Hearst Is Staking Its Future on an Editor Turned CEO

After a record $10 billion year

Photo: Christopher Gabello

When SmartMoney made its debut in 1992, it was anything but another staid business magazine. A joint venture of Dow Jones and Hearst Magazines, it mixed humor with provocative stories, many of which regularly incensed advertisers. Founding editor Steve Swartz, a former Wall Street Journal Page One editor, embraced it all, taking meetings with angry executives. The magazine quickly asserted itself as a contender among personal finance titles and rocketed Swartz’s career when Hearst Corp. CEO Frank Bennack Jr. came calling in 2001, offering him the chance to help run Hearst’s newspapers. Swartz jumped at the opportunity.

Things have since gone quite well, given that last year Swartz became only the seventh CEO in Hearst’s 126-year history. “I really came to admire the breadth of Hearst,” says the 51-year-old editor turned executive. “They seemed to be devoid of corporate politics; they seemed to be open to trying things.”

SmartMoney folded its print edition two years ago (the brand still lives online), and while Swartz isn’t making magazines anymore, his content experience will be key as he plots a course for the company’s growth amid a time of great upheaval in media.

That said, the company he took over is vastly different from the one his predecessor took charge of in 1979. The changes are largely attributable to Bennack’s moves to diversify the company and its structure. A buttoned-up, family-controlled business, Hearst is also a private company that operates debt-free. With the newspaper base struggling, Bennack took large stakes in ESPN and A+E Networks, as well as magazines and b-to-b media. Ninety percent of the company’s revenue now comes from businesses that weren’t part of Hearst when Bennack assumed control, and Entertainment & Syndication and Business Media, formerly the bottom two profit drivers, are now the top two.

Last year was a record one for revenue and profits, according to Hearst, with revenue approaching $10 billion, a 13-fold increase over 1978 and 40 percent gain since 2009 (the company wouldn’t disclose profits). Finding the next ESPN won’t be easy. In doing so, Swartz is expected to look to areas of the company that hardly existed 30 years ago.

It might surprise some that the publisher of Cosmopolitan is also home to the decidedly unsexy but highly profitable Hearst Business Media. When Rich Malloch, a former Morgan Stanley banker, took command in 1991, the unit was a small collection of books and ad-supported magazines. Malloch shifted its reliance from advertising to subscription revenue and grew profits tenfold by acquiring new businesses like Zynx Health, which provides doctors and nurses with info on medications and procedures. Today, HBM is a mostly digital, subscription-supported business anchored by healthcare, financial and automotive services. It’s also Hearst’s second-biggest profit contributor. Malloch isn’t done; he’s on the lookout for add-on acquisitions and new verticals like weather or security information. “We were a pimple when I got here,” he remembers.

Surveying such new investments is Hearst Ventures, which operates like an internal private equity fund. It was an early investor in XM Radio, Netscape and Pandora, and more recently took stakes in Roku, BuzzFeed and Science Inc., a collection of e-commerce plays like Dollar Shave Club. The goal is to gain expertise that can inform Hearst’s existing businesses, which is why the firm often looks to take a board seat in its investments—perhaps even to buy them outright. As president of Ventures, as well as co-president of Entertainment & Syndication, George Kliavkoff bridges the old and new media worlds; as such, he’s the only senior Hearst executive who can get away with not wearing a tie. With the Hearst mantra of “fail fast,” Kliavkoff is placing lots of bets, well aware that the next big hit isn’t always readily obvious. (Though it now looks like Bennack’s smartest move, ESPN was far from a sure thing when Hearst invested in it.) “There will always be the next great thing—the challenge is to find it,” he says.

By far the most profitable division is Entertainment & Syndication. Hearst’s ESPN stake is estimated to be worth more than $3 billion. But the brand faces a weakening pay-subscription market, and with digital-video consumption upending the TV ecosystem, Hearst also is anxious to evolve its TV business. There, the company is looking to new productions like The Voice and Shark Tank through its partnership with Mark Burnett, and division co-president Neeraj Khemlani is on the hunt for paid digital video channels to acquire this year.

Meanwhile, Hearst’s mature businesses won’t be spared any responsibility in generating new growth. On Feb. 4, Hearst Magazines launched its latest title, Dr. Oz, The Good Life, following the wildly successful Food Network and HGTV magazines. The division has its challenges, to be sure. O, the Oprah Magazine and Good Housekeeping were down 14 percent and 7 percent in ad pages in 2013, respectively. Yet 30 percent of the magazine unit’s U.S. profits this year will come from new launches and digital products, according to Hearst Magazines president David Carey. “There are still many more things that can be done. There are lots of brands that lend themselves to magazines,” says Carey, adding that there are three or four “really solid ideas we’re kicking around.” With Hearst’s purchase of Hachette Filipacchi Media in 2011, the division now gets half its revenue from overseas. The deal also helped Hearst grow its share of fashion advertising via Elle, and by extension, Hearst’s smaller fashion titles Marie Claire and Harper’s Bazaar. “Elle is globally stronger than Vogue,” Carey boasts.

Such bets have been possible because of the company’s investment philosophy, Carey argues. “This is one of the problems at Time Inc. They’ve generated a lot of capital, but they haven’t had access to it,” he adds. “We contribute, but we also have access to resources.”

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