Magazines everywhere have been shredded by lost readers and advertisers. But millions of worldwide sales are testimony to the continuing appeal of these disrupted brands. The business model may be broken but the brands are not. International editions of Vogue, Cosmopolitan, National Geographic, Men’s Health,
Autocar, Time Out, GQ, Auto Bild, T3, Elle, Robb Report, and a hundred other magazines are reminders of huge audiences and halcyon days. But publishers are hoping that these long-established brands can deliver a new future in consumer services and screen entertainment – to compete with companies which are pushing into media content from the other direction.
What stands in their way is the tricky challenge of managing such diversification at the same time as maximising profits from the challenged magazine business. That’s why – 100 years after Vogue pioneered international editions with its UK launch – publisher Condé Nast provides such a fascinating picture of the possibilities.
This is the 107-year-old, US-owned publisher whose concentration on upscale magazines has – so far – protected it from the worst effects of collapsing revenues. The past few years have even seen it successively claiming record advertising revenues. It’s not that other publishers do not also have strong print-centric performances, especially from strongly visual ‘coffee table’ magazines aimed at affluent readers. It’s just that the so-posh American publisher has built its reputation almost exclusively at the top end.
It’s about image. Condé Nast has become known for the splendour of its parties, including those thrown by Anna Wintour (long-time editor-in-chief of Vogue and now the company’s artistic director) who is forever linked to the merciless heroine of The Devil Wears Prada, written by her former assistant. And hundreds of millions of worldwide TV viewers are regaled with annual images of Oscar winners lining up for Vanity Fair’s exclusive after-party.
In Britain too, the company has all the trappings: an imposing seven-storey headquarters overlooking a garden square in upscale
Mayfair; a gilded managing director who has written a dozen books in his spare time; Princess Kate on the centenary cover of Vogue; 100 years of the magazine’s photographs at London’s National Portrait Gallery; and the Vogue Festival on the manicured lawns of Kensington Gardens.
Condé Nast has, for decades, thrilled readers and infuriated competitors. Although the secretive, family-owned business seldom discusses financial results, it has allowed itself the subtle boast that some of its best-known US brands have scarcely ever been profitable. The insufferable self-confidence and free-spending nonchalance has, though, helped to build a company which claims more than 100m global consumers across brands including: Vogue, Vanity Fair, GQ, The New Yorker, Condé Nast Traveller, and Wired. And, now, it’s applying a reputation for gutsy investment in wide-ranging diversification across movies, restaurants, retailing and education.
Much of the new strategy reflects recent changes at the top of the company which has been managed by Samuel I. (“Si”) Newhouse for most of the last 50 years. He has retired but the company’s future will still depend on the Newhouse family, owners of the $10bn parent Advance Publications, which has variously been America’s largest book publisher, the third largest magazine publisher, fourth largest newspaper chain, and one of the leading cable TV providers.
This formidable media business was founded by Si’s father Sam Newhouse, son of Jewish refugees from Eastern Europe. He left school at 13 to earn money for his impoverished family of eight children and started working for a judge in his New Jersey hometown. He was eventually given the job of managing a local newspaper his boss had acquired in payment for a bad debt.
Sam Newhouse managed the Bayonne Times at the same time as doing evening classes at the local law school. The paper was losing money, so he began to sell the ads himself. He made the paper profitable and was rewarded with a 20% share, which was later increased to 50%. He then had the opportunity to acquire another newspaper, the Staten Island Advance, which gave his new company its name.
The deal was followed by a decades of acquisitions of newspapers and TV stations. Sam Newhouse was on his way with a characteristic
approach which tended to leave the local community papers in the hands of their existing managers. But, despite the hands-off approach, he gained a reputation as a tight-fisted owner known for cost-cutting and low salaries. Although he seldom interfered in editorial matters and avoided politics, his critics periodically tore into his aggressive tax planning.
By the time he died suddenly in 1979, aged 84, Newhouse owned 31 regional daily newspapers with a total circulation of more than 3m. But that was only the start. Advance Publications had become a nationwide communications empire that also included magazines, books, radio and television stations, printing companies and delivery services. At the centre of the powerful family media business was Condé Nast, acquired in 1959.
