Frank Bennack: modest elder statesman will out-pace Murdoch

This is a story of three octogenarians. It is 60 years since the death, aged 88, of  (William) Randolph Hearst, now the world’s second most famous newspaperman. The fearsome publisher-cum-politician, who is debited with creating “yellow journalism”, was lampooned in Orson Welles’ 1941 movie, “Citizen Kane”. And he certainly knew how to use his newspapers, especially in California and New York, to serve his flip-flopping political interests. Hearst managed to support the arch-democrat Franklin Roosevelt one year and the Republican Herbert Hoover the next.

Before the 1939-45 war, Hearst was even suspected of supporting Hitler but his newspapers were probably the first anywhere to go big on the seeping, unimaginable rumours of Holocaust in the early 1940s. This huge man with a tiny voice, a warmonger in Cuba and Mexico but a pacifist in Europe, was the world’s first media mogul, building a chain of newspapers and magazines that stretched from San Francisco to London. His newspapers were famous for their eye-catching headlines and sensational stories exposing corruption in local government. At the same time, he liked to think of himself as a journalist and his founding newspaper the San Francisco Examiner (branded “Monarch of the Dailies”) acquired the latest equipment and the most talented writers of the time including Mark Twain and Jack London.

If Hearst was the first of his kind, his 21st century counterpart may be the last. Rupert Murdoch, lest we forget, is the man who created the very idea of an international business spanning all media and all countries. He almost invented the “media” industry. Before him, there were big-time moguls alright, none more so than in Hollywood which gave birth to larger-than-life, cigar chomping studio bosses. And all over the world, there were family-owned newspaper chains where successive generations alternately made love and war with governments. But “media” was a series of mostly-national silos before Murdoch leapt the chasm from newspapers to television – and from Australia to the UK, US and beyond.

The chasm was due at least party to the age-old legislative demarcation between newspapers and television. Many of those laws remain (as in the UK) but Murdoch’s political muscling has been able to magic away some of the restrictions.  But, while these two media pioneers shared the  common language of popular journalism and political pressure, Citizen Hearst was a two-term US congressman who tried to become President. Murdoch has never liked politicians enough to want to be one.

They each built a mighty media empire from a single, inherited small-city newspaper, (Murdoch in Adelaide and Hearst in San Francisco). They also had something else in common. Despite his range of achievement and activity, Hearst is most remembered for his “yellow journalism” and for the grotesque parody of  “Citizen Kane”. And, who can doubt that Rupert Murdoch, 81 this year, will be remembered more for a phone hacking scandal than for his pioneering global development of satellite television? That Murdoch epitaph will become even more certain in the months ahead when prison sentences, soaring legal costs and rattling broadcasting licences may yet prompt his own shuffling exit from the News Corp. stage.

But that is where the similarities end.

News Corporation is $50bn international company, whose shares have actually been pumped by the still-growing UK-based scandals. His shareholders support a dynamic business they dare to think could be even stronger and more attractive when the name Murdoch disappears from its top team, ultimately along with the group’s once so-powerful newspapers. Like the company’s creator, the founding newspapers have out-stayed their welcome. The sound of champagne corks popping when Citizen Rupert retires (bet on 2015) will match the resignations of Nixon and Thatcher for drama – and a movie.

That is the lasting difference between these two dynastic businesses. The company Randolph Hearst founded 125 years ago is now a rare example of an optimistic traditional media group. Hearst Corporation is a $7bn revenue, still privately-owned, business spanning television, newspapers, magazines and digital media. It has grown in a steep straight line since William Randolph Hearst died in 1951. Part of the secret is the complicated trust he established to safeguard the business and the interests of his heirs. As a result, the company is controlled by a 13-member Board, eight of whom are non-family.The  family are barred from senior executive positions. And Hearst’s will includes a clause that allows the trustees to disinherit any heir who contests the trust structure.

That is why the Hearst Corporation is still a family-owned business long after many another such company  (especially one with so much cash to divvy up) would have had its scions fighting to break the whole thing up. There have been a whole series of family spats in the courts. After all, the smartest patriarch can’t prevent his heirs getting into marital scrapes in generation after generation. But nothing rocks the business, which employs 20,000 people.

Outsiders know little more about the trust rules because the family persuaded the courts to seal the contents of the old man’s will in the wake of the 1970s kidknapping of grand-daughter Patty Hearst. There are some 60 beneficiaries of the trusts that will be dissolved when all those family members who were alive at the time of Hearst’s death in 1951 have themselves died. That is likely to be in about 30 years.  Meanwhile, the company’s spectacular prize-winning Norman Foster-designed Manhattan headquarters (built from within the shell of Hearst’s smaller 80-year-old building) is a symbol of the Hearst Corporation: stylish, imaginative, green, pricey, eye-catching – and built to last.

