From Sunday's The New York Times:
Can Si Newhouse Keep Condé Nast’s Gloss Going?
By RICHARD PÉREZ-PEÑA
WHEN the wizards at Condé Nast Publications recently marched a pre-press issue of Brides magazine through an in-house review, Si Newhouse, the company’s chairman, wondered aloud whether a few of the letters on the cover were a tad too close together.
As it turned out, they were.
Mr. Newhouse rarely misses a chance to vet his magazines before they go public and, like a shopkeeper unwilling to trust anyone else’s tally, still personally hand-counts ad pages in his magazines and their competitors -- even as Condé has grown from just a handful of publications to 26 in this country alone.
Yet this boss with the exacting eye, who presides over a multibillion-dollar empire built on gloss, style, consumption, fluff and substance, is almost universally described as shy, strikingly ill at ease in conversation, and so unassuming that he rarely draws attention to himself or gives a direct order.
Mr. Newhouse (a k a Samuel I. Newhouse Jr.) defies the image of the media baron driven by love of limelight, political influence or money. But largely because of him, Condé — an arm of his family’s privately held Advance Publications — is unlike any other major publisher.
You might know some of his children: Vogue, The New Yorker, Architectural Digest, Glamour, Vanity Fair, Gourmet, GQ, and Condé Nast Traveler. These titles are a polite way of saying that Condé spends money like no one else in the industry — more on salaries, paper stock, writers, photographers, travel, clothes, parties and just about any other line item imaginable.
Condé also consistently sells more ads than its competitors and at higher prices, though some of its magazines make little or no profit. Even so, spending money to make money, and focusing on premium products to attract readers and advertisers, has clearly worked for more than a decade, though its margins are thin compared with those of its competitors. Condé executives say it generates close to $5 billion in revenue, has operating margins of around 10 percent and profits of about half that. Analysts and bankers say that Advance as a whole, which carries no debt, is worth, conservatively, $15 billion.
But some people inside Condé’s stylish Times Square headquarters, as well as experts outside, wonder whether the company, by choice or necessity, will tighten its belt in the years to come — and risk losing some of its cachet along the way. Analysts point to the economic vise the Internet has already put on newspapers, and question whether the luxury goods market — the cash cow for Condé magazines — will continue to defy gravity.
The most uncomfortable questions involve Mr. Newhouse himself. Though he is, by all accounts, in excellent health and allergic to the idea of retiring, he is 80 years old. Will his successors have his knack for identifying what sells, or his willingness to absorb years of losses on magazines he considers promising?
Mr. Newhouse rarely grants interviews and declined to comment for this article. For the most part, however, Condé executives acknowledge only mild concern about such things as the Internet, shifts in the ad landscape and succession planning.
“Whether the advantages we have now are enough to sustain the existing channel, I don’t know,” says Charles H. Townsend, the chief executive. The future, he says, “certainly will require everyone to take a harder look at profitability.”
“But we are the top-end publisher and it has served us well and I believe it will stand the test,” he adds. “Painting cheap stripes on Condé Nast and saying we’re going to serve up Condé Nast Lite would be a huge mistake.”
OVER three decades, Si Newhouse has built Condé Nast from an elite boutique into one of the largest, most successful American media companies, an upscale arbiter of popular culture from fashion to fiction. Yet he has such a low public profile that he goes unrecognized when he walks his pug, Cicero, along Manhattan streets.
Mr. Newhouse goes to work daily in chinos and an old sweatshirt — a small, quiet grandfather, a man of plain looks, heading an empire that revolves around images of beauty and youth. Anna Wintour, editor in chief of Vogue, refers, laughingly, to “his unique sense of style.”
His father, Samuel I. Newhouse Sr., built a major newspaper chain from scratch that employed many of his relatives, including the two sons, Si and Donald. Donald thrived there, but his more introverted older brother did not.
In 1959, the father paid $5 million for Condé Nast, a company with four magazines in the United States — Vogue, Glamour, House and Garden and Brides. In that rarefied air, Mr. Newhouse found a home, developing an eye for design and talent, and a taste for art.
When Samuel died in 1979, his sons gained control of Advance, and Si began making expensive gambles to expand Condé Nast. The company bought a number of magazines, often at high prices, and introduced what may be the industry’s most impressive roster of successful new products. (He also oversaw another Advance purchase, Random House, for 18 years.)
Not every venture succeeded; new projects like Cargo and Vitals, two shopping magazines, failed, and the company closed venerable titles like House and Garden and Mademoiselle.
