Monday, April 09, 2007

Black to Basics at Hearst Magazines

Black to Basics at Hearst Magazines
BY Tony Case jsp?vnu_content_id=1003568633

Cathie Black runs a tight ship at Hearst Magazines by squarely facing publishing's many challenges, keeping costs down and tapping into the digital future.

"Not bad for a girl from the south side of Chicago, huh?" Hearst Magazines president Cathie Black quips during a quick nickel tour of her magnificent corner office, on the 43rd floor of Hearst Corp.'s shimmering new office tower in midtown Manhattan.

It is, in fact, a jaw-dropping view, peering down on the Time Warner Center, Central Park, across the Hudson and beyond to readers who have made Hearst—with powerhouse magazine brands including O, The Oprah Magazine, Cosmopolitan, Good Housekeeping, Seventeen, Town & Country and more than a dozen others—one of the most influential publishers in the country. (And the world, with nearly 200 international editions. Hearst's latest global player is Harper's Bazaar in Dubai.)

Indeed, there's no shortage of good news coming out of Hearst these days—sharp new digs, an aggressive drive to make its Web sites more relevant and lucrative and record profits rolling in. But with Black and many of her team gathered in New Orleans this week for their biennial management conference, there also may be some cracks in the foundation of fortress Hearst. Despite all of her accomplishments since taking charge in late 1995, could the company's hypercautious, bottom-line focused ways under Black—while filling the coffers—dull Hearst's edge and the future viability of its magazines?

As Black herself likes to say, Hearst is a private company that behaves like a public company, without the pressure of having to answer to Wall Street.

Hearst, she explained during an interview last month, "has always tended to be smaller, with less structure. The publishers report to [executive vp, chief marketing officer and publishing director] Michael Clinton, the editors report to me, and [executive vp, general manager] John Loughlin runs the operations side—that's it. There aren't these layers of management that are expensive."

In terms of market share, other big publishers, most notably Condé Nast and Time Inc., have traditionally been more profligate spenders than Hearst. But with a shrinking ad market, stalled circulation and soaring expenses, they too have eviscerated cost centers.

For its part, Hearst has left no stone unturned in the hunt to save money, including centralizing ad production and bringing previously farmed-out, expensive chores like photo retouching in-house. Sales reps in Detroit juggle titles, while those on the West Coast are virtual. "We're looking at processes all the time," says Black.

However, some see that examination as limiting. "They scrimp and scrimp and squeeze and squeeze," says one former staffer who spoke on the condition of anonymity, adding that Black nails double- digit revenue growth by cutting fat. "But at a certain point, when the fat is gone, you're down to the muscle and you can't cut anymore. You have to have ideas for growing the business."

While Hearst is ringing up profits (earnings have climbed 109 percent on Black's watch, says a representative), circ and advertising numbers at some leading titles are showing signs of vulnerability. And when it comes to launching new titles that grab hold of readers and advertisers, Hearst—with a couple of exceptions, most notably O, its wildly successful partnership with Oprah Winfrey's Harpo—has struggled.

On the one hand, the Norman Foster-designed offices, for which the publisher paid $500 million in cash, would seem to dispel the image of Hearst as a company that operates solely with the bottom line in mind. But with very real challenges to the publishing business at every turn, thriftiness is not an evil in Black's book. When asked whether Hearst is more careful with money than its rivals, Black, with her signature straightforwardness, says "Definitely, it's different here."

Over the years, Black has put an end to such frivolous outlays as the $500,000 a year spent on flowers and other gifts employees gave each other. Hearst's penchant for thrift was fodder for blogs that chattered that the annual company holiday party was being relocated from Tavern on the Green to Hearst HQ (some might actually call that an upgrade), and that shrimp, an employee favorite, was not on offer.

Black certainly can be credited with resuscitating some long-established brands like Esquire and overseeing one of the most successful launches ever in O, as well as the launch of Cosmopolitan's teen spinoff CosmoGirl. But Hearst has had its fair share of flops. too.

