Print media executives divide neatly into those who believe that once-pervasive brands can be the engines for powerful ‘new media’ and those who think their demise has been exaggerated and that magazines and newspapers don’t need to change too much.
In the week when Group M reported that UK advertising spend has grown 8% this year and is forecast to increase another 7% in 2020, there was nothing but grim news for print. Consumer magazines’ share of UK adspend has fallen to just 1.5% in 2019 and will collapse to just 0.8% by 2020. This compares with 3.9% in 2012. (In the US, it is currently 5%). At a time of such strong growth in the UK, as the world’s fourth largest advertising economy, magazines (and newspapers) are still bleeding.
Globally, PWC has already forecast a 2.8% average annual decline in magazine ads in the five years to 2023. Unlike their counterparts in B2B, it is a long time since there was any hope that that digital growth would compensate for the loss of print advertising. That’s the gloomy context at a time when the collapse of reader-led weeklies has left publishers ever more reliant on advertising-dependant monthlies. The magazine industry keeps shrinking.
In the UK, it is just a few weeks since Future agreed to buy TI Media (the former IPC and Time Inc UK) to become the country’s largest magazines group for what is reckoned to be a knockdown price. The news was reminiscent of the symbolism of Meredith hauling down the Time Inc logo in New York.
Appropriately, perhaps, the largest magazine groups, both in the US and UK, have their respective headquarters not in New York and London but in Des Moines and Bath. Meanwhile, magazines are now only Hearst Corp’s fourth most profitable media activity and, in the UK, Bauer earns much more from radio than from magazines.
The glossiest mags
That is why we’re all watching Condé Nast, the 90-year-old, family-owned company that has seemed to define the prestige of beautifully-designed magazines packed with ads on the glossiest of paper and whose ‘global content adviser’, the legendary former Vogue editor-in-chief Anna Wintour, hosts lunches for 50 in her palatial office in New York’s World Trade Center.
Brands like Vogue, Vanity Fair, GQ, Architectural Digest, Wired, Condé Nast Traveller, La Cucina Italiana, and New Yorker inhabit a media universe devoid of clickbait. But, two years after the death of Si Newhouse, the company’s leader for almost half a century, it’s all changing.
Within months of his death, Condé Nast disclosed annual losses of some $120m and an estimated $250m for the previous two years. The total worldwide CN business is now believed to have revenues of $1.5bn (some 50% of it outside the US), roughly equivalent to that once generated in the US alone.
Despite revenues that have fallen more than 10% during the past year, the £100m UK company continues to be the best forming international subsidiary, generating an estimated £10-15m of profit (before transfer charges) at margins not seen anywhere else in Condé Nast. Asia is growing nicely. But across the board, CN gains in digital and multimedia and movie ventures have failed (surprise) to offset losses in readership and advertising revenue.
“A 21st century company”
Si Newhouse’s death was the trigger for major change. First came a new succession plan which made Steven Newhouse co-president of the CN parent, the $18bn Advance Publications, alongside his father Donald. Second, came the appointment of Steven’s cousin Jonathan Newhouse to be chair of Condé Nast, and third was the 2018 appointment of Roger Lynch, former boss of Pandora music streaming, as CEO of Condé Nast overall and the US business directly. His COO and London-based president of Condé Nast International is Wolfgang Blau.
Lynch is the first outsider to be the company’s CEO and tells staffers and commentators alike his task is to create a 21st century media company that does not yet exist. There’s a lot to do.
It once seemed as though the discreet family ownership and its concentration on upscale magazines would protect the 100-year-old Condé Nast from the worst effects of falling print revenues. For the first decade of this ‘digital’ century, it even looked like that for the so-posh American publisher that had built its reputation almost exclusively at the top end – until the squeeze on print readers and advertisers caught up.
But the Condé Nast image continues to be part of its success, relative to its more diverse peers. It has become known for the splendour of its parties, including those thrown by Ms Wintour who is forever linked to the merciless heroine of The Devil Wears Prada, written by her former assistant. Hundreds of millions of worldwide TV viewers are regaled with annual images of Oscar winners lining up for Vanity Fair’s exclusive after-party.