Mr. Newhouse poured money into the new magazines and some of the old ones, in a way that would have made other publishing executives blanch. Vanity Fair, bearing the name of a magazine that folded in the 1930s, was introduced in 1983, but did not become profitable until the mid-1990s, and The New Yorker, bought in 1985, lost money for the next 18 years.
Critics pounced on Mr. Newhouse in the early years of that spending spree, deriding Vanity Fair as a highbrow celebrity rag, and treating his purchases of Random House and The New Yorker as assaults on culture itself.
Looking back, Condé executives say that there were some excesses in the direction of flash and pop, but The New Yorker and Vanity Fair are now widely counted among the best magazines in the country. Colleagues say Mr. Newhouse reveres The New Yorker, calling it “The Only.”
Last year, Condé introduced one of its most expensive new titles, Portfolio, its first business magazine, which company executives predict will lose $150 million or more before breaking even in four to five years. It has been roundly derided by critics, but so, too, was Vanity Fair, which was nearly folded in its infancy, or Allure, whose entire first press run was shredded.
“He runs his business more like an old-fashioned proprietor, according to his interests, his tastes, like Henry Luce or Hearst did,” says Reed Phillips III, managing partner of DeSilva+Phillips, an investment banking boutique.
When asked what motivates Mr. Newhouse, people who know him rarely mention power or money. They talk about his devotion to his work, his penchant for arriving at the office before dawn, his intense interest in design details and his curiosity about Hollywood, politics and art.
In discussing people or things, “Si uses the word ‘attractive’ the way other people might use the word ‘spiritual,’ ” says a former senior executive who requested anonymity because he didn’t want Mr. Newhouse to consider him disloyal. “It means to him a sort of roundedness and depth.”
(A striking thing about Condé is that people who leave — even those who departed in frustration or felt that they were mistreated — are reluctant to speak ill of the company or the boss. Whether this reflects fear, respect or a lingering hope of being invited back into the gilded fold, one can only guess.)
More than almost anything else, acquaintances say, Mr. Newhouse delights in the buzz his magazines routinely create. He welcomes controversies, like the recent brouhaha about the Obamas-as-terrorists cover of The New Yorker. What tickles him often challenges convention, often embraces the new or novel, and often sells.
When Mr. Newhouse offers advice on Vogue, “he’s always made the surprising choice rather than the safe choice,” Ms. Wintour says. “He likes the buzz, there’s no question. If you have lunch with a celebrity or political figure, he’s thrilled to hear about it.”
Despite the influence he wields, Mr. Newhouse so defers to his editors and dislikes confrontation that a number of them have said over the years that their first indication of trouble came when he fired them.
In keeping with the family ethos, Mr. Newhouse and his wife, Victoria, an architectural historian, live modestly by billionaire standards. They have an apartment near the United Nations and a house in Bellport, Long Island, rather than the more glamorous enclaves of Fifth Avenue or the Hamptons.
Each home is large, but less opulent than some of its neighbors. Mr. Newhouse’s major personal indulgence is collecting modern art. He also reads broadly, especially nonfiction, and attends the theater and the opera.
His greatest passion is movies — the only topic besides his magazines, his colleagues say, that can make him almost chatty. He recently sent a DVD of the film noir classic “D.O.A.” to some of his editors, eager to discuss it afterward. Graydon Carter, editor in chief of Vanity Fair, says his annual Hollywood issue was the chairman’s idea.
Mr. Newhouse follows politics but, unlike so many media moguls, has no interest in having a political voice. In fact, people who have worked closely with him for years say they have no real idea what his political views are.
He is so shy that several years ago, when the company opened its Frank Gehry-designed cafeteria, a chic forest of undulating glass and titanium panels, he initially wandered about with his lunch tray, reluctant to impose on other diners — or, some employees speculated, he was just unwilling to endure small talk. After a while, it was decided that the table to the right of the registers would henceforth be his.
Today, speculation revolves around how much longer Mr. Newhouse will maintain his desk in the executive suite. In the 1990s, Jonathan Newhouse, a first cousin who runs Condé Nast International in London, was widely seen as the heir apparent.
In this decade, that designation shifted to Steve Newhouse, one of Donald’s sons, who, as chairman of Advance.net, has overseen all of Advance’s Internet operations since the 1990s.
Both ideas are simply wrong, according to Steve Newhouse, Mr. Townsend and some other top executives. Instead of a single heir to Si, they say, a team of people will be running the show.
“Si has set us up with Chuck as C.E.O., Jonathan running the international group, and me running the Internet,” Steve Newhouse says. “I would anticipate that those roles would remain the same.”
“I am not going to be running the magazines,” he adds.