Along the way, in 1976, Newhouse had acquired Parade magazine, a supplement with a circulation of 30m, inserted in more than 700 US newspapers. The downmarket magazine was printed on newsprint and was managed separately from the Condé Nast stable. But, ironically, its $40-50m annual profits effectively subsidised the loss-making glossies for many years.
Birth of a magazine empire
The magazine company’s name derived from its American founder, Condé Montrose Nast who, in 1909, had bought Vogue, a US publication launched 17 years before. He transformed it from a 24-page weekly into a monthly magazine which became the first to establish international editions. British Vogue was launched in 1916, and Vogue Paris four years later on the way to a network of 20 worldwide editions. In quick succession, Nast had launched Vanity Fair and acquired House & Garden. His publishing philosophy was simple: he wanted magazines that would appeal to his elite friends.
Sam Newhouse bought the company’s 9 magazines 17 years after Nast’s death, for $5m. Legend has it that the purchase of the run-down
company was an anniversary present for his wife who reportedly loved Vogue. But the old man handed over responsibility for the company to his son who was said to have turned the loss-making $20m revenue company into a $1.6m profit within the first year. Si’s younger brother Donald subsequently became responsible for managing the family’s newspapers and broadcasting.
Si Newhouse steadily transformed Condé Nast into one of the world’s best-known magazine companies, with a portfolio extended by GQ, Condé Nast Traveller, Details, Allure, Architectural Digest and Wired. In 1983, after a 46-year break, Vanity Fair was revived. It was followed by the $200m purchase of The New Yorker. That acquisition was controversial because of its literary reputation. The sceptics need not have worried because Newhouse himself was a long-time reader of the magazine he described as “one of the greatest things in journalism and the most interesting thing I am involved in.” More significant, though, was the price he paid: more than 30 times its revenues, which underlined the apparent contrast between the profligacy of the magazine-obsessed older son and the short-money strategies of his father and younger brother at the family’s newspapers.
For all his legendary ruthlessness (he sometimes seemed to hire and fire executives on a whim) Si Newhouse continued to spend freely and encouraged his executives to do so too. In 1986, he paid $25m for Citibank’s Signature magazine for Diners Club cardholders. He spent a further $15m changing it into Condé Nast Traveller, a transformation so complete that he would have saved millions instead by starting from scratch. But that was a pattern. In 1988 he paid $2m for a tiny Manhattan art magazine and turned it into a young men’s
fashion monthly. Along the way, he added Allure, Architectural Digest, Bon Appétit, and Wired. His company motto said it all: “Class not mass”.
But neither the words nor the bold, stylish gestures of Condé Nast seemed to match the persona of the shy, awkward and insecure boss. Described as “a mercurial micro-manager of epic proportions”, Newhouse’s uncharacteristic determination to chase the prestige of his famous magazines seemed actually to come from his mentor for almost 40 years, the Russia-born art director-photographer-artist-sculptor Alexander Liberman who became editorial director. His gift for wooing the powerful was said to have become the model for the company’s US editors.
The two men struck up a powerful partnership based on their shared Russian-Jewish ancestry and passion for art and media. “Magazines,” Liberman said “are precious things. They require pampering and purity.” He theatrically tore up layouts and whole magazine contents at the last-minute and reportedly told editors to spend, spend,spend “because spending was part of the aesthetic, almost an end in itself.”
That was how he and a succession of editors managed to lose more than $75m in the first few years of the revived Vanity Fair. He was said to have “inspired both adulation and terror among editors and art directors”. For more than 30 years, Liberman had the final word on virtually everything. His high-flown ideas and erratic appointments shaped the culture of Condé Nast – in the face of Si Newhouse’s unconvincing insistence that he was only interested in making money. But he was learning.
The eccentric billionaire
After Liberman retired in 1994 (he died five years later, aged 87), Newhouse himself took on the grand gestures and encouraged editors like the Brits Anna Wintour (Vogue) and Tina Brown (Vanity Fair and The New Yorker) to do so too. For all his billionaire eccentricities of wandering round the office in his bare feet, wearing worn-out clothes, answering his own office phone, and having an acute fear of financial failure, he was one of the first magazine publishers to launch web sites back in 1995. Later, his headlong plunge into iPad editions seemed to confirm Condé Nast’s strategic guts.
