It seems somehow appropriate that the world’s oldest media group should be more prosperous than ever and still in family ownership. Hearst Corporation had seemingly glided through 20 digital years with little disruption either to its revenue or its reputation for consistent, unflashy success. Even when Covid rocked the world, the US-based company eschewed layoffs and, instead, paid its 24,000 worldwide employees a bonus to help them cope. And, just to reinforce its confidence in the future, Hearst announced that all employees would in future be able to earn performance-based bonuses.
But, then, something happened.
A New York Times investigation claimed that the company whose magazines had, for decades, advised American women on their rights and responsibilities was being led by an executive who had fostered a “toxic” workplace environment with lewd, sexist remarks.
The response was an abrupt announcement by Hearst CEO Steve Swartz: “Troy Young and I have agreed that it is in the best interest of all of us that he resign his position as president of Hearst Magazines, effective immediately.” But the outpouring of similar complaints, reportedly ignored over several years, metaphorically shook the foundations of Manhattan’s Hearst Tower.
There was plenty of sniping at Swartz who delegated to a woman (Young’s stand-in successor, finance boss Debi Chirichella) the task of committing the media company to “the change that must occur”. She was also left to offer assurances “that no one in leadership, including myself or anyone at the corporate level, knew about these grotesque allegations.”
In some ways, the insider justifications for Troy Young’s appointment and (almost) for the misconduct were ascribed to a print-digital culture clash.
It was Young, as Hearst’s digital chief, who had persuaded the then Magazines boss David Carey to separate the digital operations from print. When Carey quit, Hearst executives asserted that the two sides needed to be brought back together but “only a digital person could do that”.
Carey himself had quit in surprising circumstances. He had told colleagues he was fed up with having his long-ago distinguished predecessor, the veteran Gil Maurer, privately telling magazine editors to ignore Carey’s cost-cutting policies. Others noted that his departure came a few months after Swartz had noted, in an otherwise upbeat new year’s letter to all Hearst staff, that “The magazine business needs more change”. In the famously collegiate Hearst, those words represented a stiff public rebuke for its once world-conquering magazines. But it was followed by a real knock-out: Hearst Magazines was forced to pay $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) wiped out much of Hearst’s magazine profits.
Hearst executive vice chairman and long-serving former CEO Frank Bennack had reportedly doubted whether Young was the right choice to succeed Carey. But his CEO successor Steve Swartz disagreed even while, in throwaway lines, telling close colleagues that nobody else had actually applied for the job. It is still only two years since Swartz told his management team that Young had turned Hearst into “a world-class digital business.”
The Troy Young scandal was a shock for Hearst’s reputation as a genteel, unshouty company which behaves with civility and respect for people. Hearst executives do come and go but they tend to do so quietly and without rancour. But memories are short and even most insiders had forgotten about Scott Sassa, the short-run president of the company’s entertainment division who abruptly left in 2013 after a blackmail plot involving “a stripper with whom he was sexting”. Hearst sometimes struggles with external appointments.
Many of the company’s senior executives are lifers and some (like Maurer and Bennack himself) never actually leave Hearst. Even the aforesaid David Carey has now returned to head the company’s PR and philanthropic activities after a year away at Harvard.
But the success of the 133-year-old Hearst can be measured by its long-term profitability across most media and an unrivalled ability to sustain partnerships and joint ventures.
It all began in 1887 when W. Randolph Hearst took over the struggling San Francisco Examiner which his mining and farming magnate father had acquired in lieu of a gambling debt. Seventeen years later, he burst into magazines with the launch of Motor (a copy of the UK magazine he had picked up on holiday).
He acquired Cosmopolitan (then a general-interest magazine), Good Housekeeping, Town & Country, House Beautiful, and Harper’s Bazaar. Hearst pioneered newsreels and and, in 1919, founded Cosmopolitan Pictures in New York. His place at the head of US mass communications matched towering contemporaries like Carnegie (steel), Morgan (banking) and Rockefeller (oil).
