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How daily newspapers can win after all (Part 2)

World News Publishing Focus

World News Publishing Focus
Your Guide to the Changing Media Landscape

How daily newspapers can win after all (Part 2)

(Continued from part 1)

The Houston Chronicle, the largest newspaper in Texas and the sixth-largest newspaper in the US, has successfully developed into a multimedia company producing a portfolio of print and online products serving Houston’s diverse audiences, in English and Spanish.

The Chronicle has successfully built and maintained its market leadership by serving all parts of its community and by building paid-for as well as free distribution businesses, as follows:

  • The paid-for flagship daily, complemented by local weeklies and branded editions. Houston Chronicle’s Sunday circulation of 860k makes it the third largest newspaper in the US after USA Today and the New York Times. Its weekday circulation is 275k. It has some 1.5m weekly readers (source: Alliance for Audited Media).
  • A market-leading free web site (Chron), which is distinct from the paid-for site for newspaper subscribers. The Chron has 31m unique visitors and 125m page views, reflecting its appeal well beyond Houston and Texas. It also operates digital coupon services. Chron’s online ‘TV’ is another creative part of the whole ‘free web’ offering. Its three ‘shows’, produced with the collaboration of broadcast partners, are currently: What You Missed – from TV the night before; What Not To Miss – 30-second preview of what is on TV tonight; and This Forgotten Day In History – Surprising Houston events worth remembering.
  • Targeted publications and editions for key Houston-area audiences including Hispanics, and professionals in energy and health care. These include La Voz de Houston, America’s second best-selling weekly for Hispanics, who comprise almost 40 percent of the Houston population (the third largest US city for Hispanics).
  • The Houston Chronicle group claims a total weekly audience equivalent to almost 40 percent of the city’s population.

More than anything else, the two-site strategy is a neat (and obvious when you think about it) way to out-compete the digital-only competition while building a strong digital presence for subscribers for whom the paid-for web site (with its 1m paying viewers) is a bridge from print to digital. The strategy makes the debate about whether to have a paywall distinctly old-fashioned. Although the daily print circulation is about 50 percent of its peak, the Sunday newspaper is ahead of where it was 20 years ago.

Launched in 1901

The Houston Chronicle was launched in 1901, the year the city was transformed by the discovery of oil. The long-term success of the newspaper and Houston itself was shaped by Jesse Holman Jones, who – when he wasn’t building the city – was credited with saving America. He was President Franklin Roosevelt’s Secretary of Commerce and financial advisor during the Great Depression and the Second World War, as well as being credited with making Houston into an international city. He started banks, arts centres and hotels, and was responsible for deepening the 50-mile ship channel that turned the inland city into a major international port.

In 1908, he earned a half-ownership in the Houston Chronicle by constructing its headquarters building. In 1926, he bought the rest and became the newspaper’s publisher until his death in 1956. Hearst bought the Houston Chronicle in 1987 for $ 415m – the highest price paid for an American newspaper until that time.

Eight years later, its direct competitor, the Houston Post, ceased operations and Hearst purchased most of its assets in a $ 120m deal which, a Justice Department investigation found, had been agreed before the closure was announced. Twenty-one years ago, the fact that Houston had become the largest US city to be left with only one major daily metropolitan newspaper was front-page news across the country.

The slightly murky deal recalls later moves in Hearst’s California birthplace, where it acquired the San Francisco Chronicle, rival of the original flagship San Francisco Examiner.

Hearst had long wanted either to sell or close the Examiner and to buy the larger Chronicle instead. By 1999, it had a deal. But an anti-competition inquiry led to a trial and embarrassing revelations that the Examiner publisher had promised the San Francisco mayor favourable coverage if he supported the Chronicle’s sale to Hearst. It all sounded like something from the swashbuckling days of Randolph Hearst rather than the 21st-century corporate role model created by his successors.

Hearst was ordered to subsidize local publishers with $ 66m to sustain the Examiner under independent ownership, effectively raising the Chronicle’s acquisition price by 10 percent. All these years later, the newspaper’s heavy losses have been eliminated and the San Francisco Chronicle may even be profitable – reportedly after previous annual losses of up to $ 50m.

