FOLIO: Roundtable:

ROUNDTABLE PARTICIPANTS:

Linda Brennan
Vice president of operations
McGraw-Hill Construction.

Tom Kemp
CEO
Northstar Travel Media.

John Lerner
CEO
Breaking Media.

Philippe Guelton
COO
Hachette Filipacchi Media.

Andy Goodenough
CEO
Summit Business Media.

Duncan Edwards
CEO
Hearst International.

Kevin Worth
CEO
The Deal.

Traditional media companies possess most, if not all, of the skills required to be successful. They understand content creation, sales, marketing, audience development, e-media and more.

And yet, they’re constrained by structures that are becoming less important, and sometimes obsolescent. Organizations remain geared to creating monthly magazines. They have production departments dedicated to print manufacturing, audience development departments dedicated to making rate base and qualifying for an audit and even editorial departments that still direct most of their resources to hitting the monthly deadline. Sales departments? Well, their biggest payday often is still from the sale of print pages.

Even the most innovative among us haven’t totally succeeded in fully integrating the print processes with the digital, and so our companies often look like they’re operating in two parallel but only semi-related processes.

It’s little wonder, then, that the online-only businesses seem more nimble and innovative. In this roundtable, we explore what media companies are thinking about organizational structure and how they’re transforming themselves.

FOLIO: One thing that becomes apparent is the focus on transformation. That’s what we want to talk about today—the structure that supports that transformation. Kevin, you said something interesting in your introduction—that media is an important part, but not the largest part of what you do. What did you mean?

Kevin Worth: The role of media is still very important. Being in our business, with The Deal and covering Wall Street, media does two things. It generates revenue and it helps keep us relevant. When you’re in a subscription-information business, you constantly struggle with the value of the information on the one hand, but the fact that only 30,000 people are going to see it, on the other. We want a bigger audience to know that we’re relevant.

The transformation that happened over a few years, it was a big deal. Every single employee understood that this would alter our course by taking all of our content and relaunching our news, our data, our analysis, our video, in an information-management business. That required us to do a lot of things. We had to completely rebuild our marketing channel, we had to rebuild our technology. It was a big transformation getting from point A to point B.

FOLIO: What about eliminating or dramatically modifying print-related functions? Tom, you had talked about how print was not declining as rapidly at Northstar.

Tom Kemp: Clearly it has not been our growth area in terms of your question about reorganization, we don’t have one person who works on magazine circulation, we’ve outsourced that completely. We had our head of manufacturing and production leave this year and we have not replaced them.

Where we’re investing is in our resources. We’re investing in programmers, we’re investing in Web analytics positions, audience development to help build databases, but we’re going to outsource the traditional print functions because that’s not as strategic to work on.

FOLIO: Duncan, you’re at the center of one of the largest stories of this year, the acquisition of Hachette by Hearst. Talk about Hearst’s approach to print going forward.

Duncan Edwards: I think the deal we’re doing has to be evaluated in the context of Hearst Corp. Hearst is a large and diversified company. Non-print activity is still more than 50 percent of the revenue, so even though this is a big transaction in print, it doesn’t turn us into a print-first organization. We think we’re going to be in the magazine business as far as the eye can see. If we’re going to be in that business, we might as well be bigger.

FOLIO: Tom, you have spoken about outsourcing print services. I’d like to go around the table—what other functions need to change or go away within your organizations or certain parts of your organizations? Linda, let’s start with you on that.

Linda Brennan: We do not have anyone on staff who works just on print. Our revenue comes overwhelmingly from digital products, so that has required the organization to hire and to train everyone on staff on print, on digital and on mobile—any platform our customers demand and where we can provide intelligence for the construction industry. So, instead of the outsourcing route, we’ve built a staff that can work across all the different platforms.

John Lerner: I’ll answer from an inverse perspective. Because we’re a start-up and online only, we try not to add anything unless there is a return quickly. Everything we do is outsourced—anything we do we partner on first and then we wait and see if it is really going to be a vital business. We have the luxury of not having to keep things in-house.

For us, it’s about our capital. We need a quick return for our investors. I think the luxury of being a small start-up is that we can look at everything and say, ‘Do we need this?’

Andy Goodenough: The flip side is that you don’t get quite the return when you rely on so many partnerships.

