Cathie Black Has An E-Crush

Cathie Black, the president of Hearst Magazines, loves the way they get magazines done in places like London and Moscow and Sydney. There, they put out nice, glossy mags with good newsstand sales and a small staff, say 15-20 people, compared to about twice as many people for similar publications in the U.S. Black was speaking at a Magazine Publishers of America breakfast about how hard it is to get a magazine launched successfully in the U.S. because of all the expectations: a big public launch, lots of staff, "$5 million" overhead, a business plan for many months ahead. "We tried our darnedest" with two of the publications shut down in the past year Shop Etc. and Weekend "but they didn't reach the hurdles we set for them." Other notes: Hearst will be launching a Dubai edition of Harper's Bazaar in the next 60 days. Staff turnover has gone down in the last three months at Hearst because of their fancy new building. Her 18 magazine editors let out a "collective gasp" when told Web editors at Meredith didn't report to the publications' editors. Their digital division has sold 1.6 million print subscriptions. She hates the term "value added," and thinks any salesperson who gives Web ads away to close a deal in print should be shot. (Well, she didn't say "shot," but that's what we heard.) Web profit margins should be 30-50 percent, much higher than in print. Big directional decisions shouldn't be made only by "five senior managers" in a room, but rather floated among the staff first. If you are under 16 and looking for a date, you should go on eCrush.com, a site with 2.4 million registrants and one Hearst bought this week. Black didn't say if the registrants were all teenagers. "We are in the bumper car year." We're not sure what she meant. Here's the full transcript: "PUTTING THE PIECES TOGETHER" Good morning. It's great to be back. The last time I was a speaker at one of these breakfast sessions was 2002. Even though that was a few short years ago, it was a very different world. I talked about our high hopes for O, the Oprah Magazine which went on to make publishing history. I also talked about our high hopes for Lifetime Magazine which didn't. I talked about a lot of aspects of the magazine business. But I mentioned the word Web only twice and then only in passing. I didn't mention social networking or Google or blogging or long-tail marketing or interactive advertising or high-speed connections or tagging or platforms or any of the other things that are re-shaping the world of publishing. It's not that I wasn't aware of these things. It's just with the ruins of the dot com economy still smoldering it didn't seem like they would be factors any time soon. Obviously any time soon came a lot sooner than any of us could have predicted. And even if we had started to prepare for the incredible fusion of fragmented consumers and technological choice we would have gotten it wrong. Things are moving that fast. All media is new media and we are all working to figure out the opportunities. We can break all of the complex, interwoven issues in motion down to four big and basic ones: 1) Consumers 2) Brands 3) Technologies and 4) Organizations. They are a package deal each shapes and directs the others. Miss one and you miss them all. Consumers, of course, are at the center of the universe. They don't give their hearts easily or their attention or their trust. We are out of the business of telling them what they want. That means we have to understand what they want and that has never been harder to do. Consumers used to be just fragmented. Now they're atomized. Blue, red, gay, straight, city, suburban, white, ethnic, single, married, boomer, millennial, striver, slacker, owner, renter, spender, saver On it goes and all of it counts. And all of it makes the next piece of the puzzle more important that ever. A strong brand is any medium's single most important advantage. It is one of the signature reasons that even though we don't precisely know what the future of magazines is going to look like we know without a doubt there is a future. And it's actually very bright. A great magazine title is one of the strongest brands on the planet. It does everything a great brand is supposed to do create meaning and connection and trust and loyalty. But it does all that in ways that few other brands can. A magazine like Oprah or Cosmopolitan or Popular Mechanics or Esquire part of the reader's life. It's a reflection of who they are and what they want. Readers don't zap through the ads with a remote. In fact, study after study tells us that magazines ads are not tolerated. They are desired. They are part of the package. Our ads come through a door that the consumer opens. We have to continue to work very hard to convince all those advertisers that have digital stars in their eyes that magazines and consumers have a very deep and special relationship. But I think one of the big wake-up calls for all of us has been that a magazine brand doesn't work like an annuity that just keeps paying off. They take a lot of work. Constant work. At Hearst, we had to face the fact that of our oldest and best titles were getting a little frayed at the edges. So we've invested a lot of time, talent and money in bringing them up to consumer expectations. And today some of our oldest titles are among our best revenue performers: Esquire is up 14%, Harper's Bazaar up 13% and Redbook up 9%. We've also invested in creating new brands and expanded brands. We bought or launched 12 titles in seven years. We have built our international titles to more than 200 titles in more than 100 countries. Our most recent addition is Harper's BAZAAR in Dubai. We found that US brands travel vary well as long as you adapt them to the culture which usually involves going in with a partner. We value and support our brands but we also look at them realistically