Executives and family members also say that Advance itself will also be run by committee, though who will serve on that committee is unclear.
Although dozens of family members have worked in the company, have owned shares and have tried to make major decisions by consensus, there have been two people in charge for the last three decades: Si and Donald.
Si, the chairman of Advance as well as Condé, heads the magazines. Donald, 79, the president of Advance, runs the newspaper business, which includes Parade magazine, the Sunday newspaper supplement, and a stable of local and regional papers like The Star-Ledger of Newark, The Oregonian of Portland, and The Times-Picayune of New Orleans.
Since the 1970s, cable television has become a third major unit of Advance, headed by a Newhouse cousin, Robert J. Miron. Operating as Bright House Networks, it has 2.4 million subscribers, making it the sixth-largest cable provider in the country.
Under Jonathan Newhouse, Condé’s overseas operation has expanded from three dozen magazines to more than 100 over the last 20 years. Colleagues describe him as an unusually brash member of what continues to be a self-effacing and very private family.
Colleagues also say he is the person who most closely mirrors Si Newhouse’s affinity for magazines and his eye for new products and talent. But they say that Jonathan, 55, who declined to discuss succession matters, is content to stay in London.
CONDÉ is surrounded by whiplash-paced changes that have battered broad swaths of the print publishing world. But, so far, the magazine industry has resisted what ails newspapers.
To be sure, some general-interest magazines — notably newsweeklies — have suffered, but most magazines cater to enthusiasts and are intended to have longer shelf lives than newspapers. They also offer a tactile, portable and visual pleasure that doesn’t always translate well to the computer, for readers or for advertisers.
All of this may hold even truer for Condé’s lush products than for any other magazines.
“You’re going to have to go a long way on the Internet to compete with the way we produce words and images in the magazines,” says Thomas J. Wallace, Condé Nast’s editorial director.
Still, much the same thing was said by newspapers a dozen years ago. And even as they say they have little to fear, Mr. Wallace and many of his colleagues concede that pocket computers, faster downloads, better screens and other innovations could change the balance.
Over the next decade, “I think it’s possible that digital delivery and consumption of magazines will become the norm as the technology improves, and the advantages of paper will diminish,” said Mike Simonton, a senior director at Fitch Ratings and a media analyst.
But not yet.
Industrywide, magazine circulation has held steady in this decade, while ad sales have risen. And the market for luxury products has consistently outpaced the middle and bargain segments.
Condé says its domestic ad revenue rose 46 percent between 2002 and 2007, about 10 percentage points better than the industry as a whole. In the first half this year, as the economy stumbled and the ad market slumped, Condé’s revenue was flat.
Almost half of Condé’s revenue last year was generated overseas, according to several executives.
There have been debates within the company about whether luxury ads can keep outpacing the overall market. Those debates contributed to the creation of somewhat less upscale magazines like Domino and Lucky, but the basic strategy didn’t change.
The luxury approach has worked even better overseas, where Condé has found untapped markets for versions of Vogue, Vanity Fair and other titles. The Italian Vanity Fair, introduced just five years ago, had more than 6,000 ad pages last year — far more than any magazine published in the United States — and more than $100 million in revenue, according to Jonathan Newhouse.
“I think sometimes commentators throw around these assumptions about what is happening to the industry, going the way of newspapers, and I don’t believe it,” he says. Some magazine publishers, he says, are suffering because they “have lost their way a little bit.”
“It’s probably too simplistic to say that upmarket magazines do better than downmarket,” he adds. “I think the distinction really is between products that are good and products that aren’t so good.”
Condé Nast has moved very cautiously onto the Internet, again raising questions about whether it will have to make a strategic shift in the future.
Many of its Web sites are scanty. The company adopted the unusual strategy of embedding some of its biggest magazines into sites built around subject matter, rather than giving them stand-alone sites. Epicurious.com, for instance, includes Gourmet and Bon Appétit, while Style.com is the home of Vogue.
Analysts and competing publishers say that Condé Nast under-uses extremely well-known brands that could draw more Web traffic.
“What we’re not doing is trying to turn those companion sites into large Web destinations,” Steve Newhouse says. “They’re there to support the magazines.”
Still, some executives have argued that the company should invest more online and move faster. One of those was Mitchell B. Fox, a former senior executive at Condé whose concerns about the company’s Internet strategy contributed to his departure earlier this year.
Another facet of Condé that isn’t disappearing but is certainly being reshaped is its famously free-spending ways.