Lerner: This is true. We’re also looking at things from an evaluation standpoint. So if I’m looking at the company and looking at eventual exits, if we can say there’s an obvious upside here, we can bring it in-house and realize the return on it.

FOLIO: Kevin, you had spoken about the role of media. What internal functions can you do without?

Worth: We’re constantly rethinking, reinventing what we do almost every day. That never stops. We have about 120 employees in the company. So you need to be able to multi-task. If you get hired for one thing, you need to be able to do three other things immediately. I don’t know what those three things are going to be tomorrow exactly, but we listen to our customers constantly.

FOLIO: Talk about some of the new functions and new positions that you need and are adding. Philippe, I know you’ve been at the tip of the spear with a lot of things Hachette has done.

Philippe Guelton: We created a chief brand officer position a couple of years ago. The chief brand officer has control of internal sales and marketing efforts. This was a major transformation and this required additional resources and brand development and business-development partnerships. We also did a lot of innovation around our media lab, because I think companies have to be much more focused on incubating new business models rather than just acquiring other businesses.

In our case, because we didn’t have the means to spend much more money, we had to be more creative in a way, in coming up with new business ideas and new models.

FOLIO: Can you tells us more about the media lab?

Guelton: In addition to our day jobs, we’re looking at what’s going on with technology, with consumer behavior, and really thinking about what kind of things businesses are doing today, in terms of media, in terms of content, mobile technology. The idea is to really come up with new concepts and new products that can help our business.

FOLIO: Andy, let’s go to you. I know that you’re in the midst of a transformation right now. Can you talk about the functions needed at your organization?

Goodenough: We’re very diversified. We have media, events, reference businesses and data. We have advertising revenue and paid-content revenue. We like that mix, so we try to do it better. We’re organized by product function as opposed to market. The activity and professional comfort level with advertising/marketing dollars is substantially different than databases and selling subscriptions.

Asking one individual to handle both revenue streams is too far-fetched. This was our perspective when we reorganized and fully integrated the business about two years ago.

Worth: Selling paid content is much different from selling advertising. We built a whole new marketing channel, with a different background, a different mentality, a different skill set. We’re certainly finding there are additional synergies and more opportunities between our folks are who calling on customers and trying to understand their marketing needs, and when we try to sell our customers information. More and more there is an ability to get our groups together and think about the clients’ overall unifying needs and our overall need to generate revenue.

FOLIO: Let’s build off this idea of integration. How should an integrated company look across the board?

Kemp: Our company traditionally has been very focused on silos. We’ve tried to decentralize so that our activities are customer-based activities. We want to decentralize from that standpoint down to people who can understand the markets the best.

But where we are centralizing is in technology development, because we’re spending a lot of money on software developers and Web designers. We want to make sure we don’t duplicate that throughout the company. If we’re building a new educational platform as a solution for a customer, we want to centralize that and then bring specific offshoot applications to different customers or different markets.

But in terms of our customer base, we’re still decentralized. That’s a challenge. Everyone wants to build their own silo and have their own Web development team and technology team. That gets inefficient. But I think the thing from the sales standpoint that is most important is the physical contact. It’s a sophisticated sale.

Goodenough: I might say we serve six verticals, they’re interlocking into one sort of main vertical, from individual segments. Speaking specifically about technology, we try to espouse a federal and state system. If everything is controlled federally, from a centralized area, you’re never going to get enough trickle down to electronic-product development initiative. If everything is totally diversified, so there’s no federal oversight, you’re never going to have proper control.

So, from our standpoint, federal and state is the way to go. For IT infrastructure, that is exclusively the property of federal. However, when it comes to electronic-product development, it’s critical to include the people who drive the business.

FOLIO: John, you talked about outsourcing support services. How does this carry across your group?

Lerner: Over the years, I’ve built million-dollar systems, I’ve built thousand-dollar systems, and now companies are using WordPress. Technology can be the biggest money pit in the world. Everyone wants something different. People are going to say, ‘Well, my brand is different, I don’t want to use it.’ So even if you have the best CMS in the world, someone’s going to want something different.

But really, there has to be a business case. I’ve built so many things over the years that have sounded like a great idea, but by the time they’re done, they’re obsolete. If you started building Droid stuff six months ago, you would have dominated the market. I think it gets down to people. You can argue the structure one way or another, but if people buy into it, there’s been success in both models.

FOLIO: Let’s go around the room and talk about the smartest tech investment you’ve made over the last year and why.