probably more realistically than we have in the past. That sense of reality is being driven by a number of things. Circulation costs weak sell through at newsstand paper and postage costs to name just the big ones. We can deal with those challenges. But it means we're going to have to think harder and more creatively about rate bases formats how we measure audiences on-line and print integration. Probably the most visible impact of that kind of re-thinking is the recent industry body count. We've seen the demise of Cargo Vitals Celebrity Living Elle Girl Teen People Organic Style Vitals For Me and most recently, FHM, which was shuttered in North America, after burning through about $35 million during its nearly seven years of existence. In all about 22 publications were killed in 2006. including two from Hearst. We ceased publication of two of our launches SHOP Etc and Weekend These were two very good publications. They were well conceived and well-executed. But they didn't reach the hurdles we set for them so we chose pulled the plug. I think the casualty lists says two things. One is a greater and healthier new product orientation. Some products make it some don't life goes on. Two disappointments are simply the price you pay for titles like O, The Oprah Magazine, which was the top revenue performer in 2006, up 17% and CosmoGIRL!, and promising newcomers Quick & Simple. But what does that say about the future of big-bang, industry-changing introductions like Oprah? Are we prepared today to make big bets? The thing you have to remember is that we didn't see that many big-bang arrivals in the past. An Oprah or a Real Simple is a fairly rare event. A lot of new magazines look terrific in their launch trajectory. The laddie magazines showed you can get young men to read as long as you run the type between pictures of young women. They shot up fast and then they came down even faster. The ones that go up and stay up are wonderful but rare. There are certainly going to be more of the big, sustainable winners. But there is going to be less churning out concepts to see what works. There could even be opportunity in the TV programming model. You launch something never expecting that it's going to be there for generations. Maybe you find a trend create the ability to organize around it quickly keep costs in check and ride it as long as consumers tell you to. The trick here is the ability to learn to launch without the tremendous sunk costs of the past. That is fairly radical thinking for a business that has always measured shelf life in decades or even centuries. The next piece of the puzzle and the one that is turning our whole industry on its head is technology. Consumers are on line advertisers want to be there so we want to be there. The problem is we are still learning how to get there and we're not sure what our business will look like when we do. You know it's great to be private company. I don't think you can say that kind of thing to investors. But it's a fact. Nobody has begun to figure all this out. First, a little perspective is in order. Most ad spending is still tied to traditional media. Depending on how you want to measure it the Internet's share is just under or over 5 percent. We've seen it before. Ad Age recently pointed out that newspaper share dropped almost 10 percent from 1935 to 1944 as spending went to radio. And share for radio, magazines and outdoor advertising peaked in the mid-40s before the arrival of television. We're in another period of rebalancing. And along with the inevitable confusion that comes with times of transition there is huge opportunity. For the first time we have the ability to take our titles across whole new growth platforms. There is a consumer and marketing synergy that takes us into completely new territory. Our CosmoGIRL!, Seventeen and Popular Mechanics and a number of other thriving digital-print connections show us how powerful that synergy can be. Now we want to expand those connections to all titles using every workable application. That is why we've change our whole approach to the Web. First, we dipped our toes in by putting our women's titles on iVillage the biggest women's site on the net. It was a great way to get started nice presence with very little risk. But it became clear to us that we needed to do more and move faster than our partners did. So we sold our stake, took our money, and went our own way. We created Hearst Digital Media. Our incremental approach cost us a little time but we more than make up for that in the fact that we can build from the ground up. We can create a technology base that allows us to do the latest and coolest applications in video, animation, interactivity and go way beyond what we could do if we had built it even three or four years ago. One of the biggest changes we can build in is what is being called Web 2.0 still a term of debate but one we will all have to figure out. Basically it reflects a change from the Web as a collection of sites Web 1.0 to the network as a platform that changes, improves and grows stronger with ways that people use it. Someone called it an "architecture of participation" which means that direction and control are moving from the center to the edge and that content providers are becoming content facilitators. One of the best examples is user-generated social networking like MySpace, YouTube, Facebook and other sites that are bringing together tens of millions of faithful users. When you think that a magazine is all about creating communities building in the technologies to allow the members of those communities to talk to each can be huge. We have five major goals for Hearst Digital Media: 1) We want to transform existing sites into the best the Web has to offer. 2) We want to use the Web to drive profitable circulation. As traditional circulation building becomes more and more expensive this can have a big bottom line impact. 