programming, including leading live sports, news and entertainment,” said Tribune Broadcasting President Larry Wert. “Through WTTV’s new affiliation, we look forward to significantly enhancing our sports offerings, local news coverage and commitment to the community.”

The shakeup happened just one week after Tribune spun off its broadcasting properties from its print holdings.

WTTV hopes to have local news when it launches the new affiliation January 1, said Jessica Bellucci, Tribune director of communication. She said the Fox station that Tribune owns in Indianapolis already produces more than ten hours of news a day and the CBS station may share a newsroom and some resources. But she said, the CBS station will not just repurpose or repeat stories from the FOX station. Bellucci added Tribune believes the FCC will have no problems with the company owning both a FOX and CBS affiliate in this case.

Tribune also used the opportunity to lock up it’s CBS agreements in Memphis, Huntsville, Ft. Smith Arkansas and Richmond, Virginia. None of those agreements were due, but Tribune and CBS re-upped the agreements early.

LIN media finds itself in a delicate spot.  In March, LIN announced it would merge with Media General. As soon as the news broke about the affiliate change, LIN stock dropped nearly 4 percent, it was off even further on Tuesday. Media General stock dropped about the same amount and also continued to drop on Tuesday. But both have enjoyed highs since their merger announcement and are above 2013 levels. LIN has 10 other CBS affiliates around the country and will have to face CBS negotiations again as affiliation agreements come due.

Other network affiliates will be watching what happened in Indianapolis, Nielson said. “CBS has significant costs to cover, including its new NFL Thursday night football rights.”  And while he expects networks to stay with their current affiliates if they can, the shakeup in Indianapolis this week sends a signal that networks are willing to change channels if another owner is willing to pay what the network wants. Read more

Like the sale of the Washington Post this time last year, the merger of E.W. Scripps and Journal Communications, announced last night, and their reorganization into separate print and broadcast companies came as a jaw-dropping surprise.

But the morning after, the complicated transaction makes perfect sense.

• Local broadcasting is seeing a wave of consolidations. The business is healthy, and getting bigger provides station groups more leverage negotiating retransmission fees with cable providers. That has become a significant new source of revenue growth as political and automotive advertising remain strong.
• Financially squeezed newspapers drag down the share price of companies with prospering TV, cable and digital divisions. The spinoff of Tribune Publishing scheduled next week and the division of News Corp a year ago give the remaining parent television and entertainment companies investment wind at their back.
• At the same time, newspaper groups theoretically do better with management whose exclusive focus is on the particular challenges of that industry. Otherwise, they can end up a neglected problem child, getting less capital allocation and management attention, in a company with several financially stronger divisions.

My colleague Al Tompkins has separately rounded up a list of broadcast mergers and print spinoffs, and he also documents the stock price kick broadcast/digital companies have experienced. (Scripps stock is up smartly today  – more than 10 percent by early afternoon.).

For the newspaper industry, the de-consolidation trend has been building steam for seven years now, since the business took a deep dip during the recession of 2006-2009, Scripps did a version in 2007. leaving legacy broadcast and newspapers in one company while putting Food Network and other cable stations in another.

That same year Belo broke its newspaper and television businesses in two. The A.H. Belo newspaper group has since sold papers in Riverside and Providence leaving just the Dallas Morning News and nearby Denton. The Belo television stations have been bought by Gannett’s broadcast group.

Media General was flirting with insolvency in early 2012 when it sold its newspaper group to Warren Buffett’s BH Media (and the Tampa Tribune to another buyer). Media General has bought additional stations since.

While focus in the Post deal was in Jeff Bezos’s purchase of the venerable newspaper, it also left highly profitable local broadcast and cable divisions in the surviving Graham Holdings.

Finally, last year Rupert Murdoch split his international newspaper and entertainment/cable ventures into two companies. And Tribune, emerging from bankruptcy, decided to remake itself as a television and digital company with the Los Angeles Times, Chicago Tribune and six other dailies spun off into Tribune Publishing.

That leaves Gannett. And the Scripps-Journal transaction will heighten existing Wall Street pressure on the company to sell or spin off its 81 community newspapers and USA Today.

CEO Gracia Martore was asked about that possibility in a second quarter earnings conference call with analysts 10 days ago, though the questioner said “I know you won’t answer this.”

In fact, she did answer, albeit in ambiguous fashion. Both a USA Today reporter and I heard Martore say some newspaper organizations are for sale at the right price. But a Gannett spokesman walked that back the next day with a “clarification” that she was referring to newspapers owned by other companies.

Nonetheless, my fellow industry analyst, Ken Doctor has written that, in corporate-speak, Martore was opening the door to sale or spinoff at least a crack. And that was before the Scripps/Journal deal.

Journal Media Group will begin life, when the transaction is completed early next year, debt-free and with $10 million in cash. The company will be based in Milwaukee, though its CEO will be Tim Stautberg, who has headed Scripps newspaper division. The Journal Sentinel is at least twice as big in circulation as any of Scripps’s 12 papers and will be the flagship of the new company. The Journal Sentinel has strengths as a business too — typically among the top papers in household penetration.

All that augers well for editorial quality and financial prospects for the Journal Sentinel and its new mates. (Disclosure: I know and respect top business and news executives at both companies).

However, while Scripps is the acquiring company, Journal Publications will not give members of the Scripps family a special class of stock and voting control. So it will lack the buffer of family control and tradition that has kept McClatchy and the Sulzbergers’ New York Times Co. independent in these tough times. Journal Media Group could itself become a takeover candidate in the near future.

I am sure Journal Sentinel staff and perhaps readers too are wondering whether the paper will continue its investment in outstanding investigative projects, which have garnered three Pulitzers and many other award over the last six years, Scripps ownership certainly offers brighter prospect for that than a takeover by a turnaround hedge fund.

I sample, rather than read regularly, the work of metro newspaper organizations. But I would put the Journal Sentinel in the top rank, together with Poynter’s Tampa Bay Times, the Boston Globe, Seattle Times, Dallas Morning New and Star-Tribune of Minneapolis.

Curiously, all six of those are essentially single-paper operations — or at least they were until this morning. Joining a chain, and a publicly-traded one, is sure to up the pressure for financial performance on the Journal Sentinel, so I would not be astonished to see newsroom cuts down the road. Read more