Brennan: I don’t know if I can say what our smartest investment has been. We brought in a new CIO, Isaac Sacolick. I really think he was the smartest tech investment.

Lerner: I scour sites like Mashable every day to find the newest start-up trying the new technology, TechCrunch has a list of good companies to follow. A lot of times, what happens is that a really good sales guy comes in with a new technology and pitches that new technology into your contract. But often, if you haven’t integrated it, the promises might never get kept and the investment is too much. I always say no to the first vendor, even if it sounds like the best one in the world. Always know there’s something out there that’s free or close to free.

Worth: It always starts with people. When you ask about a smart technology move, I frame it in the context of what we’re trying to accomplish. Is it cost-saving efficiencies? Or are we trying to generate revenue?

One of the most helpful things we did is invest in a platform called FAST, an enterprise search solution. Our customers are usually looking for a company. If it’s in the Wall Street space, we can show them information they weren’t looking for, we can provide that power of discovery.
When we can execute on that and give customers intelligence that they weren’t exactly looking for but is relevant, then we become really relevant to them because we’re in their workflow.

FOLIO: Philippe, you’ve been out in front in so much of this. What’s been the smartest move for you?

Guelton: I would say two things. One was taking all the production systems on the prepress side and using Adobe and Woodwing, which allowed us to really save a ton of money in prepress costs. And then, coming out of the new-product lab is a tool, an app, that will make video-content production very, very easy for users. It will create a new wave of video crowd-sourcing. Everyone who’s looked at it thinks it’s a game changer.

Edwards: There are two things I’d highlight. One is our circulation-acquisition tool that sits on our Web sites. Now it’s a service we are selling to third-party customers and publishers. It’s been transformational in terms of the economics of subscription acquisition. The second one, less an in-house technology play and more of a strategic position, was the acquisition of iCrossing, the digital marketing-services agency.

Goodenough: When I first got started with private equity, I bought arguably the most recognized brand in the insurance field, Underwriter, but it was in the technology dark ages, so we needed to immediately bring that to the modern age. We made the decision to develop portals for each of our market groups. We have four, five or six Web sites in each market group, and we now have a single entry point for all of our content for each market group.

We decided to go open source in the middle of last year. Technology itself was empowering because it made us more flexible, but beyond that, it was tremendously empowering to the divisions to be able to control their Web development.

The innovation was just incredible. We went to a content-aggregation model, from 100 percent home-grown, home-written content to an aggregator model, which we couldn’t have done without that new technology. That’s really been a game changer, for us.

Kemp: The smartest technology decision we made was to bring in an outsourced creative Web-development team from Berkeley, California, the group that worked with IDG and their whole transformation to digital-first. Having a digital-advertising agency working individually and developing specific products for us has been a great resource.

FOLIO: Let’s get into the marketing services for your respective organizations. Define what you mean by marketing services and talk about the opportunity there.
 
Edwards: iCrossing still operates as an independent digital marketing-services agency. But, clearly part of the strategy is to integrate with Hearst. Not just Hearst Magazines, but also with all the other parts of the corporation. There’s a steering committee that has been put in place that represents each of the separate divisions of Hearst. It meets on a regular basis to optimize the synergies with the existing Hearst business, to make sure we’re using iCrossing ourselves. We are also introducing their services to our customers, our clients, so that’s really the name of the game.

FOLIO: How does this differ as far as managing a business? I’m curious about how running an agency, as opposed to running a publisher, actually differs.

Edwards: It’s run by the management that ran the agency before we acquired it. The people who are running iCrossing are people who have experience with an agency, which is the right thing to do.

Goodenough: We’re trying to decide if we should get excited about this term, “marketing services.” I mean, haven’t we been in marketing services forever? We just called it something else, right? Of course we are all doing custom media nowadays. That, in essence, is providing ad-agency services. Now, with our digital products, we’ve got a full suite of lead-generation capability, Web seminars—we can go through the laundry list. Those are all marketing services.

Kemp: We’ve traditionally done a lot of customized media solutions and recently we formed a group called Marketing Solutions. Last week in Las Vegas, we made a proposal to MGM Resorts to totally redesign their professional portal Web site and then have microsites for each of their individual 13 properties. They would have a search-engine capability and a search-selector tool, so depending on what clients are interested in, it’ll serve up different options for their customers, building an affinity program that creates loyalty. And this is for MGM Resorts, which is a multi-billion dollar company. It’s a couple hundred thousand-dollar program. It is really taking it to the next step.