3) We also want to lead the industry in functionality. The more the site can do the longer people will stay there the greater our opportunity to drive revenue. 4) We want to be a leader in site traffic which is the equivalent of single copy sales in print. It's the best single measure for every thing we do from content to function to marketing and promotion. Finally and most importantly we want to make money. We're building an ad-driven model which is fueled by growing audiences excellent content and strong consumer marketing. And we are taking it all to market with a dedicated sales and marketing staff. And we are training them to sell in new ways across media. Today, we are talking less about selling pages than we are about building brands. Moving as fast as we need to means acquisitions. One of the first is eCrush, which we just announced on Monday. It's the original "crush" site a way for users to find out anonymously if someone they like feels the same about them, without the pain of rejection. The site launched on Valentine's Day 1999, and since then has matched over 900,000 people, with over 2.4 million users registered so far. It's the digital extension of that age old high school question does he like me? Or does he, you know, like me? The site also has some well controlled and screened tools to flirt on line a photo site a TruthQuiz surveys and other ways to get kids involved. It's going to be a big factor in accelerating the on-line presence of our Teen Group CosmoGIRL!, Seventeen and Teen magazine. I said that we want to make money. One of the big questions is how much money. A misconception is that all this is the start of a transition from one income to stream to another. It's not. It's an enhancement that flows both ways between print and digital each supporting the other. Near term digital revenues will remain small compared to print revenues maybe 10 percent of the total by 2008 or 2009. But they are going to grow and they are going to give us much better margins than we get with print advertising 30 to 50 percent so more of what we sell will find its way to the bottom line. So two things to remember about our online future. We will always be a print media. But every one of our print titles is also going to have a dot-com attached to it. All of this is having a tremendous impact on our organization. The things I've been talking about mean some fundamental changes in how we do business how we develop products how we go to market how we distribute at retail and how much we spend. But we have some experience with that kind of transformation. Shortly after I arrived at Hearst a little more than 10 years ago we started what we called the Visioning process. The idea was to sweep everything off the table all our assumptions and take a hard look at who we are what we do what we should be doing could be doing and should stop doing. It started small just the senior management. Then we started adding more and more people. At this point, we've involved managers from across the company and the world. We asked ourselves a lot of questions Like: Where did we come from? How does that help us? How does it hurt us? What are we good at? What are we not good at? What do we keep? What do we throw away? Who are our consumers? What do they want? Why do people want to work here? Why don't they want to work here? Early on, I think even the process of the process helped us. We became much more open more collaborative much more of a meritocracy than we were before. It had a lot to do with getting us where we are to day. Even with the dot com bust, 9-11 and the worst ad market since World War II we had three straight years of record profitability. And it pointed the way to some of our most successful titles and businesses. Would we have done all that without relying on your people to look at the future and help us align with it? Maybe some of it. Certainly not all of it. And certainly not as quickly as we did it. And now we have to do it again. Only better. Jack Welch likes to say that when events outside the company start moving faster than events inside you're in trouble. As much as the industry has changed in the last five years it's going to change even more even faster in the next five. Just about everything is in play costs circulation distribution marketing technology consumers. When the revenue model changes the cost model has to change with it. It's not easy. It's not always popular. And it's one of the toughest leadership jobs I have right now. Let me sum all this up: The future is unclear and our business is in motion. We have to be prepared to take apart what we've done and put it back together as we go. We have to be prepared to invest in areas where we don't yet know the full definition of ROI. We have to be the torch-bearers who lead advertisers who are just as confused, intrigued and excited as everybody else. All media are wrestling with the same basic questions. It all proves the wisdom an old saying The best way to predict the future is to invent it. In the course of our invention and in many cases re-invention we have a lot to learn. But we're learning fast. One thing we've learned already absolutely is that we have the key pieces. And some of those pieces particularly our brands and the talent and experience of our people are invaluable. They will be hard for any competition to duplicate at any price. The job now is to put it all together in a model that fits the future. That future is still hazy, and it will throw down a lot of challenges along they way. But for a company with the right brands, the right resources, the right talent and the willingness to change the future is exciting and the opportunity is real. Thank you. And now I'm happy to take questions.

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Cathie Black Has An E-Crush

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