Newsonomics: There’s a newspaper chain that’s grown profits for the past 5 years, and it’s looking to buy more papers – Nieman Journalism Lab at Harvard

It’s one of the grandest names in newspaper history, but it’s one seldom heard in the industry conversation about the future of the American press.

As The New York Times and The Washington Post have come to dominate national newspapering, we hear mostly about two kinds of regional companies. There are the three big guys — Gannett, GateHouse Media, and Digital First Media — all consolidators of one kind or another, who now collectively own a quarter of U.S. dailies. Then there are the privately owned independents — The Boston Globe, the Star Tribune, The Dallas Morning News, The Seattle Times — caught mid-innovation, fashioning new business models on the fly that they intend will somehow allow them to fulfill their civic missions. Then there’s Tronc, McClatchy, and Lee, all chains on the edge, their status as publicly traded companies complicating their digital transformations.

And there’s Hearst. Founded by William Randolph Hearst in 1887, Hearst is slowly re-emerging anew as a newspaper company. Now owning 22 dailies — from New Haven to Albany to Houston to San Francisco — and 64 weeklies, Hearst now says it’s in acquisition mode. Just a month ago, it became the biggest publisher in Connecticut, buying the New Haven Register, some related smaller titles, and Connecticut Magazine from Digital First Media. That followed three other acquisitions in the past year, the biggest a deal that added 24 weeklies situated around its highly profitable Houston Chronicle. That buy reinforced Hearst’s overall strength in Texas, where it owns six dailies, including the San Antonio Express-News.

Mark Aldam, the Hearst Newspaper Group president, is the architect of that growth, and of a wider strategy that may make Hearst a more important company in those industry conversations.

“You can also expect us to look outside of the markets where we presently have businesses when the right assets are available at a reasonable multiple,” he told me recently.

To be sure, newspapers have become a smaller and smaller part of Hearst, a company that now exceeds $10 billion in revenue. It is one of the biggest — and most diversified — media companies in the U.S. Though its roots are in ink and paper, today 25 percent of its profits derive from selling data and software business-to-business. Owning 30 regional broadcast stations, it’s a major TV player as rollup roils that industry. In magazines, it’s long been one of the Big Four, and its contrarian digital magazine strategy stands out. And its savvy early investments in cable networks, including its 20 percent ESPN stake acquired in 1990, have long been the envy of others in media.

Hearst avoids the limelight; it can be a very private private company. It has a couple of assets that few of its newspaper peers can claim: deep pockets and a longer-term market perspective. In 2016, it spent $2 billion, mainly on the B2B end of the business, seeking more diversification away from media, and specifically from exposure to advertising-dependent businesses.

Newspapers now rank as only the fifth largest of Hearst’s six divisions, but the division’s acquisitions and staffing up definitely stand out among the legacy names in a struggling legacy business.

Rob Barrett, who previously served as Yahoo’s VP for media strategy and operations, took on the new job of president of digital for the newspaper division a year and a half ago. He’s added 56 staffers to the digital development group, including high-profile talents such as Fergal Carr and Esfand Pourmand, both well-regarded alums of The New York Times. Hearst has also hired about 25 data people as it plumbs reader relationships with a new depth.

Even as the pace of innovation as picked up at Hearst newspapers — in those new product and data investments, in branded content initiatives, and soon events and podcasts — Aldam promises a “game-changing” announcement by fall. “We’re going to have something that we believe is a game changer in the way that we manage the consumer relationship,” he told me last week.

In a wide-ranging interview, here edited for clarity, Aldam talks Hearst strategy. He focuses on the role content drives in a half decade of increased profits and increased circulation revenue. We also discuss the continued need for seven-day print, podcasts, and the Hearst Newspapers’ emerging event business.

Mark Aldam: Yes. All the backend functions will be consolidated —‚ printing, packaging, distribution, all of the unique advertising, distribution products will be consolidated. There’s very little overlap between these properties today. In the services area, HR, finance, IT, production, printing, packaging, transportation, distribution, all of that will be consolidated.

They’ll be a lot of opportunity to take those savings and reinvest a portion of them back into what we believe are two essential areas of the business that we tend to invest more in than most: our newsrooms and our local ad sales. Those are the two key areas to make sure the print circulation base remains as healthy as possible.

