The iconic French newspaper Le Monde is about to begin a new chapter of its complicated history. Last September, what remains France’s most influential paper changed hands (see previous Monday Note Le Monde’s escape velocity and story in NY Times’ DealBook).

Le Monde is now owned by a triumvirate: Xavier Niel, a telecom entrepreneur, provided the bulk of the €110m ($130m) injected in the venture; Matthieu Pigasse, head of Lazard France, and Pierre Bergé, co-founder of Yves Saint-Laurent fashion house. Now, as the paper prepares to replace its editor, the new owners’ turnaround operation faces tough challenges.

But, before we continue, a disclosure that might influence the way you read this column:

Over the last few days, I have been on the receiving end of feelers from both insiders and outsiders: they wanted to gauge my interest in Le Monde’s editor job. (None of these informal conversations directly involved the owners.) For reasons I’ll discuss towards the end of this note, I made it clear I wasn’t interested.

With this out of the way, let’s look two sets of problems at Le Monde: editorial and industrial.

The editorial one is a relatively minor. Le Monde prides itself in remaining the “Paper of Record”. Unfortunately, such posture encourages more arrogance than it spurs innovation or a burning desire to win. Le Monde’s morning e-mail sent to digital subscribers exemplifies this hauteur; it says: “Que dit Le Monde?” (What Does Le Monde Say?) ; it’s not “What’s in today’s paper”, “What we’ve got”, “What we scooped”, “Selected legwork”, or “You might like…” No. It is: “The State of the World according to Le Monde”.

Quite logically, we get headlines that pontificate about yesterday’s news (Le Monde is an afternoon paper, oddly enough). Rolling your eyes, you still buy it at your favorite kiosk hoping to find good reading material. Most of the time, you actually do. Le Monde still manages to retain a great editorial team, one able to produce and edit high-quality content. But such capability is no longer sufficient to keep (and preferably expand) its readership.

On weighty topics, The Guardian or The New York Times are just as solid as Le Monde, but they are also way more fun to read. By “fun to read” I mean these newspapers are more willing to assign valuable journalistic resources to subjects popular with readers but belittled by French journalists. (For more on what readers actually like, see a previous Monday Note: What do they read — actually ? ).

Again, dusting off this slightly austere and pretentious worldview is no big challenge; it only requires minor adjustments to the daily mix. And probably a bit of reorganization. Le Monde is notorious for its uneven workload distribution. On one extreme, we have toilers who feed the beast on a daily basis, always on the edge of burn-out; on the other, there are those who maintain a more epicurean approach to their job. Among the latter, some will have evidently to be let go; others will have to accept changes to their working conditions and contracts.

The industrial problem is far more critical. In the next few months, management will make decisions likely to seal the paper’s fate. These decisions will pave the way to a new era, or lead to extinction. (So far, the latter has been the unfortunate “natural” course: we’ll recall Le Monde was on the verge of bankruptcy last Summer).

The new shareholders — who define themselves as owners — were first viewed as saviors. Plenty of money, a strong industrial and financial track record for Xavier Niel and Mathieu Pigasse. As for the older Pierre Bergé (81), he was portrayed as the gentle philanthropist who arranged for Le Monde’s staff to retain a minority stake in the new capital structure. These idyllic feelings quickly evaporated as the paper’s management proved unable to present a well-thought-through strategic plan to their new bosses. After dawdling for a few months, the owners jumped to action, the hard way. Xavier Niel, the entrepreneur, lost patience and launched one of his former lieutenants on an expeditious cost-cutting operation. The gent — a French-Israeli entrepreneur — went after low-hanging fruits such as management perks, travel expenses and stationery (really!). In passing, as a way to squelch resistance, the new owners resorted to the classy expedient of leaking juicy details about the cost-cutting operations. They knew media reporters would parrot every bit of gossip without bothering with lowly fact-checking. Good old eighties tactics: publicly humiliating management.

Until then, people at Le Monde had only seen pictures of cost-killers; they got a rude wake-up call: gone is the era of passive shareholders and out-of-the-way board of directors. The general manager of the group was demoted two weeks ago, and the current editor has been stripped of its top attributions and is about to leave.

Now comes the hard part. The cost-killer is back in Israel but the really important decisions remain to be made.

#1 The printing plant. Le Monde still owns a cathedral that is both obsolete and costly to operate. The facility, controlled by the omnipotent Printer’s Union, is plagued by productions inefficiencies and loses its clients one after the other. The plant currently employs 300 people where 100 would be more than enough. That’s about €12m a year in potential savings. The choice is between injecting dozens of millions of euros to modernize the plant or closing it down. By any measure, this is a no-brainer: the plant has to be closed. Any Western publisher dreams of dumping his printing plant (many groups such as the Norwegian Schibsted no longer own any printing facility).