As the company expanded in the 1980s and ’90s, it drew more than its share of outside attention for splashy new products like Vanity Fair, high-priced purchases like The New Yorker and florid personalities like Tina Brown, who defied convention in editing each of those magazines.
Media watchers have delighted in the turf wars, scandals, hirings and departures of bombastic publishing executives and cosseted editors. The seating chart for Condé’s Christmas lunch is parsed each year like a Rosetta Stone, with proximity to Mr. Newhouse a measure of waxing or waning influence.
CONDÉ’S habit of excess has also kept many a gossip columnist busy. This, after all, is the company that used to fly dresses on the Concorde from Paris to New York for fashion shoots, gave executives zero-interest mortgages and collected on them irregularly, and had black cars idling at the curb every day, not just for editors and publishers, but also for their assistants.
Beyond such easily mocked extravagances, the magazines had astronomical operating costs and few controls. There was so little cooperation or consolidation that Condé titles actively competed with one another for ads. Some editors had sketchy budgets, or no budgets at all, and were not always held to them regardless.
Mr. Wallace, Condé’s editorial director, recalls that in 1989, his first year as an editor at Condé Nast Traveler, the magazine’s budget was a single sheet of paper. “Nobody here had M.B.A.’s,” he says. “Nobody knew how to read a spreadsheet.”
There were years under Si Newhouse when Condé Nast merely broke even or operated in the red; it lost a lot of money in the early 1990s, executives say. But Advance could afford it. The newspapers and cable systems generated ample income, and magazines were a smaller part of Advance then.
“This was a company of characters, not of financial substance,” says Mr. Townsend, who joined Condé 14 years ago. “We were making a lot of noise, but not delivering a lot of cha-ching.”
Much has changed since the late 1990s, first under the late Steven T. Florio, who stepped down as chief executive in 2004, then under his successor, Mr. Townsend.
In interviews, top Condé executives all made a point of praising Mr. Newhouse’s business skills and saying that he has set the new financial tone as much as he set the old one — as if they were afraid that he would be portrayed as a one-dimensional magazine savant.
Condé has belatedly consolidated its back-office operations and imposed detailed budgets and financial targets. It also created a new unit, the Condé Nast Media Group, to sell ads across groups of magazines in similar niches (like Vogue, Glamour and Allure, for instance) rather than one title at a time — giving it leverage with advertisers wanting to reach defined clusters of consumers.
Chronic money-losers like Vanity Fair and The New Yorker finally got into the black. In fact, Vanity Fair became one of the company’s most profitable magazines, along with Glamour, Vogue, Architectural Digest, and Condé Nast Traveler.
Many of the outsized personalities of the past have gone, including Mr. Florio, Ms. Brown, the late Alex Liberman, the aristocratic Russian émigré who was the longtime editorial director, and Ron Galotti, the effervescent and confrontational former publisher of GQ, Vanity Fair and Vogue. Coincidentally or not, internal squabbling has simmered.
Some extravagances have been curtailed, but no one in the business disputes that Condé still spends far more money than its competitors. Magazine publishers and editors in chief haul in $400,000 to $2 million in salary and bonuses, current and former executives say, and many executives have clothing allowances in the high five figures.
The magazines still stage elaborate photo shoots; some of them publish expensive, long-form journalism, investigations and fiction. Condé’s journalism routinely snares National Magazine Awards, and the company is home to leading creative talents like Annie Leibovitz and Mario Testino.
Last July, Vanity Fair printed 20 different versions of its cover, a daisy chain of celebrity pairs shot over many months and on multiple continents by Ms. Leibovitz, a project that cost millions. It paid for itself, says the magazine’s editor, Mr. Carter, in increased newsstand sales and buzz.
Mr. Phillips, the investment banker, observed, “I would say if you look across their whole portfolio, Condé Nast does a better job of producing high-quality magazines than anybody else in the industry.” But, he adds, “you really could spend a lot less money on those magazines without affecting quality.”
Top Condé executives say they spend money only with a purpose these days. Mr. Townsend cited a McKinsey consulting report saying that the company could trim expenses by just 2 percent without hurting its products or its bottom line.
Others at Condé, meanwhile, say they’re aware that Mr. Newhouse is still looking over their shoulders.
“I had a picture of a fox hunt, and Si had a question about the saddle we used,” Mr. Carter recalls of a Vanity Fair photo spread. Mr. Newhouse told him that one of the captions inaccurately described the saddle.
With Mr. Newhouse continuing to keep his eye on the details, while quietly tallying his ad pages by hand, no one is expecting him to head for the exits.
“Si is as deeply engaged as ever,” Steve Newhouse says. “And he’ll be around for a long time.”
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