Hearst established his own brand of journalism, wrote major opinion pieces and boasted that his newspapers “made” the news not just reported it.
By 1930, he owned 28 newspapers, 13 magazines and eight radio stations. Randolph Hearst died in 1951 but not before establishing the Hearst Family Trust. This trust would own the Hearst Corporation and remain in effect until the death of the last survivor of his sons and grandchildren who were living at the time the founder himself had died.
The trust (comprising a fixed majority of non-family members) seems likely to guarantee the independence of Hearst Corp for at least another 20 years or so, when it will inevitably become vulnerable to sell-off or at least a change of management. Randolph Hearst had created the trust to give his heirs ownership of the company – but with limited day-to-day control. The financial track record shows he got it right.
In 2020, Hearst is a diversified media and information company with more than 360 businesses including: ownership in cable television networks such as A&E, History, Lifetime and ESPN; financial information group Fitch; Hearst Health medical information; CAMP Systems International, a provider of software for the maintenance of jets and helicopters; 33 television stations reaching 19% of all US viewers; newspapers such as the Houston Chronicle and San Francisco Chronicle; 250 magazines around the world, including Cosmopolitan, Good Housekeeping, Elle, and Men’s Health; digital services businesses such as iCrossing and KUBRA; and investments in emerging digital entertainment companies such as Complex Networks, and dozens of startups.
Nobody can escape the irony that a company which cares so much about its reputation for civility and integrity was founded by the monstrous character who was the inspiration for Citizen Kane. But Randolph Hearst’s memory lives on in more than just a semi-fictional movie and an ingenious family trust.
Even the stunning Norman Foster-designed Hearst Tower owes its location to the founder’s 1920s conviction that a bridge would be built across the Hudson River. He had expected nearby land values to increase sharply so bought a plot for his offices. The bridge never materialised but, all these years later, his company’s spectacular headquarters is an award-winning 42-floor glass-and-steel tower atop the founder’s six-storey 1930s art deco building.
So the memories are everywhere. But the newspapers and magazines which paid handsome dividends to the Hearst descendants for decades are a mere fraction of the company that has invested so well in broadcasting, cable TV, digital technologies and now – more than anything else – in business information services.
The revitalisation was largely crafted by Frank Bennack who became President and CEO in 1979. The Hearst careerist, who stepped back from CEO in June 2013, transformed the company’s profits and prospects with a raft of deals. But his greatest coup was, in 1990, when he paid RJR Nabisco the seemingly full price of $170m for its 20% stake in ESPN, the world’s most successful sports broadcaster. It is still worth many billions.
Over the past 30 years, ESPN has thrown off huge amounts of cash for Hearst and its 80% partner Disney. Some years, it has generated more than 50% of Hearst’s total profit just as, 20 years previously, Cosmopolitan magazine had done.
Bennack led Hearst for a spectacular 28 years, increasing revenues 12 times and growing earnings more than 30 times, through investments, acquisitions and startups. More than 90% of profits are said to be from businesses added during his reign.
But the quietly-spoken Texan was always about so much more than deals. He is credited with moulding the culture of Hearst as a company that:
- Makes long-term investments in strategically important areas and does not cut and run when things get tough
- Is a good partner with other companies especially in unfamiliar sectors or geographies
- Is collegiate, confident but corporately modest and under-stated (which is why he was stung by the Troy Young fallout)
Bennack’s twinkling eyes, unfailing courtesy and quiet energy have been seen as the very definition of Hearst Corporation. But those ethics (whether or not they have been tarnished by recent events) should not obscure his decisive, hard-nosed achievements. Insiders say: “Before Frank took over, Hearst had a reputation as a sleepy publishing company. He has assembled a tremendous group of media assets. He has quietly and smartly created a great company, all the while with ego in check. They produce, recruit and support very competent managers.”