Missteps include the much-hyped, Tina Brown- helmed Talk (a partnership with Miramax about which, in a 1999 Mediaweek profile, Black said, "On this one, we know. We've got a winner here."); women's lifestyle book Weekend, widely seen as a knockoff of Time Inc.'s Real Simple; cable spinoff Lifetime, with partner Lifetime Entertainment Services; shopping guide Shop Etc., an attempt to capitalize on the success of Condé Nast's Lucky, and short-lived family title Offspring, in partnership with Dow Jones & Co., with which Hearst publishes SmartMoney. Another women's title, Chic Simple, was tested but never got off the ground.

There also have been some breakout successes: O gave way to the 625,000-circ quarterly shelter title O At Home, and Town & Country to T&C Travel. Hearst's latest effort: bargain-priced women's service title Quick & Simple, its first U.S. weekly, which was launched in 2005. Its circ has steadily climbed from an initial rate base of 225,000, with plans to take it to 325,000 this year. But ad business in 2007 is off to a slow start, with pages down 15.1 percent year-over- year through February, reports the Publishers Information Bureau.

Of course, Hearst is hardly alone in the struggle for relevance and revenue. The industry as a whole has been remarkably slow to invent inspired new magazines. Like other publishers, Hearst has played it safe by leveraging tried-and-true brands with spinoff titles.

While conceding the inherent gamble of putting out a new magazine today, one media buyer sees Hearst as particularly risk-averse. "Hearst is always reluctant to go into the marketplace with a brand new magazine with the financial undertakings," says Maggie Connors, senior vp, group media director at FCB. "They're a little more conservative," says another buyer who does major business with Hearst's fashion and beauty books. "Condé Nast is pouring millions into Portfolio. I don't know if that's the kind of company Hearst is."

Whether that's folly or wisdom is up for debate. Roberta Garfinkle, senior vp, director of print strategy at TargetCast, says, "Ever since Cathie went over there, she's run a very tight ship, a very smart ship," adding, "When you look at them compared to other companies, Hearst tends to be much more stable and easier to work with, particularly for clients who are not multi-gazillion-dollar clients."

"I don't think we have to get our backs up about being cautious," says Black. "Just to put something out there because we want to have a launch every year, I don't know that that's such a good idea." Black acknowledges that newsstand is a significant challenge: "The old 'stick it out there and see if readers will come' is not a very effective approach these days."

When it comes to the performance of its established titles, there is no denying Hearst faces challenges. Some issues are unique to the company; many are not. Ad business is soft all around. Circulation management—especially newsstand pressure and the intensified scrutiny of verified copies—bedevils most publishers, while production and distribution costs keep mounting everywhere. As Black sums up, it is a "sobering time."

On the circ side, most Hearst titles are delivering bonuses. Nine of its 15 magazines measured by the Audit Bureau of Circulations achieved growth in the second half of 2006. Others remain under pressure. Even the darling of the Hearst stable, 2.3 million-circ O, is slowing slightly after years of explosive growth. Over the last half of 2006, total paid/verified circ dipped 1 percent, according to ABC, as the company tested a cover price increase that pushed down newsstand sales 9.9 percent. (A Hearst representative also cited a "challenging newsstand environment" and the "changing shopping patterns of today's busy woman.")

Meanwhile, O's ad pages through May are up 10.7 percent year-over-year. O was Hearst's best- performing title in terms of ad growth last year and was the only Hearst title to achieve double-digit gains, according to Publishers Information Bureau.

Hearst's other contender in the women's lifestyle space, the 2.4 million-circ Redbook, is having a tougher go, with single-copy losing 28.6 percent, leading to a total circ that's remained flat. (Rival titles Time Inc.'s Real Simple and Martha Stewart Living Omnimedia's Martha Stewart Living saw better sales in the same period.) Hearst, which is attempting to breathe new life into Redbook with a seven-figure makeover this July that will increase the trim size by 5 percent and upgrade the paper stock, sees the circ declines as a "natural and expected" result of the book's repositioning away from the traditional women's service format in an attempt to grab younger female readers. Ad pages through April were up a healthy 4.7 percent, on spreads from Avon and Kimberly-Clark. Through May, pages are up 7.6 percent.