In 1996, Si Newhouse’s slightly weird and whacky world was laid bare by the Wall Street Journal which reported that nine of the company’s 14 magazines were losing money and that The New Yorker (then operated separately) might itself be losing as much again as the whole company. The story was full of lavish detail about huge salaries, interest-free loans, homes and cars for Condé Nast executives.
Even the news in 2009 that the company had hired McKinsey to help it cut costs came out in a very Newhouse way. Publishers were told to cut budgets by 25% at almost the same time as employees travelling to a company function in Washington were told to restrict their expenses for the night to “only” $1,000 per person. But there have been unprecedented portfolio cutbacks in recent years, including: the closure of the US magazines Jane, House & Garden, Cookie, Elegant Bride, Modern Bride, Mademoiselle, Domino, Lucky, Gourmet, Details, and Portfolio which lost more than $150m in just two years; the merger of Bon Appetite and Epicurious; and the sale of Woman’s Wear Daily. Nobody doubts there will be more.
Everything really is changing. Last year, Donald Newhouse confirmed that his elder brother was suffering from dementia which explained why the 88-year-old Si had steadily moved into the shadows of his beloved company. The disclosure coincided with the announcement that the new Condé Nast chairman would be the long-time CEO Chuck Townsend. His successor is Bob Sauerberg who joined the company a decade ago after almost 20 years as CFO of the New York Times.
The new boss’s clunky words might not have settled anybody: “I have never been more optimistic about our company and business. We are the home of the best pages, screens and experiences, and we will seize this time to grow these core, valuable assets, extend them onto more platforms and places where they can succeed, and strategically develop and acquire businesses that target new audiences and partners.” Townsend kept digging: “I’m charging him (Sauerberg) with leading the company in the creation of a new model, which is technology-enabled, consumer-centric and the monetization of that relationship.”
The changing of the guard seemed to pose more questions than it answered about the Newhouse family members in executive roles around the still privately-owned business. Most had expected the promotion of Si Newhouse’s nephew. The US-born Jonathan Newhouse,
who lives in London, is chairman and CEO, of Condé Nast International (CNI) and has been responsible for its growth, along with president Nicholas Coleridge (who has also been managing director of the UK business since 1992). In 25 years under Newhouse’s leadership, the international portfolio has grown four-fold to 124 magazines, 100 web sites and more than 200 digital apps, in 24 global markets. It’s also diversified into 17 magazine-branded restaurants and bars throughout Europe and the Middle East.
Jonathan Newhouse has made clear that he sees his long-term home in London and is not moving back to New York, even to take over control of Condé Nast or the Advance Publications parent company. While he exercises a degree of control through his family’s complicated share structure, Newhouse has clearly sacrificed his claim to head the US-based company. There were times when he looked so much like the logical heir. In 2011, while Condé Nast was comprehensively loss-making in America, his international operations (excluding Asia which reports separately) were making profits of £44m.
At the heart of these record-breaking, Europe-wide figures was a 2011 operating profit of £16.5m from the UK, with 14% margins. Although the London company has continued strongly, that year proved to be the high-water mark for the wider Condé Nast International (again, excluding Asia) whose £460m revenue in 2011 slumped 14% to £395m three years later, with profits falling to just £9m. So the UK, which five years ago accounted for 33% of operating profits, delivered no less than 150% of the total in 2014.
More to the point, the repeated £16.5m UK-only profit in 2014 came from revenues which accounted for just 22% of Condé Nast International’s total revenue (excluding Asia). With Italy, Germany, France and Spain accounting for 69% of revenues, there is clearly some lossmaking in an international group where the solidly-profitable UK accounts for less than one-third of the 2,000 employees – and under 10% of the whole Condé Nast group.
The figures tell the story of a multimedia group whose erratic profitability seems never to have troubled the family owners. That is one way to view Si Newhouse’s 55 years at the helm of Condé Nast, where the extravagance in New York was under-written by Parade magazine’s downmarket profits and, then, by huge capital gains on Advance
Publications’ divestments: Random House Books to Bertelsmann for an estimated $1.5bn in 1998; Bright House Networks cable TV to Charter Communications (for $10bn) in 2016; and Parade ($350m) in 2014. Advance continues to justify its reputation for being a great trader of media assets.