Bennack has always had a clear vision for his executives: “It’s more important to focus on what you can do going forward rather than dwelling on past achievements. My most important criteria for management success is not having people who arrive in top jobs thinking they got there as a reward for what they did. Instead, we want managers who think that they are there because of what they can do in the future and what opportunities exist for them.”
That’s what he said as Steve Swartz was appointed CEO in 2013. It was actually the second time Bennack had passed the baton.
The first handover had been in 2002 when Victor Ganzi, longtime Hearst lawyer, who had been Bennack’s deputy for 12 years, became CEO. He lasted just six years. The sudden announcement of Ganzi’s departure quoted “irreconcilable policy differences with the Board of Trustees about the future direction of the company,” amid reported clashes with the Hearst family over continuing investment in newspapers (including some $300m in unpromising acquisitions) – and too little digital activity, although he did secure the company’s initial stake in Fitch. The likeable Ganzi’s departure was, characteristically Hearst: a drama with little noise.
Steve Swartz is only the seventh CEO of Hearst Corp. He had been a star reporter on the Wall Street Journal and then editor of Smart Money, its joint venture magazine with Hearst, before a 20-year career flew him through the ranks of Hearst’s newspaper business following in Bennack’s own footsteps.
Swartz has been all over the steady stream of Hearst investments in business information which had begun in medical and automotive data and accelerated through aviation and the acquisition of the $1.4bn-revenue Fitch. The financial ratings and intelligence group which is now Hearst’s largest subsidiary, accounts for some 25% (about $500m) of the parent company’s total profit. It means that B2B now accounts for more than 60% of all Hearst earnings.
That’s a big shift from 2006 when Frank Bennack presided over the Hearst Tower opening by saying it had effectively been paid-for by Helen Gurley Brown, the legendary editor whose revolutionary Cosmopolitan magazine had transformed the company in the 1960s.
Hearst’s B2B information has made it an increasingly international company. Fitch operates wholly-owned operations in 150 countries. One sign of Hearst’s new determination to flex its financial muscle was the $2bn acquisition, in 2016, of the fast-growing CAMP for what is believed to have been 20 x EBITDA. Then, last year, Hearst doubled down on the aviation sector by paying Boeing $2bn for Inventory Locator Systems, the marketplace for parts, spares, service and stock planning.
The sharply reduced importance of magazines means that, for all the disturbance of Troy Young’s departure, it will have little impact on the future of Hearst. It’s all very financial. The company’s 13 trustees (5 family, 8 non-family) have the responsibility for:
- Cash and dividends for the current family beneficiaries
- Wealth creation for the long-term
The family-owned company has almost $5bn cash in the bank and virtually no debt. Even the spectacular Hearst Tower was paid for with cash, not borrowings.
Magazines, which once dominated Hearst, are now a mere 5% of its profits, and newspapers are not much more. But don’t expect Hearst to sell out of print. The company rarely sells any media properties because:
- Many of the brands are so long-standing that any proceeds would be heavily taxed
- The family has an emotional attachment to its newspapers and magazines
- What would it do with the money?
That’s the context for Hearst which, is probably generating some $2bn of EBITDA from $12bn of revenue. The shift to business information services has been driving higher profit margins than Hearst has seen for years and is also likely to offer plenty more large-scale acquisition opportunities. The fate of breakup/ sell-off candidates like Thomson Reuters, RELX, and Bloomberg is now more interesting for Hearst than any number of broadcast and magazine groups.
Perhaps it was the company’s enviable financial composure which made Steve Swartz just a little bit complacent before, during and after the Troy Young debacle. In the age of Black Lives Matter and MeToo, Hearst won’t be the last media company to be exposed for not always practising what it preaches to readers and viewers. But, like the timely decision to pay bonuses to all employees, Hearst has the opportunity now to become the role model its irascible founder would certainly not have cared about. In its third century, Hearst can become the best of all worlds.
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