A Year of Tina Brown and Newsweek Still Needs a Savior

NewsBeast still hasn’t turned around its losses and has a long way to go before it gets into the black

When the merger between Newsweek and The Daily Beast was announced almost a year ago, it seemed like it might, at least, have the makings of a good story: charming nonagenarian audio tycoon teams up with a media mogul and celebrity editor to save a beloved dinosaur from extinction.

Those behind the mashup believed, of course, that their idea was a great one. Or at least they hoped it would be, despite the battered state of both the economy and print media.

“We’re providing a much bigger platform and access to a very sought-after audience for marketers in the various platforms they want,” Stephen Colvin, the combined company’s CEO, said just after the merger was announced. “That will definitely lead to all kinds of incremental revenue opportunities. And Tina Brown is a very talented editor. There’s no doubt that will lead to circulation growth.”

“This merger provides the ideal combination of established journalism authority and bright, bristling website savvy,” Newsweek owner Sidney Harman said at the time.

Their expectations have not been met. The company has made some strides toward improving its financial state, but together Newsweek and the Beast lost an estimated $30 million last year, sources with knowledge of the company’s finances told Adweek, confirming earlier reports. Brown said the Beast was on track to be profitable this year, but even if that happens, the company still has to find a way to deal with the losses at Newsweek, which are estimated to have hit $20 million last year.

An Adweek investigation into the company’s finances and revenue drivers, based on interviews with people with direct knowledge of the situation, income statements, circulation and advertising figures, and press reports, reveals that getting the combined NewsBeast into the black by early 2013—a time frame Barry Diller, chairman and CEO of Beast backer IAC, has said is reasonable—will be a daunting task. If that task takes years and Newsweek can’t find a way to regain the relevance weekly newsmagazines have lost since the explosion of news on the Internet, then Diller and Jane Harman, Sidney Harman’s widow, could reach the point where they finally decide to cut bait.

The idea that NewsBeast could ever become a successful operation has always seemed far-fetched. Newsmagazines were all struggling by the time of the merger, and Newsweek had also been weakened by three other factors: an ill-conceived effort to reposition itself as a commentary-heavy, elite-aimed magazine; the drawn-out process that was The Washington Post Co.’s attempt to sell it off; and the departure of editor Jon Meacham and other marquee journalists.

And while The Daily Beast had an editor with a glamorous resumé, as well as some other high-profile hires, it hadn’t been able to attract much traffic. Plus, its ad model was a head-scratcher. It focused on premium custom treatments even though ad agencies don’t like to spend time on tailor-made ads for such a small audience. Besides, the two brands had very different names, audiences, and editorial voices, and not necessarily in a complimentary way.

The biggest problem NewsBeast faces, however, isn’t of its own making. It’s one inherited from Newsweek’s previous owner, The Washington Post Co. The magazine redesigned itself in 2009 as a “thought-leader” publication in the hope that it could attract affluent readers. It cut its rate base—the circulation guaranteed to advertisers—to 1.5 million from 1.9 million (that figure was itself considerably lower than the 3.1 million the magazine’s rate base had been at little more than a year before), with the idea advertisers would pay a higher rate to reach a more desirable audience. That’s not the way it worked out, especially not after The Post Co. put the magazine on the block the following May, which hurt advertiser confidence. “Buyers were looking at us with a really appropriately high level of skepticism,” one former executive says. Newsweek budgeted for a 10 percent decline in print ad revenue in 2010, according to a sales memorandum distributed to prospective buyers; it ended up down 34 percent, according to Publishers Information Bureau.

Now, nine months since the merger was finalized, and with its thought-leader strategy long since cast off, Newsweek’s circulation is still lackluster at best. Using Q1 figures as a guide, the magazine would have made $63 million in print circulation for all of 2010, down from $80 million in 2009. It’s unlikely that’s increased this year, since paid subscriptions, which account for 92 percent of Newsweek’s circulation, declined 8 percent in the first half of 2011, to 1.4 million. Newsweek is getting less from those subscriptions, too, having lowered its average subscription price almost a dollar versus a year ago. This spring, Newsweek made an offer of 90 percent off the cover price for a two-year subscription.

Newsweek also increased its reliance on some suspicious circulation sources, like verified subscriptions (the free copies typically distributed in places like barbershops and doctors’ offices). These can be a good way to get people to try out a magazine, but when they’re needed to meet the publication’s circulation guarantee to advertisers, as Newsweek’s were, they raise a red flag with buyers.

In another red flag, on its June publisher’s statement, 4.6 percent of Newsweek’s average paid subs, or 65,000 copies, were post-expiration copies—issues delivered to people even though their subscriptions had run out. Magazines often resort to post-expiration copies, also called graced copies or arrears, when they’re in danger of falling short of their promised circulation.

“Four-plus percent is a high number for arrears,” says Jack Hanrahan, the editor of CircMatters, a newsletter about magazine circulation, and a former print buyer. “The spin that would make sense to me was, ‘Well, we had a lot of people coming up to their final copies just as we were redesigning the magazine, and Tina was having her input.’ But if it’s big, you’ve got a problem.”