Everybody, it seems, cheers Esquire editor in chief David Granger and the bang-up job he's done reviving that storied men's title, which weathered a challenge in recent years from the low-rent laddie books that have since flamed out. Esquire was just nominated for seven National Magazine Awards, including General Excellence, on top of two prizes last year. Granger, coming up on his 10th anniversary at the magazine, is roundly considered one of Black's best hires.

Despite editorial plaudits, Esquire's total circ was flat, holding at 709,151 and newsstand sales fell 10.2 percent in the last half of 2006. Esquire is now officially within spitting distance of its 700,000 rate base. (Hearst attributed the sales slip to a change in verified copies.) Esquire's ad pages doubled in the decade since Granger took charge, though ad pages through May fell 9.9 percent, despite recent spreads from Citigroup and Dolce & Gabbana.

After a shakeout last year in the teen field that saw the death of two players—Time Inc.'s Teen People and Hachette Filipacchi Media's Elle Girl—Hearst dominates with the two largest circulation books, the 2 million-circ Seventeen and 1.4 million-circ CosmoGirl. Despite the continued exodus of young readers to the Web, circ is not a concern for Hearst here.

Seventeen's circ was level in the second half, while CosmoGirl enjoyed a healthy 5.3 percent bump, even as newsstand dropped 3.6 percent. But the teen titles are shedding ads, with pages through May for Seventeen down 7.4 percent and CosmoGirl feeling a 12.6 percent falloff, according to Mediaweek Monitor. Continuing to close in on Hearst's turf is Condé Nast's successful start-up Teen Vogue, which has carved a distinct, fashion-focused niche and reaped a bumper crop of business from luxury marketers like Gucci and Louis Vuitton.

In women's service, the venerable and just-retooled Good Housekeeping, with a whopping reach of 4.7 million, grew its circ last fall by 2.2 percent, although ads were off 3.1 percent through May. In the cutthroat fashion/beauty category, Hearst's troika of Harper's Bazaar, Marie Claire and Cosmopolitan are gaining ground, with all three books scoring solid ad page gains through May, trouncing Condé Nast's Vogue, Hachette Filipacchi's Elle and Time Inc.'s In Style in terms of growth.

Even so, Hearst's players still sell far fewer ads than their rivals. And Harper's Bazaar, under editor in chief Glenda Bailey, continues to play catch-up to Anna Wintour's indomitable Vogue. The circ picture also shows challenges for the Hearst titles. The 2.9 million- circ Cosmo—despite the steady guidance of editor in chief Kate White, who Black moved over from Redbook in 1998 after Cosmo's Bonnie Fuller exited to join Condé Nast's Glamour—lost 2 percent in total circ, on a nearly 5.9 percent falloff in newsstand attributed in part to a modest hike in the cover price. Meanwhile, 962,000-circ Marie Claire was flat in total circ after a sharp 26.9 percent decline at newsstands. (The company cited a slash in verified copies.) The 726,000-circ Harper's Bazaar was level.

In the challenged shelter field, Hearst's 884,000-circ House Beautiful, which last year got a new editor and a radical makeover, recorded 12.2 percent growth in ad pages through May, while total circ grew 2.6 percent. The news wasn't as good at 1.6 million-circ Country Living, whose ads dipped 1.4 percent and total circ slipped 5.2 percent on a 12.6 percent newsstand hit. Circ at the lush Veranda, meanwhile, rose 4.3 percent to 459,000, and ad pages through March/April rose 12.3 percent.