But the longterm trust ownership is only part of the Hearst secret. The real key to the Hearst success over the past 33 years is a man hardly known outside America and who, unlike either Randolph Hearst or Rupert Murdoch, has few critics and no visible enemies.

That man is Frank Bennack and, you guessed it, he will be 80 next year. He has been a Hearst faithful virtually his whole working life, since joining his San Antonio, Texas local paper as a classified ads salesman in 1950. Prior to that, he enjoyed unlikely local TV stardom as a teenage compere for “Time for Teens”. Bennack carved out his Hearst career when newspapers were the family favourites, before becoming a Hearst Corp senior executive in the 1970s. He then became President and CEO for a soaring 23 years (1979-2002), during which Hearst increased revenues seven-fold, profits 13 times, and made transformational deals, especially in TV. An estimated 85% of the current Hearst profits are from businesses added during that golden era. Bennack jokes that he “flunked retirement”and one long-knives night in 2008 he moved back to replace his amiable successor Vic Ganzi. In the process, he has become the longest-serving CEO since Randolph Hearst himself.

Bennack was 75 at the time of his comeback but you wouldn’t have guessed it, then or now. His appearance – and quick-wittedness – has always belied his age. And there are other things you wouldn’t guess about this elder statesman of media. The smilingly modest Frank Bennack is that unusual blend of good-listener and radical thinker.  A smart guy and a nice one. This past 12 months, there have been two striking examples of this almost-octogenarian’s momentous moves to chart a new course in pivotal times.

First, there was his audacious $919m cash deal to acquire the Hachette worldwide magazine business (outside France). This deal, at a stroke, made Hearst the world’s largest women’s magazine publisher. The 100-title, 15-countries acquisition means Hearst is breathing down the neck of  Time Warner, still the largest magazine business in the US – and has pulled well ahead of traditional rival Conde Nast. In the UK, they’re a still-growing no.3. The complicated worldwide deal has had Hearst executives beaming for months about their “once in a lifetime opportunity”.

Second, there is Bennack’s latest move in what may be his succession strategy. Amid un-Hearst-like intrigue,  CEO Vic Ganzi had stepped down over “irreconcilable differences”, just a few days after the corporate web site trumpeted the record performance under his leadership. And longtime magazines boss Cathie Black quit for what became a short-run public job in New York city. The departures (from a secret society of a company which rarely loses its senior people) happened either side of  Bennack’s swoop to sign David Carey as Hearst Magazines president from bitter rivals Conde Nast (although he had been at Hearst before). Bennack is in control once more and no one is predicting his early re-retirement.

Those two “events” in fact occurred in reverse of the order I have recounted them. But you will understand my logic.

David Carey is a much-gonged magazine pro who has managed brands as diverse as Smart Money, New Yorker, House & Garden, Wired, Esquire, and the ill-fated Portfolio – for two of the world’s largest privately-owned publishing groups. He’s also right across those digital issues that are taunting publishers everywhere. The Hearst people believe the smoke is clearing on a brighter future for magazine publishers. They are predicting a calming world of magazine web sites that remain free but iPad / Kindle editions that are lucratively paid-for, with plenty of  ‘click through to buy’ ecommerce especially via Apple and Amazon, makers of the tablets that are delivering this promised land. Sounds so neat.

Hearst’s Hachette deal, paid for out of ‘spare’ cashflow, certainly loaded it up with magazines. It was the kind of deeply unfashionable deal resonant of Hearst’s snaffling of newspapers just as everyone else seemed to be bailing out. Many assume that this is an embryonically digital deal for an era when the word ‘magazine’ will come to mean something digital rather than on paper. But, for all the determination to accelerate digitally, that is simply not the Bennack or Carey view. They love magazines. Bennack jests that when people finally  land on Mars, they will find a magazine and a cockroach. He is only half joking.

It is clear that magazines have supplanted newspapers as the core business of Hearst which may be more sentimental than statistical. But they are very good at magazines. Some of this cuddly company’s best results have been in their world-best international licensing network of US-originated brands. Cosmopolitan is Hearst’s flag-waving example of a magazine with real international clout: no fewer than 64 editions published in 35 languages and distributed in more than 100 countries. Hachette brings Elle, the world’s most successfully licensed fashion magazine, with 42 editions in 60 countries. The whole deal gives Hearst a portfolio of more than 300 editions in over 80 countries; and makes its international magazine portfolio a match for the US one. The deal also helps Hearst move painlessly up the ‘value chain’ graduating from being primarily a low-margin licensor of magazines (outside the US and UK) to becoming a leading publisher in many foreign markets.

Hearst is clearly working hard to ramp up iPad subscriptions in the US (300,000 and counting) and is also having a better-than-European performance on advertising. But it is also genuinely bullish about magazines. Carey recently waxed lyrical about the fast-developing countries where (it is true) magazines are still growing. Thudding, heavy copies of Elle from China or Harpers Bazaar from Russia make the point. But, while many wunderkind countries are salivating over their Western-style magazines crammed with Gucci and Rolex ads in a rewind from 1980s Europe, it is clear enough that the migration from booming mag sales to blanket-digital in China and the rest will take hold quickly enough.