Even its British subsidiary has all the trappings: an imposing seven-storey headquarters overlooking a garden square in upscale Mayfair; Princess Kate on the centenary cover of Vogue; 100 years of the magazine’s photographs at London’s National Portrait Gallery; and the Vogue Festival on the manicured lawns of Kensington Gardens.
Condé Nast has, for decades, thrilled readers and infuriated competitors. Although the secretive family has seldom discussed financial results, it has sometimes allowed itself the subtle boast that some of its best-known US brands have scarcely ever been profitable. The insufferable self-confidence and free-spending nonchalance helped, though, to build a company which now claims more than 80m global consumers in print and 350m in digital across 30 countries. The company that publishes some of the world’s best known magazine brands is itself a powerful brand.
Advance Publications was founded by Si’s father Sam Newhouse, son of Jewish refugees from Eastern Europe. He left school at 13 to earn money for his impoverished family of eight children and started working for a judge in his New Jersey hometown. He was eventually given the job of managing a local newspaper his boss had acquired in payment for a bad debt.
He managed the Bayonne Times at the same time as doing evening classes at the local law school. The paper was losing money, so he began to sell the ads himself. He made it profitable and was rewarded with a 20% share, later increased to 50%. He then had the opportunity to acquire another newspaper, the Staten Island Advance, which gave his new company its name.
Heyday of newspapers
The deal was followed by decades of acquiring newspapers, magazines and TV stations. By the time he died suddenly in 1979, aged 84, Sam Newhouse owned 31 regional daily newspapers with a total circulation of more than 3m. But that was only the start. Advance had become a nationwide communications empire that also included magazines, books, radio and television stations, printing companies and delivery services. For decades, the newspapers were the profit engines of Advance: In the 1990s, one Condé executive said that the Staten Island Advance made more money than all of Condé Nast, which had been acquired in 1959.
In 1976, Newhouse had acquired Parade magazine, a supplement with a circulation of 30m, inserted in more than 700 US newspapers. The downmarket magazine was printed on newsprint and was managed separately from the Condé Nast stable. But its $40-50m annual profits quietly subsidised the loss-making glossies for many years.
The magazine company’s name derived from its American founder, Condé Montrose Nast who, in 1909, had bought Vogue, which had been launched 17 years before. He transformed it from a 24-page weekly into a monthly magazine which became the first to establish international editions. British Vogue was launched in 1916, and Vogue Paris four years later on the way to a network of 20 worldwide editions. In quick succession, Nast had launched Vanity Fair and acquired House & Garden. His publishing philosophy was simple: he wanted magazines that would appeal to his elite friends.
Sam Newhouse bought the company’s 9 magazines 17 years after Nast’s death, for $5m. Legend has it that the purchase of the run-down company was an anniversary present for his wife who reportedly loved Vogue. But he handed over responsibility for the company to his son Si who was said to have turned the loss-making $20m revenue company into $1.6m of profit within the first year. Si’s younger brother Donald subsequently became responsible for managing the family’s newspapers and broadcasting.
Si Newhouse steadily transformed Condé Nast into one of the world’s best-known magazine companies, with a portfolio extended by GQ, Condé Nast Traveller, Details, Allure, Architectural Digest, Bon Appétit and Wired. In 1983, after a 46-year break, Vanity Fair was revived. His company motto said it all: “Class not mass”.
In 1985, he acquired The New Yorker for $200m, equivalent to more than 30 times its revenues. In 1986, he paid $25m for Citibank’s Signature magazine for Diners Club cardholders. He spent a further $15m changing it into Condé Nast Traveller, a transformation so complete that he would have saved millions instead by starting from scratch. The deals underlined the apparent contrast between the profligacy of the magazine-obsessed older son and the short-money strategies of his father and younger brother at the family’s newspapers.
For all his legendary ruthlessness (he sometimes seemed to hire and fire executives on a whim) Si Newhouse continued to spend freely and encouraged his executives to do so too.
