Hearst Magazines Digital GM: Profitability By 2010

Chuck Cordray of HearstsAfter selling its stake in iVillage three years ago, Hearst Corp. assumed direct control of its magazine Web sites and brought on media veteran Chuck Cordray to lead their overhaul. In addition to revamping its magazine sites, Hearst in the last two years has also acquired several stand-alone Web properties including teen social network eCrush.com, social shopping site Kaboodle, and relationship advice site Answerology.

During Cordray's tenure as general manager of Hearst Magazines Digital Media, traffic has more than tripled from about 3 million to 14 million unique monthly visitors and ad revenue in 2008 increased almost 75%. But with the consumer magazine industry facing one of its worst years ever, Online Media Daily sat down with Cordray to discuss Hearst Magazines' digital business.

OMD: After ending its Web services agreement with iVillage in 2006, Hearst had to take over running its own magazines sites. What was that experience like?

Cordray: It was scary to say we have nothing--we have people who don't even know the computer to host any of our content in March of 2006. It was also actually really liberating to build in a post-Google world, so we built out content with search engine optimization in mind. A key part of our strategy was to build our audience through search and syndication rather than buying traffic. For the core womens' sites, we buy less than 1% of our traffic. It's really search and syndication that drives 77% of our traffic. That allowed us to plan our systems so that we did as much as possible making everything as visible as possible for search engines.

OMD: What's been the acquisition strategy online?

Cordray: Our strategy of acquisition has been about adding more scale in our core demographics. (With Answerology, it has been about adding specific functionality that we wanted to add to our site.) Kaboodle added a large group--and very fast-growing--of young women. RealAge allowed us--when we look at advertising and content for almost all the magazines--health and wellness is top three for both. So RealAge was a great extension of that.

OMD: How are ad sales handled within the digital magazine unit?

Cordray: From an ad sales perspective, we sell across all properties in the network. If we're going to a client we're much more likely to sell say, Kaboodle, Cosmopolitan.com, MarieClaire.com and Seventeen.com as a bundle targeting young women. More than 80% of our ad buys have three or four ad brands purchased at a time, so our ad buyers tend to buy as a network to increase their reach. We now have 25 different brands as part of the network, so it's a fairly large reach.

OMD: How are ad sales coordinated between the print and digital sides?

Cordray: We do it two different ways. The majority of our ad revenue comes directly from digital agencies, so it's a digital agency buying digital-only, across the network. At the same time, we have an approach for print agencies that want to buy digital extensions--the individual print brands and print sales force can go out with inventory on their site.

So Marie Claire can represent MarieClaire.com. And that's almost 25% of our revenue in 2008 either sold by the print brands or sold in conjunction between the print and digital teams going together to an agency or client. There's a lot of coordination, but it does give us the flexibility to do both things.

OMD: Is the digital magazine business run as a separate profit center?

Cordray: Digital is its own P&L. So we have a consolidated P&L, and ad sales people are incented based on the dollars they sell rather than the source, so they have an incentive to sell as much media as possible.

We had really strong growth in ad revenue in 2008. About two-thirds of digital revenue is advertising and one-third comes from subscription sales--that's for the company as a whole. It certainly helped that the network grew dramatically. The organic growth, the SEO and syndication growth, gave us a much bigger footprint which enabled us to go out to advertisers and make a pitch for why more ad dollars should come our way.

OMD: Is the digital magazine unit profitable?

Cordray: At a simplistic level, if you include print products we sell online as part of the digital P&L, we were profitable last year. If you take the internal accounting on it, we're not profitable on it and should be next year. Hearst has a two-year history of these properties being live. We are still on the original investment plan of profit returned to the corporation. So as a planned investment, we're where we're supposed to be and on a path to profitability.

OMD: Hearst's magazine ad pages fell 8% last year and in January the company shuttered its Teen quarterly title. How is the ad recession battering the entire industry affecting Hearst online?

Cordray: Our growth on ad revenue will be slower than it was last year, but in Q1 we are nicely positive. So we'll probably finish Q1 30% to 40% ahead of last year. Okay--it's less than last year--but in 2009, where red is the new black, I'm glad that we have black against black, and we're showing significant improvement against last year. Part of it is simply that we are newer, so we're coming out with growth that is justifying advertisers saying 'Put more dollars there because this is bigger than the audience it was before.' 2009 is a tough year, but we believe we are in a good position to continue growing.

OMD: New vertical networks like Glam Media have exploded seemingly overnight by aggregating hundreds of similar sites. How does Hearst compete with that type of growth?

Cordray: We built our own content management system using open-source technology. Because we have one platform, we can roll something across all the sites--like the fragrance-finder tool we just announced--and it's simpler for us to roll it across the whole network. There are a lot of networks rolling up other people's traffic, so if an advertiser says, 'I want to buy across all of them, What can you do for me?'--well, essentially, all they can offer is click advertising.

OMD: A recent Advertising Age study estimated Hearst Magazines gets 6.5% of its total revenue from digital, with 2008 digital revenue estimated at $124 million. Are those figures accurate?

Cordray: Hearst has been quoted at 6.5% to 10%. We're comfortable with that range--those are reasonable estimates. Do we want to lead that pack? Sure we do--give us another two or three years. The question of how businesses compare is less relevant to me than do we have a growing profitable digital future for Hearst. Have we built key capabilities, do we have core competencies around digital? Those are the questions I think about.

OMD: How does the digital side help to sell print subscriptions?

Cordray: Every week we push live new functionality for our sites. On content, we push live 300 new pieces of content every day. One of the systems on which we update the code every week is our subscription management system. When my team took over, we had about 600,000 a year as a run rate. In 2008, we sold 2.2 million subscriptions. At the same time, we increased profitability of online orders from less than $6 to well over $9. So it's growing in volume very quickly. At the same time, the profitability per order has gone up by 60%.

OMD:: Hearst recently announced hiring former Yahoo executive Neeraj Khemlani to serve as vice president and special assistant to the CEO for digital media, starting later this month. With his charge to coordinate "digital content transformation" across the company, how do you see Khemlani's role in relation to your group?

Cordray: Hearst Corporation is a forward-thinking company, and Neeraj Khemlani and his varied experience will be a smart addition to the company and its future digital efforts. Our entire team is looking forward to working with him.

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