Hearst Is Staking Its Future on an Editor Turned CEO

After a record $10 billion year

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.”

Despite the headwinds facing newspapers, they are expected to innovate, too—which they have, rolling out local digital marketing services throughout their own and other local markets. Swartz proudly points out that, while overall newspaper revenue continues to decline, profits have improved. 

Photos: Courtesy Of Hearst

Perhaps Swartz’s biggest obstacle will be realizing Hearst’s potential through stronger cross-pollination across its groups—something the company hasn’t been known for. In Bennack’s later years, a key focus was getting his division heads to look for ways to work together. He hired Khemlani as the company’s first chief creative officer to work across its divisions. Swartz followed Bennack’s lead, creating a digital studio to feed the various groups. Today, executives go to lengths to illustrate how they’re working across divisions. One effort, led by Hearst CTO Phil Wiser, shows promise; he’s packaging Hearst’s online newspaper, magazine and broadcast audiences for advertisers. But others are still just theory. Hearst touches the auto category via consumer brand Car and Driver, online marketplace Jumpstart Automotive and its b-to-b services, and is looking at ways to wring more mileage out of them. Similarly, it’s thinking about consumer applications for Hearst’s b-to-b health business. But these are small or long-term bets, and it’s hard to find natural synergies between the disparate units. “We haven’t done very much in connecting things,” Malloch admits. Swartz says he’s trying to instill teamwork without forcing it, noting that Hearst lacks the natural synergy that companies such as Disney, its partner in A+E, have.

Those at Hearst speak reverentially of Bennack while emphasizing the seamlessness of the handover. Still, there are differences between the CEOs. Bennack rose up the sales side; Swartz is an edit guy. The son of Boeing factory workers who didn’t finish college, Swartz attended Harvard and knew early on he wanted to run a big media company. After joining the Journal in 1984, his maturity and smarts caught the eye of Norm Pearlstine, who tapped him for the SmartMoney launch. Swartz got established writers like James Stewart and Ron Suskind to write for it. “Steve was that rare person who could get that kind of work out of people for a startup,” Pearlstine recalls.

“He’s very smart and he’s creative and he manages people very, very well,” adds former Journal m.e. Paul Steiger. “He has that Harvard depth and polish, but he has a regular-guy persona.” In a stuffy corporate culture, Swartz brings a touch of informality. He frequents Cafe 57, the corporate cafeteria, and is even known to eschew the tie every now and then.

After joining Hearst’s newspaper division, Swartz ultimately rose to president and became the company’s COO in 2011. Hearst’s newspapers have struggled alongside the rest of the industry. In 2009, he shut down the print edition of the 146-year-old Seattle Post-Intelligencer and threatened to close the San Francisco Chronicle if he didn’t get concessions from the union. He also tried new things on the Web, getting in early to monitor their progress, says Steiger, who kept up with Swartz. “He’d have the front pages of all the papers up on a screen. He wanted to see, are they pursuing the strategy?” While many newspapers have turned to paywalls to offset declining ad revenue, Hearst has clung to free access. Some see this as lacking innovation, but Swartz counters that Hearst chose to place its bets on household penetration and that its free newspaper sites are profitable without paywalls. “If you put a gate on your free website, you’re giving up a powerful tool to reach the consumer, and we think that’s a better strategy than putting up a paywall,” he says.

The Bennack-Swartz handoff has been carefully choreographed, and Swartz has kept a low profile since. The last time Bennack turned over the reins was in 2002; his successor, Victor Ganzi, flamed out six years later after reportedly clashing with the Hearst family. It was a rare black eye at the deeply private and image-conscious company, and Bennack came out of retirement to steady the ship.

Bennack still keeps hours in his 43rd floor office of the Hearst Tower on Manhattan’s West Side. A few weeks ago, there he was, introducing Michael Bloomberg at a company event. He looms over every decision, at least in spirit. “I miss him because I love him,” Kliavkoff admits. “When Steve makes a decision, I almost, to a fault, say, ‘That’s what Frank would have done.’”

That can’t be easy for the new boss, but he seems to take it in stride. Swartz speaks to Bennack almost daily and hardly misses an opportunity to pay tribute to his mentor. “Frank is just such a person of integrity and wisdom, so when he made me the offer, I just jumped at it.”

Given his content background, Swartz has a zeal for new products, from Hearst’s first newspaper tablet edition to History’s series The Bible (Swartz is an avowed history buff), which will be conducive to pushing the company forward. “Because half of Steve’s background was on the creative side, the product is the thing,” Khemlani says. “His eyes get bigger and bigger when he’s looking at new products.”

He’ll also have to look over his shoulder. Will Hearst, William Randolph Hearst’s grandson, last year was elected chairman of the Hearst Corp. His investment experience might make the company more open to new gambles, says Larry Kramer, president of USA Today and a longtime acquaintance of the chairman. “Will’s in the venture capital world,” Kramer points out. “As CEO, you’re going to need to place some bets, and you’re going to need some support.”

The risk is that Swartz won’t spot the next ESPN, or will place his bets in the wrong place. Private ownership means Hearst can move more slowly than others, but a lack of pressure can lead one to miss things. Asked how he hopes to define his leadership, Swartz invariably comes back to Bennack’s advice: “The message I get from Frank every day is, keep moving. Keep pushing for new things. Don’t be afraid to try things.”