But neither the words nor the bold, stylish gestures of Condé Nast seemed to match the persona of the shy, awkward and insecure boss. Described as “a mercurial micro-manager of epic proportions”, Newhouse, perversely, told his favourite editors to spend, spend, spend “because spending was part of the aesthetic, almost an end in itself.”
That was how the company managed to lose more than $75m in the first few years of the revived Vanity Fair. Newhouse encouraged editors like the Brits Anna Wintour (Vogue) and Tina Brown (Vanity Fair and The New Yorker) to spend for exclusivity and prestige. For all his billionaire eccentricities of wandering round the office in his bare feet, wearing worn-out clothes, answering his own office phone, and apparently having an acute fear of financial failure, he was one of the first magazine publishers to launch web sites back in 1995. His story was straight out of Vanity Fair.
In 1996, Si Newhouse’s slightly weird and whacky world was laid bare by the Wall Street Journal which reported that nine of the company’s then 14 magazines were losing money and that The New Yorker (then operated separately) might itself be losing as much again as the whole company. The story was full of lavish detail about huge salaries, interest-free loans, homes and cars for executives. Si reportedly lost more than $150m in under two years on the failed business magazine Portfolio, launched just before the 2008 global banking crisis. Nobody thought it was a crisis for Condé Nast.
But there have been unprecedented cutbacks in recent years, including: the closure of the US magazines Jane, House & Garden, Cookie, Elegant Bride, Modern Bride, Mademoiselle, Domino, Lucky, Gourmet, Details, and Portfolio; the merger of Bon Appetite and Epicurious; and the sale of Golf Digest, Woman’s Wear Daily, and Brides.
For decades, the erratic profitability had never seemed to trouble the family. That is one way to view Si Newhouse’s 55 years at the helm of Condé Nast, where the extravagance was under-written, first by Parade and, then, by huge capital gains on Advance Publications’ divestments: Random House Books sold to Bertelsmann for an estimated $1.5bn in 1998; Bright House Networks cable TV to Charter Communications ($10bn) in 2016; and Parade ($350m) in 2014.
Forbes magazine says the Newhouse family is America’s 12th richest. In addition to Condé Nast, its fortune is derived from ownership of its daily newspapers and investments in Reddit, Discovery Inc, Charter Comms and more.
Betting on Hollywood
But the big, brave Newhouse ideas live on. Take Condé Nast Entertainment (CNE), launched in 2011 to produce and distribute original TV, film and digital projects based on the company’s brands and archives. The new business was inspired by the fact that articles from Vanity Fair, The New Yorker, Vogue and even Wired had spawned almost a dozen major movies and TV films over recent years, including: “Coyote Ugly”, “Eat Pray Love”, “Argo”, “Proof of Life”, “The Bling Ring”, “The Man Who Knew Too Much”, “Adaptation”, and “Brokeback Mountain” – without CN receiving any real money. Even the TV blockbuster “The People versus O.J.Simpson” featured the late celebrity writer Dominick Dunne who had exhaustively covered the crime in Vanity Fair.
Eight years on, CNE has made a handful of movies and TV shows, and has released two feature films this year. It’s been a tough road and the company has now turned its attention more to YouTube, where it has become one of the leading premium publishers. It has more than 35m subscribers, and 4bn global YouTube views across its US channels.
But there’s not much money in it.
The company is discussing plans to launch a video streaming service which sounds a bit more promising. The signs of a new reality include the head of CNE who was quoted as saying: “I tell my team, ‘Guys, I went to the bank the other day and tried to deposit some views, but they told me they only take revenue.’ ”
It is assumed that the highly-geared CNE will survive in some form and the announcement of GQ’s sports channel and Bon Appetit’s ads-supported channel (pre-installed on Samsung TVs in the US) point the way to ventures that seem more likely to produce sustained earnings than the company’s dabbling in Hollywood. It is also producing five series of long-form video for Instagram TV including: “No Wrong Way to Wear,”(through GQ); “Big Fat Weekend,” (Bon Appetit); and “Love Stories,” (Vogue).