After all, we are probably only a few years away from major new media technologies coming west from China rather than the reverse. Many Western countries had a whole century of boom-time newspapers and magazines before the digital spanner hit the works. While China, India, Brazil et al will have the same path to travel, these go-go ‘new’ economies will do it at warp speed. No chance of a golden hard copy century for them – and perhaps less payback for Western magazine publishers.

Hearst bosses talk a good game and are putting good money, people and ideas into digital development.  But there are lots of questions:

  • Does the exhortation to maximise flexibility in all things digital actually conflict with the cast-iron belief in hard copy magazines no matter what?
  • Can even a best-of-breed legacy operator really compete effectively with new wave, no-baggage, digital-only rivals?
  • Will the economics of seemingly-attractive iPad magazine editions eventually be wrecked by continuing decline in hard copy magazine sales and advertising?
Witness the competitive dilemma with Net-A-Porter,
the 10-year-old ultra-smart online retailer, now owned by Richemont a luxury products group – and a prominent magazine advertiser ( e.g. Montblanc, Arpels and Cartier). Its site is magazine-like but with a key difference: it’s all about ecommerce. Can an advertising-dependant magazine successfully compete on the same basis?  Publishers talk fondly about “migration” as if they can somehow manage the pace of change and of revenue switching. Early evidence seems to show they cannot. Cannibalisation is inevitable and involves the sacrifice of profits – but only for the legacy operator.

After the year of a deal and when US magazine advertising has (sort of) rebounded,  these doubts won’t kill Hearst’s euphoria. But, then, one of the charms about Hearst is that it moves at a respectable, collegiate pace and is not inclined to panic. That is part of the W.R.Hearst legacy, of course. But it is also down to one Frank Bennack – and another little secret.

The Hearst Corporation is believed to make about $1.5bn in annual profit, a nice margin in anybody’s book. But the truth is that maybe some $1bn of this comes from the company’s investments in cable and satellite TV – steals-of-deals made by one Frank Bennack during the 1990s. The largest slice of this toppy  “investment income” is from a collection of cable channels (ESPN, History, A&E and Lifetime) co-owned with Disney. The star performer is ESPN, the spectacular (and still fast growing) international sports TV network controlled and managed by Disney but 20% owned by Hearst. ESPN is a company that is itself more than half the size of Hearst. So, it is clear that Hearst’s performance has been turbo-charged, in good years and bad, by ESPN whose match-winning performances have  them cheering from the touchline. Bennack’s smart $170m deal may be worth at least $6bn today.

And that’s another thing about Hearst. Private or public company investors (let alone the ravenous tigers of private equity) would long ago have screamed that Hearst’s fine collection of media assets does not achieve maximum profits across any particular period of time. Its strategy is all about securing a long, long-term future based on investing in and/or managing “quality” businesses that do things in style and share the Hearst mood. It is all about strengthening the Randolph Hearst legacy while funding his growing list of descendants until the day when they can do what families tend to do – fall out over money, shares and the future.

Meanwhile, Frank Bennack sits astride a great and growing media business. His position is one that Rupert Murdoch just might envy. Apart from anything else, no one is suggesting that the quiet-spoken Texan is too old to be the Hearst CEO. For all the showy Tweets of the past few weeks, we know that Murdoch has no more command of today’s technology than any other 80-year-old. But the capital-destruction of  News Corp investments in  My Space, The Daily, and Beyond Oblivion, might just show the ‘new media’ dangers of a hands-on-everything mogul who has passed his sell-by date. The team-minded Frank Bennack runs no such risks: “We need to have a heavy presence in new platforms but not at the expense of businesses we know how to make money with.” Quiet, calm and encouraging.

The Hearst boss seems to be warming to his theme of taking opportunities to buy traditional assets cheap, while using his cash piles to invest in tomorrow’s media toys. And we should expect more gutsy investments, especially in ecommerce. In between times, he has the non-Murdoch luxury of being free to choose his successor. The eventual scores of the Hachette deal – perhaps especially in whether Hearst can become a major online fashion retailer – can decide whether David Carey becomes that successor.

Hearst being Hearst, it may be some time yet before Frank Bennack again gives up the power with which he has so enjoyed transforming the legendary media group in its third century. The CEO and his company are marathon runners both. But, long-term winners?

  • Have you read? Hearst buys big into the post-magazine world
  • Have you read? Magazines in crisis: 3 ways they can still come back to win in the digital age
  • Have you read? Who killed the UK’s best media company?
Have you signed up?
Media Fortune, Fame & Folly
[ do default stuff if no widgets ]

What do you think?