In the other column, however, have been the collapsing revenues of the family’s US regional daily newspapers which have suffered, like most others, after decades of monopoly profits. And Condé Nast sold Fairchild – publisher of Women’s Wear Daily – to Penske Media for $100m – 15 years after buying it for $650m.
The majority of Condé Nast revenue still comes from print advertising. And new CEO Sauerberg was recently quoted as saying that 2015 revenues were “well north of $1bn” which confirms that the company is now divided almost equally between the US and International.
Townsend and Sauerberg like to ponder the lessons of UK success where Nicholas Coleridge has been able to pile up double-digit profit margins in six of the last nine years. Even with some pretty hefty investments and a gentle but inexorable decline in revenues, the UK company has been soundly profitable throughout 10 years of media earthquakes. The results almost don’t fit with the stately image of Vogue House whose occupants entertain clients in London’s fanciest restaurants and dress the part. One staffer says: “It’s quiet and civilised with no shouting or arguments. There’s a strong will to get on with the job that you’re privileged to have.”
But don’t be fooled. The smart-suited Coleridge is a committed, hardworking and articulate boss who leads from the front, and mostly without the help of ‘corporate communications’, newsletters or emails. He knows his people, is across the detail, and approves all magazine covers. But he’s endlessly polite, regularly walks the offices, and is a well-liked leader who really is in charge.
Former journalist Coleridge recently boasted to a London audience of media professionals about his company’s magazine sales success in the unpromising times since he had joined Condé Nast 27 years ago: Vogue, which sold 135k copies a month in 1989, was now selling more than 200k; Tatler had risen from 25k to 85-90k; and GQ was up from 40k to 120k. His audience was a bit too polite to pick through ABC figures that are variously bolstered by bulk distribution and copies not always “actively” purchased. Tatler’s latest ABC of 84k, for example, is only 58% “actively purchased”. But his articulate enthusiasm is infectious: “There is something extraordinarily alluring about a glossy magazine, the physical quality, particularly a very thick one.”
The Condé Nast UK boss can seem unashamedly old-fashioned when he talks about “internet erosion” and predicts that “web sites” will become a bit more important. But this magazine-romantic’s track record is impressive and includes a Vogue issue in March, apparently with more ads than at any time in its 100-year history. The brand of optimistic and unruffled showmanship that Coleridge (like UK Prime Minister David Cameron) learned at the country’s exclusive Eton College has given Condé Nast the cachet that has led to BBC television shows about Tatler and Vogue. He is also chair of London’s V&A, which describes itself as “the world’s leading museum of art and design”, and of the “The Prince of Wales’ Campaign for Wool”. Yes.
The 2013 launch of the Condé Nast College of Fashion & Design, in London’s Soho, is another example of Brand Coleridge at work. Presumably this will eventually become a profit-earner – but not before it wins influential supporters by dispensing bursaries to bright young things who can’t afford the fees. And, just as you’re wondering how Coleridge can be quite so quaint and commercial, he gives a hint about the company’s changing direction and his own learning: “Magazine companies tend to speak now of ‘the brand’ – I always find it slightly annoying but I don’t know that there is another word encapsulating all the different kinds of things that we do.”
But, across the Atlantic, things are nowhere near as optimistic. As one journalist sniped: “The days are gone when there were so many black cars idling outside Condé Nast that it caused a traffic jam.” It is almost two years since the company relocated its 3,500 New York employees from the city’s famous Times Square theatre district.
To judge by the snarking, you would think that the company had moved them to a remote town in the US MidWest rather than to the city’s newly-rebuilt architectural landmark, the World Trade Center. But employees were quick to point to what the move left behind: the fabled $30m food court featuring Italian decor and titanium columns, which one media commentator had said was “so central to Condé’s glossy ego that <celebrated Canadian architect> Frank Gehry was hired to design it and editorial director James Truman spent months thinking about nothing else. It worked. The food at the power lunch spot for elite editors and A-listers was once described as ‘garnished with genius’.”