But it’s nothing like America’s fourth city, Houston, where Hearst’s daily monopoly enabled the Chronicle to get into shape earlier than most of its peers. The city has long benefitted from its proximity to oil and Mexico. Its economic strength was highlighted during the 2007-9 recession when it became the first major US city to regain all the jobs that had been lost in the downturn. More than that, by 2013, it had added more than two jobs for every one it had lost in the recession. That astonishing recovery is attributed to the fact that more than 100 foreign-owned companies relocated or expanded in Houston during 2008-10.

Even in the current slowdown induced by the oil price slump, it is one of America’s fastest-growing cities and a great media market.

Houston: big on oil and media

But the metropolitan area sprawls across nearly 9,000 square miles with a population of almost 7m people. If Houston were a country, it would have the world’s thirtieth-largest economy, which provides a real challenge to the Houston Chronicle – and a continual threat of media fragmentation by digital-only, hyper-local services. That is the motivation behind Hearst’s acquisition last month of Houston Community Newspapers (HCN), a portfolio of 23 weeklies and one daily newspaper, the Conroe Courier.

The HCN papers, which have a total print distribution of 520,000 and a digital reach of 4m pageviews per month, will consolidate the suburban leadership of the Chronicle (a circulation of 860k and a digital reach of 134m page views).

HCN’s 120-year-old Conroe Courier will become an edition of the Houston Chronicle, while the acquired weeklies are expected to share some staffing, coverage and printing arrangements with existing Hearst papers. The company said the deal would “strengthen our community coverage of the sprawling suburban ring in the outer loop of Houston” – and maximise the share of a highly-profitable local news market while squeezing advertising dollars from competing free newspapers and digital-only operators. Its plans for consolidating the brands, teams and tech will be watched closely by regional publishers around the world, for whom Hearst’s best newspaper company is an obvious role model. It is also a picture of how Hearst – with its portfolio of exciting growth opportunities – can succeed in growing profits even in newspapers.

11 percent of revenue from legacy print media

Arguably, Hearst’s success in “new” business and entertainment sectors has taken the pressure and spotlight from its legacy print media (which now account for just 11 percent of revenue) and is encouraging their re-invention. But last year CEO Steve Swartz reminded executives that, even in Hearst, these businesses must fight to earn future investment.

“The challenge is to keep pushing the rest of the organization. We continue to find businesses that are growing faster than anything we’re seeing in traditional media," says Swartz.

Swartz was appointed CEO of Hearst Corp in 2013, following Frank Bennack, who had become president and CEO in 1979, having started as a classified ads salesman for the San Antonio Light, the Hearst-owned newspaper in his Texas home town. In 35 years at the top, Bennack transformed Hearst from a newspaper and magazine publishing company with three TV stations valued at $ 700m to a $ 11bn global multimedia corporation. Some 69 percent of the company’s revenue now comes from acquisitions made by Bennack. He created or purchased many of Hearst’s businesses, everything from the Houston Chronicle to stakes in the ESPN and Lifetime cable networks. Significantly, he managed to make some $ 15bn worth of acquisitions – and still retain a balance sheet with little or no net debt.

At a time when many media groups are struggling to stay profitable, Hearst is on fire. Its 2015 revenues were almost five times that in 1998. It is believed pre-tax profits are now more than $ 1bn.

A robust long-term strategy

Those are the results of a robust long-term strategy. In 2010, Bennack was making it clear that Hearst had far from given up on finding a profitable future for traditional media brands: “Our view is that the old paradigm of 80 percent of the revenue base coming from advertising will never again occur. The reader will have to pay a greater proportion of it and we’re finding that possible. It does reduce circulation when you raise prices, but our present belief is that a business model that produces more than half the revenue by subscription and circulation revenue plus the web is still a winning and profitable model. And we’re seeing that. We’re moving our papers to that."

