Hearst Corporation, in the US, has acquired seven weekly news brands from Hersam Acorn Newspapers, in Connecticut. This is the fifth bolt-on newspaper deal in two years by the privately-owned Hearst and emphasises its distinctive strategy.
Over the past 60 years (almost half of the company’s lifetime since being founded by W.Randolph Hearst in 1887), the company’s most profitable activity has shifted in turn from newspapers through magazines, television and now to business information. What is the world’s oldest multi-media group was built on the successive fortunes of daily newspapers and magazines. Then, in 1990, Hearst became a 20% shareholder in the Disney-controlled ESPN sports cable network which, alongside other TV networks, have frequently accounted for almost 100% of Hearst profits. The recent expansion into global business and financial information sees Fitch Ratings and medical data services now generating more than 50% of profits.
Such shifts have been common enough among media companies. But the difference is that Hearst sticks with its businesses even in decline and its policy of rehabilitating yesterday’s winners seems to pay off. Total revenues last year were some $10.8bn – at least 150% up over the past decade.
Although the numbers are bolstered by some chunky acquisitions, Hearst’s consistent growth underlines the enduring success of a media group whose pre-tax profits may now be $1.5bn. For all the disruption of its once-dominant print businesses, the so-versatile Hearst has scarcely missed a beat.
Its newspapers may now be one of the smaller divisions but they are doing better than most of their peers. With more than 3,000 employees, Hearst Newspapers publishes 24 dailies and 63 weeklies in Texas, California, Connecticut and New York state, and increased profits for the sixth consecutive year in 2017.
Now, Hearst is planning the reinvention of its embattled magazines. It is seven years since it spent $900m on 13 worldwide editions of Elle – just as the international licensing of magazine brands that it had pioneered with Cosmopolitan 25 years before, was coming off the boil. Last year, it paid an estimated $210m for Rodale, publisher of Men’s Health, Women’s Health, Prevention and Runner’s World. But four events in 2018 have set the scene for the coming revolution at Hearst Magazines:
- In January, Hearst Corp CEO Steve Swartz – in his annual letter to staff – singled out the under-performing magazines division, which had declined in profit after four years of modest growth: “Still, the magazine business needs more change.” In the famously collegiate company, this represented a stiff public rebuke for its once world-conquering magazines.
- Hearst Magazines paid $50m to settle a proposed class-action lawsuit accusing it of breaking data protection laws in Michigan. The settlement (and up to $17m in costs) will wipe out much of this year’s magazine profits.
- In June, it was announced that David Carey would be stepping down after eight years as president of Hearst Magazines. He would become titular chairman of Hearst Magazines for a year (while on a Harvard course) but his name quickly started coming off the company’s boards.
- A month later, Troy Young, who has led the digitalisation of the company’s magazine brands since 2013, was appointed to succeed David Carey. He wasted no time in digitalising the top team, but not before bidding his predecessor a tepid farewell: “David has been and will continue to be an important advisor, and I’m happy to have his guidance and institutional knowledge as I take on this new role.”
Twelve years ago, Frank Bennack (longtime chairman and architect of the modern Hearst Corporation) presided over the opening of its landmark Manhattan headquarters by saying it had effectively been paid-for by Helen Gurley Brown, the legendary editor whose revolutionary Cosmopolitan magazine had transformed the company’s profitability in the 1960s.
Cosmo once had almost 70 worldwide editions but faltering revenues and magazine closures (the latest in Australia) underline the need even for the monster brand to find profitability beyond print. But traditional media’s persistent challenge is how to compete with digital-only insurgents while trying to defend (or slow the inevitable decline of) still-profitable legacy businesses.
Troy Young addressed that conflict head-on by establishing digital teams, separately managed from the print magazines. The claimed digital profitability may have been inflated by discretionary cross-charging for content. But online audiences have almost doubled in the past five years and digital now accounts for one-third of magazine revenues.
In the US, Hearst’s 20 magazine-centric brands average more than 1.4bn monthly page views and 15bn annual video views, while attracting 146m social followers and 81m monthly unique visitors on Snapchat Discover. Young’s team launched five new brands on Snapchat, making Hearst the largest publisher on the platform. He also developed e-commerce revenues (mainly through the BestProducts site) and now aims to more than double retail sales to $500m within two years.
The revolution has begun, with Young’s decision to bring management of the digital and print teams back together. He is expected also to cut-back the company’s long tail of under-profitable magazines, each with their own dedicated content teams. Nowhere is this more obvious than the UK whose 20 brands (and 740 people) made operating profit of only £5m in 2017. Well over 50% of that profit came just from the venerable Good Housekeeping.
Hearst UK is under the microscope in New York also because of its wobbly strategy to staunch the loss of magazine advertising by distributing hundreds of thousands of free copies. The current ABC circulations of the UK company’s seven largest magazines have been padded by an average of 23% of free copies and even Good Housekeeping is 17% free. Steve Swartz’s words are ringing in their ears: “…We need the readers to pay more for the product. And we need to find a way to make digital subscription products work for magazines in the way that they are starting to work for newspapers.” Any new business model for these magazine brands will not be strengthened by print circulations that are hyped with free copies.
Troy Young’s appointment makes Hearst Magazines, arguably, the first major group to dare to do the obvious and subordinate print to digital. Early signs that the revolution is working will include some digital-only acquisitions in women’s interest markets in the US and UK, and a telling decision (perhaps in 2019) to change the division’s name to something like “Hearst Lifestyle”. It’s no longer all about magazines.