For all the splendour of the floor-to-ceiling windows at the new 35th-floor location – with stunning panoramic views of the Hudson River and the iconic Statue of Liberty – the good people of Vogue, Vanity Fair and The New Yorker were underwhelmed by the minimalist interiors and furniture that greeted them. (And that was before the you-couldn’t-make-it-up discovery of rats in the sparkling new building). When Bob Sauerberg described the office relocation as “a defining moment in our great company’s history” not even his critics argued. It all signalled changing times for a company that was missing the quirky Si Newhouse enthusiasm that had once seemed to guarantee the future. Without him, everything seemed to be up in the air.
But the big, brave Newhouse ideas live on. Take Condé Nast Entertainment(CNÉ), launched five years ago to produce and distribute original TV, film and digital projects based on the company’s brands and archives. The new business was inspired by the stunning fact that articles from Vanity Fair, The New Yorker, Vogue and even Wired have spawned almost a dozen major movies and TV films over recent years, including: “Coyote Ugly”, “Eat Pray Love”, “Argo”, “Proof of Life”, “The Bling Ring”, “The Man Who Knew Too Much”, “Adaptation”, and “Brokeback Mountain”. Even the recent TV blockbuster “The People versus O.J.Simpson” featured celebrity writer Dominick Dunne who had exhaustively covered the crime in Vanity Fair. Such unrewarded contributions to worldwide movie hits had made Newhouse and Townsend determined to get a slice of the action. The initiative is starting to bear fruit and the company now claims five television series in production or on the screen.
It also has sold 10 pilots to US TV networks, and is involved in no fewer than 24 other film projects. Two of its feature films will be released later this year: “Army of One,” starring Nicolas Cage and Russell Brand, and “The First Monday in May.” CNÉ has five TV series in production and on air, including “Fashion Fund” and “The New Yorker Presents” on Amazon Prime, and “Vanity Fair Confidential” on Discovery. The company is also discussing plans to launch a video streaming service. The CNÉ boss explains the rationale: “A lot of the walls are coming down. We’re starting to see content migrate from platform to platform. We’re seeing people make content about a subject in different ways for each of the platforms.”
Last month, it all came to fruition with CNÉ’s premiere of its first feature film, “The First Monday in May” at the TriBeCa Film Festival. The documentary chronicles the behind-the-scenes work of Anna Wintour and Andrew Bolton, curator of The Metropolitan Museum of Art’s Costume Institute, as they conceptualized and planned The Met Gala last year for the exhibition “China Through the Looking Glass.”
Closer to its magazine core, CNÉ’s Digital Video Network was launched in 2013 with web series for Glamour and GQ. Wired joined with the announcement of five original web series including the National Security Agency satire Codefellas and the animated advice series Mister Know-It-All. The network now produces more than 4,000 videos annually. In 2015, the digital network reached more than 2.7bn video views.
CNÉ also launched The Scene with 40 channels of programming from Condé Nast brands and partners, which is now available to viewers with Apple TV, Roku and Xbox. It has also announced CNÉ Studios, which will produce reality TV programmes, including the six-episode series, “Invisible”, in September, which also marks its debut in virtual reality.
Condé Nast videos now live on more than 60 platforms including Facebook, SnapChat and Twitter. They push the message to ad buyers that the company’s high-quality video – from feature films to social clips – will “transcend all screens” and be available wherever viewers want to access them, which principally means social media feeds. It is a bold strategy being rolled out with a huge amount of corporate support – and investment. And Chuck Townsend is not pretending to know when it will pay off: “What I still don’t know how to do is to monetize the relationship with the consumer like the cable-distribution companies have been able to do. Why will consumers pay 180 bucks a month for TV programming they never watch, don’t know the brands of, have no interest in, and will [only] pay a dollar a month for a magazine subscription to Glamour? There’s gold in those hills somewhere. How do I mine it?”
The second major thrust in the Condé Nast reinvention strategy is the planned 2016 launch of a global e-commerce fashion business. The Style. com venture will debut in the UK before the US and, then, going global. Users will be able to order merchandise from magazine-branded websites and digitised magazine editions in app form, as well as the Style website. Readers will be able to place orders through scanning images in the printed magazines. It is believed that the plan has evolved from some small investments in e-commerce and the company’s flirtation with Net-a-Porter (founded by former fashion journalist Natalie Massenet), from the global growth of ASOS, and the declared ambitions of Amazon also to conquer the fashion market. It has even been rumoured that Massenet (who pocketed at least $200m from the sale of Net-a-Porter) may join the leadership of the new Condé Nast retailing business.