He continued, "We’re losing some circulations, but we’re finding that each new increase in pricing has a lesser effect than the one before because we’re down to a loyal core readership. And so what you’re going to see by and large, in our view, is papers that used to be 200,000 circulation are going to be 140k or 150k, but a much more devoted readership base and people are willing to pay their share. Advertising will still be there and the trick is having sufficient coverage to continue to attract some advertising but not be so heavily reliant on it. And for the reader to have a greater share in financing.”

That explains a lot of what has brought success to the Houston Chronicle. And Bennack’s successor knows all about it. Swartz is only the seventh CEO in the company’s history. He had been a star reporter on the Wall Street Journal and then editor of Smart Money, its JV magazine with Hearst, before a 20-year career flew him through the ranks of Hearst’s newspaper business.

On his appointment as Hearst CEO in 2013, Swartz recalled his early experience of the company: “I really came to admire the breadth of Hearst. They seemed to be devoid of corporate politics; they seemed to be open to trying things.”

In each generation, Hearst has managed to combine media versatility and innovation with the “discovery” of new profits that have turbocharged growth. So it was that, 50 years ago, Cosmopolitan ignited the company’s magazine earnings around the world. Twenty-five years later, along came the money-spinning stake in ESPN and, now, watch the high-margin profits of Fitch, Homecare Homebase, and First Databank. Nobody would bet against a future Hearst profit explosion from Complex Media, a digital renaissance of Cosmopolitan, or a new media business that has not yet been created.

The sheer scale and longevity of the the company’s success right across the media spectrum defies simple explanation. But perhaps the secret sauce is a quiet corporate self-confidence which enables it to:

  • Make long-term, stay-the-course investments in strategically important areas.
  • Be a dependable, supportive, unpredatory partner for many companies and entrepreneurs, including competitors. Hearst partners include Disney, BuzzFeed, Rodale, Bauer, Scripps, Verizon, Condé Nast, Vice, Jamie Oliver, and Oprah Winfrey.
  • Recruit senior management from competitors, although senior people don’t often leave Hearst.
  • Be collegiate, confident, trusting but corporately understated.

Frank Bennack’s twinkling eyes, unfailing courtesy and quiet energy run through Hearst Corporation. Although the company is unmistakably hard-nosed about its financial performance, it is tempting to note that this perfect partner in many joint enterprises is the polar opposite of its bullying founder. But, then, it is easy to feel that the company’s culture in its third century reflects the personality not so much of the founder as of his most distinguished successor.

Like Bennack, Hearst Corp is at ease with itself. This is a company with its ego firmly under control.

Perhaps the unwavering long-term focus – and corporate patience – even explains the stunning success of the Houston Chronicle at a time when many other newspaper publishers – especially those, like Hearst, with alternative attractions – have given up on print.

Nobody believes there is a magic bullet that will ensure the survival of daily newspaper brands – but they once did. In the 1990s, publishers everywhere put all their content online for free and – ahead of any digital-only competition – managed to train consumers not to pay for news. It is difficult now to believe that – a decade before the iPad –  newspapers were once captivated by a dream scenario: without the expense of printing and distribution, advertising alone would be enough to support journalism.

Now we can see that the future requires nothing less than a total re-invention of the print-centric business model, to give low costs, new marketing propositions, media-tech versatility, a relentless commitment to the audience, great journalism, and endless competitive vigilance. That’s all.

(To part 1 of this post)

Colin Morrison is a director and consultant of digital, media, and information companies, principally in the UK, Europe, and the AsiaPacific. He is chairman of the newly launched SBTV News, an online news joint venture between the (UK) Press Association and the online music platform SBTV.

He was previously CEO of international media and digital companies for Reed Elsevier, EMAP, Australian Consolidated Press, Axel Springer, Future, and Hearst. He has been widely involved in media partnerships with organisations including the BBC, Hearst, Springer, Dennis, Sony, Microsoft, Washington Post, Press Association, and Hachette.

This post was republished with permission from his blog, Flashes & Flames. His views are his own and do not necessarily express the opinion of WAN-IFRA.


WAN-IFRA External Contributor


2016-08-15 14:11

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