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Roman Gallo
Director, Media Strategies
PPF Media a.s.
Czech Republic

http://www.ppf.cz
gallo@ppf.cz
Na Pankraci 1658/121
140 00 Prague 4
Czech Republic
Work: (+420) 234-174-074


"If people agree, if people go together because they would like to have new traffic lights because there is a dangerous street for their kids and if they are able to have a feeling that they can work together to change something small, than it is much more difficult to manipulate them through the state." Roman Gallo, in Aug. 20, 2010 MGP interview

Summary:
Pioneer at hyperlocal journalism staged from coffee shops

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By Bill Densmore


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Roman Gallo has held some of the top jobs in journalism in the Czech Republic, covering international news as well as Vaclav Havel, the brilliant scholar who was the republic's first president after the 1989 "velvet revolution" which ended communist rule. Now, his business is to worry about coverage of dangerous intersections, schools, community meetings and – coffee.

Two years ago, Gallo convinced a fast-growing Czech insurance and financial conglomerate to invest in journalism, and to embark on an experiment now being carefully watched by the news industry worldwide.

Last year PPF Media s.a. launched new weekly newspapers in three contiguous cities in a rural region – backed by websites, money, and a unique idea – base the main paper in a company-owned coffee shop in the southeastern Czech city of Kromeriz (pop. 35,000). Now the company is preparing to spend tens of millions taking its "hyperlocal" business model to dozens of small cities all over the central European nation of 10 million people.

It is both a high-stakes business risk for the owner, the startup media subsidiary of PPF – and a test of journalism dogma, too.

Business, journalism risks
The business risk is this: The Czech Republic has at least two competing national newspaper organizations – three if you count a well-trafficked web-only operation. But those companies have no footholds in regional or local press or media. PPF is gambling that they can build a network of weekly newspapers and websites – from scratch – and then sell national advertising into all of them, achieving much higher reach than the national competitors.

The test of journalism dogma is this: Will quality, local-only journalism – in both print and online -- supported by the most sophisticated technology, talent and training at a central base in Prague, be the key to erecting an impenetrable bar to competitors?

"Our product is not information or articles," says Gallo. "Our product is the quality article and for doing that we need people who are trained and educated to do that and who have support to do their job on a high-quality level."

On the web, he says earlier in our conversation, "You have an ocean of information, but it's difficult to evaluate if it is reliable. Our decision was to deliver high-quality content for the lowest level, the hyperlocal level. That's very expensive . . . Our product is quality content. That's the key point. Because you will have more and more information on the Internet everywhere, but I think for the future, only quality content . . . is something that will have the means to generate some money from advertisements."

Unique revenues – coffee and consulting
Aside from testing the hypothesis that quality local news can be a competitive advantage, Gallo's business plan is different from a routine web-print startup because it has two unique revenue streams:

  • Coffee. An aspect, which has attracted worldwide media attention, is where Gallo decided to locate the regional journalism centers – in coffee shops run by PPF. The first "NewsCafe" – the name used by PPF – has been serving up coffee, news and community events for more than a year. Another was set to open Aug. 30, and several more by March, says Gallo. Each will contribute 35 percent of the total revenues of a regional, hyperlocal hub-and-spokes system, Gallo projects. "I have one deputy for the coffee shops," says Gallo. "He is the gastro specialist. He didn't know anything about the media business before he joined our company."

    The coffee shop, he says, "creates for you a community place where people, because the editorial part of the coffee shop is open there are no doors, there are no walls, the editors are sitting in the middle of the cafe and we organize there plenty of community meetings, events, everything. And it creates much higher trust on both sides between the reader and the journalists."

  • Multimedia. With a staff of 30 journalists, editors, artists and business-side workers, PPF decided they Prague office should be unique. The roughly 40,000-square-foot space is dubbed the "Futuroom." Infographics artists are serving as paid consultants to a number of other media organizations around the world – TV and print. For example, an extraordinary detailed, animated graphic depicting all of the steps in plugging the Deepwater Horizon oil spill in the Gulf of Mexico was sold as an infographic to other news organizations – it was not for use in the hyperlocal operation. But the skill level to do such a graphic will also be applied to help local journalists. Gallo believes Futuroom's work will general enough royalty and fee income to cover the central-administrative costs of the hyperlocal network.

As Gallo sees it, freeing the regional hubs from sharing the cost of the central administration, and adding in revenues from coffee shops, creates more resources for journalism – both professional staff and about 25 free-lancers for each regional caf-and-spoke system – mostly for sports coverage.

"Paying the central desk, the central overhead cost would take 20% to 30% from your local income," he said. "We decided we cannot afford that. We have to keep local income on the lowest level. They built Futuroom to create new income streams able to finance the central desk. "It's a media library and training center about technology, multimedia graphics and advertising," says Gallo. He says it is both for internal staff, as well as for universities – one of which in Prague is using training rooms and the Futuroom news center as a venue for teaching.

Background on the prototype, begun in spring, 2009
PPF invested a small amount –- not multimillions –- in the first four-district test, which went live in June of 2009 with simple editorial tools and little coordination for advertising sales. But, says Gallo, "Because the pilot was successful, we got a green light from our owners and we invested in a [cloud-based] editorial and advertising system which is implemented now and which will go live a week from now, on Aug. 30."