That is a reminder of the high stakes in this impending battle. Many women’s magazine publishers have flirted with e-commerce as a
way of securing revenues lost in the decline of print advertising. Some, though, have worried about the risk to the authority of magazine-centric brands if they are seen to endorse products they are selling, rather than being completely independent.
Given the way ‘content marketing’ (sponsored content) has captivated most media channels, that might now be of less concern than the simple fact that retailing is a completely different business to media. That, of course, might itself be a reason why media really should use their content skills to compete against the online retailers themselves coming into ‘content’ from the other direction. But it is another big Condé Nast bet – and a sign of the company’s determination to escape its dependence on print.
Seeing the light
The problem for even the best magazine publishers remains how best to apply their existing skills and brands to create sustainable new businesses. The increasing choice of information, entertainment and communication for readers and advertisers is matched by the options for media companies themselves. Print-centric companies must, quite simply, decide what they want to be. That is the point at which many privately admit that their business models are not competitive with baggage-free digital operators.
The challenge is so much more than “just” building versatility into companies where journalists have traditionally accounted for such a large share of costs, people – and management. These legacy companies must think creatively – and in micro-detail – about how to develop and manage diversification. Some can successfully combine new media and old – with or without ‘new’ catalysts. But many others must recognise the need to think afresh – and protect the new growth from the suffocating presence of the old.
It is, of course, all about people: finding the new winners while motivating those who can still deliver traditional profits to fuel the change. It is not a question about the importance of ‘content’ itself which remains a core skill. It is much more about the need for a wholly different approach to content, driven by technology and the changing appetites and values of readers-users and advertisers. The successful media companies of the future will, unmistakably, be those with real expertise in content. But, proportionately, there will be fewer journalists than in print media.
Condé Nast’s magazines have spawned its massive investment in movies and video, even though the ambitious plans are effectively being funded from $2bn cash unlocked by Advance’s recent cable TV divestment. But some initial protests by editors are a reminder of the corporate obstacles that can re-emerge as the new business matures and asserts its need for an independent strategy.
CNÉ – and even the upcoming Style e-commerce group – need real independence. Long-term success will depend on their ability to compete freely and to collaborate with others, including Condé Nast’s own magazine competitors.
That separation of corporate interests is vital also to ensuring that the existing magazines themselves are focused single-mindedly on maximising profitability – which must surely involve further painful reductions in costs and portfolio. But the careful development of new core businesses, unencumbered by legacy operations, is as vital to small-scale diversification as to Condé Nast’s billion dollar investments.
That is why this company will become such a good case study. It has all the brands, content, relationships and investment to succeed. But the acid test is whether its new-generation executives can develop ground-breaking new businesses as something other than expensive ancillaries to print. After all, even their shiny magazines are in decline.
It is tempting to divide traditional media companies between the many that have felt the heat and the few which have seen the light. Time will tell where Condé Nast belongs.
16 January 2016 UPDATE: Wolfgang Blau, who currently heads Condé Nast International’s digital operations, will become president of the company from August this year, it was announced by chairman and CEO Jonathan Newhouse.
Since December 2015, Blau has been Chief Digital Officer of Condé Nast International, which publishes more than 100 magazines and 100 websites in 27 markets outside the US. Blau previously served as Executive Director of Digital Strategy for The Guardian. He replaces Nicholas Coleridge, who is stepping down as president and managing director of Conde Nast UK on July 31 after 27 years in the company. Blau is a career journalist who was formerly editor-in-chief of Zeit Online. Newhouse said: “Wolfgang Blau is a rare executive who can combine digital mastery with the journalistic talent and experience needed to redefine excellence in the digital age.”
Replacing Coleridge in his role as Managing Director of Condé Nast Britain will be Albert Read, who has been Deputy Managing Director since 2010. Read began his career as a newspaper journalist and joined Condé Nast in 2001.
Have you read?
Have you signed up to receive Flashes & Flames in your inbox?