Despite pressure on the numbers, Black continues to mine gold from her magazines. Hearst is coming off five straight years of record profits, and some of the publisher's oldest titles are also among its best revenue generators, according to Black, including Esquire (revenue up 14 percent in 2006) and Harper's Bazaar (up 13 percent). If Black has her way, an aggressive, much-touted push into the digital arena and the revamp of the company's magazine-branded Web sites could have a significant impact on revenue.

Many who do business with Hearst say they like the relative stability of its publishing ranks. "Once people get there, they don't leave," says FCB's Connors. "There's always continuity in their magazines. Publishers and their staff have been there for years." Says another buyer, "They're a great company. You see it in their people. There are publishers who have been there a long time." Over and over, ad execs also point to Hearst's willingness to work with advertisers and a greater sense of flexibility than chief rival Condé Nast.

Black's publishers are a devoted lot. Seventeen vp, publisher Jayne Jamison, approaching four years at the teen title and previously Redbook's publisher, says she feels "blessed" to work with such a "very smart, incredibly focused" boss. Still, she admits, "There is definitely a bottom-line focus here, and we're all acutely aware of that every day."

Nobody would describe the rapid-fire Black as a shrinking violet. This is a person, after all, who became the first woman publisher of a U.S. weekly magazine in 1979, when she was tapped to run New York, and who is credited with helping make a hit out of Gannett's USA Today, where she was president and publisher. Forbes magazine has named her one of "The World's 100 Most Powerful Women." It goes without saying that Black, who sits on the boards of IBM and Coca-Cola Co., didn't reach the top of Hearst Tower without being equal parts tough and smart.

Harper's Bazaar's senior vp, publisher Valerie Salembier, who has been with the title for four years and earlier was vp, publisher of Esquire, remembers her first budget meeting at Esquire a decade ago. The numbers weren't looking so hot. Still, she hit Black up for a big boost in the marketing budget. Black's response: "Are you insane?" Since then, Salembier has grown to appreciate Black's blunt style. "I've worked for people who skirt the issues, so you never know where you stand. Cathie invites you in&hellipshe is a superb motivator at all levels."

While the edit side also has stayed somewhat stable lately, there has, of course, been some drama. Celeb editor Atoosa Rubenstein briefly set media circles oblong last fall when she bolted Seventeen to start her own self-focused Web venture via her MySpace page. And the shelter category has seen a succession of editors in recent years, especially at House Beautiful.

Meanwhile, Marie Claire remains in flux following the abrupt ouster a year ago of longtime editor in chief Lesley Jane Seymour. Seymour was replaced by former More executive editor Joanna Coles, who was considered a curious choice as she had never been an editor in chief of a consumer magazine and had a hard-news reporting background. The timing of Seymour's dismissal also was seen as odd considering that the title's paid circ at the time had growth better than 3 percent and that Seymour had led the book to its first National Magazine Award nomination in years.

At that time, a Hearst rep said Marie Claire needed a "fresh perspective." A company insider notes that those who work on the title have always been caught in the middle of a tug-of-war between Hearst and and its 50/50 French partner, Marie Claire Album. A year later after the shake up, some senior staffers, including the creative director and beauty director, have left and ad directors are keeping a close eye on the title's circ problems.

While Black boasts that her editors "have a lot of autonomy and independence," she clearly is involved. Granger says Black "is always very clear about what she thinks you're doing" but insists she does not micromanage editorial. "I haven't always followed her advice in a strict manner, but I've always listened," he adds. "She has great perspective about what will make the business stronger."

Granger has proved more than capable of steering Esquire to editorial greatness, but he remembers early, uncertain days and a "chat" with Black over his choice of Fred Rogers (TV's Mr. Rogers) for the cover of Esquire's "Heroes" issue, in which the boss used language "not necessarily appropriate for a family publication." With Black, says Granger, "There's never any miscommunication."

When asked to describe her own management style, Black, true to form, has a concise answer at the ready: "Collegial, collaborative, but precise about decision-making." She is quick to add, "I am very interested in one thing—results."

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