Projected initial revenues will come about 10% from web advertising, about 35% from the coffee businesses, and the rest will be split between print advertising and subscriptions, Gallo says. Without the food-event revenue, the project makes less sense, he says.

Besides the Kromeriz NewsCafe headquarters, the other two weeklies serve the smaller cities of Holesov (pop. 12,500) and Bystrice, (pop. 8,700) each serving a region of about 25,000 residents. The three colorful tabloids are all published on Mondays to be able to carry weekend regional and local sports reports. They are not free. They cost the equivalent of about 50 cents in U.S. dollars and circulate by mail and on newsstands.

There are a total of five hyperlocal websites serving the three cities and three weeklies. Each of the satellite papers has one full-time reporter editor who works from home. The largest, the home base, has a reporter-editor and two other staffers, and is based in the NewsCafe. There is no other office, other than the central facility in Prague, some three hours drive away.

That test area represents about four percent of the nation's population, and includes four out of the nation's 75 local political districts.

Reporters as community catalysts
Reporters hired for PPF local will undergo training over four months. Those that come from national media need to think different about their role, he says. "If you were a big reporter usually you talked with big politicians and big businessmen and the media are becoming quite far from the real life o the average reader," says Gallo recalling his own career as an editor of the Czech national news service and two major dailies. "This way our reporters are in the middle of people's conversations," he adds. "That is much higher level of interaction, responsibility and much better feeling for reporters about what real life is about."

This different view of the journalist's role is one reason he thinks PPF Local will succeed. But it doesn't show up on a spreadsheet.

"Each of our journalists has to be really a multimedia person and has to be from one half he is a journalist and the second half he is the coach, he is the community leader and he is the community editor."

It's not hard to think of comparisons between what Gallo and PPF have been piloting for the last year – and are now believed to be spending tens of millions of dollars to role out – and the Patch.com unit of AOL Inc., the United States-based online service, recently spun off from Time Inc., which has said it is spending at least $55 million on its own hyperlocal effort.

In AOL's case, hundreds of reporters have already been hired, and in August the company said it will be hiring 400 more to staff and run the business side of hundreds of new websites for suburbs and small cities and towns across America. AOL says it has developed a sophisticated computer program to identify the most promising communities to enter. They need to have vibrant local retail economies and, at least in the early round, AOL seems to be focusing on upper-income suburbs of large cities.

Gamble: The necessity of print
But there's a big different – AOL isn't doing anything with print – at least not on their own. It's possible that in some areas they will partner with an existing paper. Gallo, on the other hand, says the print weeklies are an essential component of his plan.

"If we did not have a print side we would never run the project," says Gallo. "And I think it will work the same in United States and Scandinavia. Print is seen as the most reliable source for information. Plenty of people used to read the paper and they want to read the paper again. I don't have any doubts about the future of newspapers. If we do not have a paper we will not have income from the paper advertisement, from the paper copy sales and if I do not have these two incomes I will not have the money to create quality content."

Gallo won't speculate in particular about AOL's plans, which he is not familiar with in detail. But he says if they don't have print, or high-quality journalism, they will be vulnerable to competition, because the barriers to entry in the communities they are themselves easily entering will remain low.

"If you go with such an approach you create some buzz and visibility in the market which in the beginning will generate you more money," he says. "But there will come new competitors and they will do the same and they will do it for the local level for the people with big heads or small shoes or whatever and they will destroy your business because you have a very small entry barrier for the market."

Starting print weeklies in the first trial area worked well for PPF, according to Gallo. At launch in June 2009, the company mailed a full copy of the paper to a total 18,000 homes in the three target small cities, with an offer to subscribe for about $3 (dollar equivalent) for 10 weeks. A total of 42% of the recipients did so.

PPF did no other launch advertising other than a copy of the paper itself. Their combined three-publication circulation now totals 18,000 paid copies delivered and on newsstands in the three pilot districts (13 percent household penetration) after just over a year. Full-rate annual subscription is the equivalent of $25 to $30.

Gallo says the five websites are free, but they won't be entirely free indefinitely, except to print subscribers. Right now they do not off a web-only subscription.

Tie-in sales at the coffee shop in insurance?
Gallo is coy about the future of the experiment beyond the national hyperlocal rollout, saying the project could be sold "in a week or a month to another company." He says PPF is entrepreneurial and bottom-line oriented – although his business plan emphasized the social-good of quality journalism. PPF is experimenting with other businesses besides media. For example, it has tested selling insurance products to citizens who have become part of the NewsCafe community in Kromeriz – "and it worked much better than anybody expected," according to Gallo.

"It is not only the news business," he says. "It is the creation of a loyal community of customers which are created through the media business, but then they are leveraged also used for other income streams." The whole logic of the project, Gallo says, is to use the power of the media services to create a community of readers – and customers.

"And if we put it in the paper every Monday this week we have a cheaper croissant for this lady who will bring the kid with her and we will give them for free one ice cream, you will have lines of people there," he says. "Because we use this media power to support this business which from the opposite side helps us to finance the quality journalism."

Community building against state manipulation?

But given his hard-core journalism background, Gallo is also focused on his belief that quality news and intense community involvement will help put more distance between the Czech Republic and its communist past.

He puts it this way: "If people agree, if people go together because they would like to have new traffic lights because there is a dangerous street for their kids and if they are able to have a feeling that they can work together to change something small, than it is much more difficult to manipulate them through the state."