Doctor: There’s a lot of execution under that, but it is that simple — there’s content and sales, right? And especially for digital, content and sales gets to be more and more important.

I remember I was talking to BuzzFeed and Vox Media three or four years ago, and I’d say to them: Tell me about your budget. And they would say, because they didn’t have print operations, 60 to 70 percent of their expenses were content creation. And then I got a number from Inland Press. Their best survey of dailies showed newsroom expenses amounted to, on average, about 12.5 percent of total newspaper expenses.

So you step back from that in the digital age and you say: It’s got to be content and sales, and you’ve got to reduce every other cost you possibly can, right?

Aldam: Well, we only have one, and New Haven had already outsourced their printing and packaging to Hartford, in their highly efficient plant. We will [soon] print as much of the combined papers as we possibly can on our presses. We will move our Register printing and many of the other weeklies and more than likely both of the other small dailies back to our plant in Bridgeport.

That’s where our printing press is. And our offices have been consolidated recently in Norwalk, so all of our non-local news bureaus are being moved to an office facility in Norwalk. That’s where all of our digital resources are located; many of our important roles are located there. Our layout desk will be there, our page creation desk will be there, copy editing functions will be there.

But the actual reporters will have a bureau office in Bridgeport. The same in Danbury, the same in Greenwich, the same in Stamford, and in Norwalk. These are bureau offices in those communities where local sales reps and local reporters will be able to work from.

Aldam: With this investment, we’ll increase our newsroom staffing to very close to 200 employees. So, in addition to the Register and a bunch of weeklies, there’s Connecticut Magazine, which has been a very solid, strong regional magazine for decades and still produces some very good feature, longform journalism every month that readers look forward to. Some of that can be shared — just as an example.

State government is one of the points of interest that span the entire state. It’s a weird state — I’m not sure how much you know about it, but every town has its own form of government, its own school budget, its own service sector, and so how Greenwich behaves differently than Danbury is of more interest to people in those communities than anywhere outside them. So that’s the unique community coverage that we have to anchor to each of the titles to service those towns, right?

New investment in Connecticut reporting

Aldam: The New Haven newsroom was reduced to 38 employees. So that is as thin as I think you can get. To put out a local product that covers sports, business, the community, the town, city hall, the state, right?

So, it’s 10 [new jobs], and we built into our investment case a reinvestment in both the newsroom and in the local ad sales team.

Print, podcasts, and the new events business

Aldam: Like the Huron Daily Tribune in Michigan, like Edwardsville, Illinois. All of Michigan is six days a week. We have a weekender as opposed to two editions on the weekend, and I think in smaller community markets, we will get to that frequency question sooner than we will in large markets.

In the larger markets, where our philosophy has been, right or wrong, “premium product delivery at a premium price, delivered to your doorstep seven days a week,” it’s an economic model that we think has a long life. When more than 45 percent of our revenue comes from the consumer — and that’s growing — we have an obligation to provide a seven-day experience.

Now, that’s going to change, and it’s going to change and evolve over time. But you come back and talk to me in about three months, and I think we’re going to have something that we believe is a game changer in the way that we manage the consumer relationship. It moves us out of just selling subscriptions to a very different relationship with the customer.

We’re not ready to open it up yet, but once we test drive it and measure the results, I think we’ll be prepared to share it with anyone who will listen.

On staff reductions, reader revenue — and buying more newspapers

Aldam: Overall, it’s greater than 40 percent of our total revenue base of the business, and that’s doubled in terms of its contribution over the past 10 years. And it’s grown every year — we’ve not had a year where consumer revenue has declined. And there’s probably a ceiling on the price that a consumer is willing to pay. But we’re asking customers in San Francisco to pay $600 a year for seven-day delivery.

We haven’t been shy about asking the consumer to pay more, and we know we have a smaller number of customers than we had a decade ago. But these are qualified, engaged audiences.

You combine that with our digital customer base that we can now qualify as well, we’re reaching a much bigger part of the population through all of the media channels, live events, podcasts, registration, breaking news websites, premium paid digital subscriptions, and print and weeklies. You aggregate it up, and we’re much bigger than we once were.

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