But CNE has, at least, managed to outlast the company’s once equally determined plan to establish an e-commerce business. That was abandoned in 2017 after nine months – and the loss of more than $100m.
That is why Condé Nast is such a good case study. It has all the brands, content, relationships and investment to succeed and yet…
Roger Lynch is presiding over the company’s ‘normalisation’, with formal strategies, authorisations, proper board meetings, the appointment of the company’s first “Global People Officer”, and long overdue plans to harmonise IT systems so that content can be shared between magazines and across worldwide brands. Such systems will enable the company to create new products and services and may give readers more flexible access to a range of content rather than having to subscribe to one magazine at a time. The publisher would then – finally – be able to capitalise on the shared audiences and compatible content of its magazine brands.
After its abortive e-commerce launch, Condé Nast is now working hard to sell stuff from its pages, including content marketing. It is also getting readers to pay more for content. Its big paywall success has been The New Yorker, which is said to have lost $175m in the first 13 years after it was acquired in 1985. It now has almost 1.5m subscribers to the weekly magazine and online. It generates a full 70% of its revenue from readers – and is said to be profitable. At last.
For all the reassurance that the glossiest magazine publisher is not for sale, there is the constant reminder of the Newhouse family’s burgeoning wealth and their growing investments beyond media. Advance has reportedly invested some $3bn in: Stage Entertainment, a European theatres group; e-sports analytics firm Newzoo; and also an operator of low-orbit satellites. It has also paid $1.75bn for Turnitin, which uses AI to scan students’ writing assignments to check for plagiarism.
The investments are the deafening sound of a wealthy family sharply reducing its exposure to media, especially advertising. Nobody can know when – and whether – the Newhouse family will respond to approaches from the likes of Hearst (with which it shares some back office publishing services) or even Apple or Amazon, in order to rid themselves of the task of finding a sustainable future for magazine brands.
There is no single type of ‘magazine’, of course. But Condé Nast’s brands do all have a relentlessly upmarket pitch which gives the company a ready-made rationale denied to many of those whose diverse portfolios share only an interest in print and paper.
All print-centric companies must build new business models either to complement or replace magazine ‘packages’, whether in print or digital. They increasingly need to build partnerships, joint ventures and strategic alliances with compatible companies rather than trying to acquire completely new skills in new markets.
The case for partnerships
A sustainable model might involve the design of “Brand Communities”. For Vogue (thought to account for more than 25% of all Condé Nast revenue), this strategy might involve three types of activity:
- Content: The magazine experience in print, online and through events. Delivering content to paying readers and viewers, and customers to advertisers and suppliers. Consumers would increasingly become members of a Vogue community or club. As now, this would be the core publishing company activity.
- Media: Vogue branded media including broadcast and streaming provided by external suppliers under license.
- Licensing: Lifestyle products and services including travel, gifts, food and drink under which licensed suppliers would provide Vogue readers with merchandise and offers. This might include credit or discount cards.
The point is to recognise that the publisher’s primary asset is the brand. Condé Nast needs to diversify its revenues but to remain primarily a custodian of brands and content. It needs to build a smart licensing operation in which all kinds of consumer suppliers would pay, for example, for Vogue’s exclusive endorsement of selected products and services, far beyond affiliate e-commerce. Success would depend on the strength of the brand not necessarily on the printed magazine.
We can speculate whether the CNE adventure is really worth the investment, rather than being something that Condé Nast should be licensing to partners in return for no-risk royalties. It all feels a bit scary and we should not be surprised if the eight-year-old company is eventually hived-off into a joint venture with a movie studio or streaming service. Could be another great divestment for Advance…
Meanwhile, Condé Nast’s new CEO has the task of unifying the systems, cutting costs, trimming the portfolio, building partnerships, and creating the kind of steady financial performance that will appetize the current owners – or the next ones.
Roger Lynch’s success may dictate whether or not Condé Nast survives into the next generation of the Newhouse family. Perhaps they will make the movie.