In Le Monde’s case, as part of the industry’s restructuring plan, the French government has set aside adequate funds and is ready to pick-up most of the tab. (For the long run, the Sarkozy administration wants to reduce the subsidies that accounts for 12% of the French dailies revenues but, in the interim, will provide financial support for transitions towards more durable structures.) This could free Le Monde to hand over its print job to the new facility built by Le Figaro eighteen months ago — one that begs for an accelerated amortization (see our story about Le Figaro’s strategy).

#2 The digital strategy. Last summer, investment bankers came up with the following valuations for the Groupe Le Monde: €10m for the newspaper itself, €30m for the magazines and €80m for its digital subsidiary, Le Monde Interactif (MIA). Problem is: 34% of MIA is owned by Lagardère Groupe, a diversified media company still in search of a viable digital strategy (despite numerous and costly acquisitions). The reason for this odd capital structure? The old guard at the newspaper was reluctant to fund Le Monde Interactif, which had to find external financing.

Now, Le Monde faces a weird situation: a third of its most valuable asset is controlled by another company and, with each passing quarter, the price for that stake goes up. Any new management would have to make sure it reassumes full ownership of such a critically important business unit. The urgency could justify a bold arbitrage move such as selling the cultural weekly Telerama acquired years ago. No synergies whatsoever have emerged from that takeover — except siphoning cash from Telerama to the perennially money-losing daily.

Le Monde needs to regain control of its digital strategy both from a capital and a product aspect. Le Monde Interactif grew up feeling like the illegitimate offspring of a noble family. No wonder why it now fiercely defends its autonomy. With a dual ownership — largely played by MIA’s management for its own political ends — and a profitable operation, the digital arm of Le Monde operates in its own ways. Unfortunately, not for the best results. Editorially speaking, the site remains below the newspaper’s standards, and it doesn’t look good when compared to the Guardian Unlimited or the New York Times Digital. Its content is uneven (to say the least), often remotely related to the paper’s editorial treatments; many blogs are weak, and the entire interaction with readers is messy. In short, a platform with great potential, technically and financially strong, but one that calls for more discipline and a greater strategic editorial alignment with the flagship.

In addition, Le Monde Interactif prides itself with a rebellious online appendage: LePost.fr, a website targeted at young audiences. Originally designed as a kind of innovation lab, LePost in fact became a place for gossip and unverified stories (labelled as such!) — and for bleeding money (€2m operating costs for €200,00 revenue in 2009). This excrescence only needs to be sold or closed-down. (Its staff could be efficiently reassigned to beef up Le Monde’s presence in social and participatory medias.)

Within five years, Le Monde will be read mostly on mobile devices — smartphones tablets — and supported by a mixture of free and paid-for contents. In the meantime, the newspaper will undoubtedly continue to lose some of its readers, even though a core audience, mature, educated and affluent, could slow down the process. The paper’s pricing/distribution therefore needs to be reassessed. It is likely that it could sustain significant price hikes without major readership erosion, probably coupled with distribution focused on major cities. At the same time, the weekend edition — a strong advertising vehicle — should be expanded.

There is no room for procrastination. Le Monde needs to act decisively to preserve its brand and editorial influence. It needs to reconsider its perimeter to address a critical issue: the Paper of Record is now challenged; it must morph into the Permanent Media of Record, online and offline. This requires a serious rethinking of asset allocation.

Why I felt I shouldn’t even think about the editor job:

1 / The editor’s job, as it is now defined, has been stripped of any influence on the company’s strategy. Such a job needs a say on essential matters such as the printing plant, or the way Le Monde controls its digital unit. We need to know the new owners will involve the editor in such matters. For their defense, most journalists are totally divorced from any kind of management culture. In my case, I don’t believe a media can be effectively managed solely by making decisions for the main editorial or the home page.

2 / The selection process is just terrible. First, candidates have to declare themselves publicly. Then, they are auditioned by a kind of ad hoc committee. Next, they are presented to the owners and to delegates from the newsroom. Finally, the appointee has to be approved by a majority of 60% of the staff. The result is the primary factor in picking a candidate will be his or her ability to get those staff votes. For the selection committee, using other criteria bears the risk of being discredited. Good luck with that.

The need to appoint an editor aligned with the newspaper’s core values is understandable. But, rather than electing an editor by popular vote, it would be much better to have a candidate: (a) probed and interviewed by a selection committee led by the board of directors — like in most companies — and, (b) approved by a board of trustees whose mandate is promoting the paper’s independence and integrity.

3 / There is no shortage of candidates inside and outside. The owners might prefer an outsider, which could further complicate the game. (The triumvirate is said to put a high priority on hiring a forty-something. Such focus is questionable: Alan Rusbridger, the Guardian editor, 57 years old, is at the top of his game on all facets of the paper’s business.

Unfortunately, the process as it stands today carries a high risk of morphing into a bitter campaign. The bloodied winner will then face a gauntlet of frustrated apparatchiks only too eager to question his/her authority since, of course, the defeated candidates won’t leave. It can’t work that way. Especially for a media group facing such daunting challenges.

— frederic.filloux@mondaynote.com