Goodenough: Sounds cool, who’s doing the work? Who are you working with?

Kemp: It’s not a joint venture because we have the databases, we have the content, and we open the doors to the market.

What we’re doing is leveraging the assets we have within the company, in terms of our database, to drive traffic to their Web sites. We’re outsourcing some of the Web development to a digital advertising agency.

Goodenough: If it works, let me know and I’ll try to rip it off.

Brennan: We’re doing something very similar at McGraw-Hill Construction.

Kemp: By the way, nothing is branded, nothing has our name on it.

Brennan: We’ve created a marketing-services department that serves our advertisers in the same ways you just described—building Web sites like you’re going to be doing.

But they’re also certainly building Web programs, blogs, Webinars, brochures.

We’re also really thinking about marketing solutions in terms of lead generation in ways we haven’t in the past. So, that has been taking place in the last six to 12 months.

Lerner: One thing we’re doing is evolving the expertise, and once we’re good with that, we can pass it on to our clients. Years ago, it was just custom publishing. And then it was events. As the world gets more complex, we become experts, and then we can help our clients. It’s a logical step, and it is more complex. But it’s a good evolution of this business.

Guelton: A big part of this is when you’re not only expanding your own platforms and assets, but third-party assets as well. That really transformed the mission of our company, from a media company selling its own products to actually servicing others. That’s a change in thinking, and is not an obvious change for most media companies that usually are focused on their own products.

FOLIO: Let’s talk about where you are investing in general in your company this year. Is it people, is it specific types of products?

Goodenough: Investment in 2011 is very significant. Our technology spend—broadly defined as the people as well as the services and products—will increase by about $2 million dollars, and by 30 percent, so we believe in order to drive the transformation we have to put our foot on the gas. That is our single biggest area of investment.

Edwards: One of the great benefits of my job is that I see every conceivable business structure for a magazine publisher all over the world, in 60 countries, working with every major publisher in the world. So we’ve seen them all, every conceivable model. What’s clear is that there’s more than one way to heaven. It’s not really about the structure, it’s about the people and how they meld together.

For preference, I think that magazines should be run by someone who has profit responsibility for the whole magazine, for the whole business, with editorial, circulation, ad sales, reporting to that person. That tends to be the European model, not the U.S. model. But there are different ways of getting things done.

But to go back to the point, we’re looking for efficiency. Part of my job, and part of the reason why I’m here, not in London, is because I can bring to the organization experience of different, and frankly much more efficient, ways of doing business which exist in non-U.S. magazine publishers. It is much more expensive here, but there are good reasons for that and some bad reasons as well.

Goodenough: Expense accounts are larger in Europe, aren’t they?

Edwards: I come from an environment where we counted the paper and turned each sheet over and put it back in the machine.

Kemp: I’d like to follow up on Duncan’s comment. When we bought the Nielsen Travel Group I received a lot of passive-aggressive criticism from my friends in the business, basically saying, ‘What, are you nuts for buying another magazine?’

But the upshot for us was to buy strong brands in markets that are strategic to what we do, and help leverage those brands, far beyond what Nielsen had done. And to tell the truth, the pure investment has been a fantastic deal. I think print is not necessarily where the growth is going to be, but I think the position it gives you as a brand in a vertical market is a huge advantage to media companies that have fully integrated offerings.

Guelton: A number of digital businesses that come to us want us to develop a magazine for them. I have a long list of those players that say, ‘We’d really like to have a magazine.’
It’s not so much that they want to go into the print-magazine business, it’s that they need a multi-platform offering. This goes back to this integrated idea. They need a brand, an anchor in the physical world, to be credible.

Goodenough: In b-to-b, it’s definitely the exception rather than the rule, that digital companies will launch print as well. But when it happens, it seems to fly in the face of reason so much that it obviously gets a lot of play.

FOLIO: What’s your top organizational priority for 2011?

Kemp: The number-one priority we have, or certainly the financial priority, is to achieve an underlying organic growth of our business. There is a lot of financial pressure now. A lot of companies have done a good job of restructuring, taking costs out and getting better cash flow. Ultimately, the value of your business is going to be if your business has underlying organic growth. That’s why marketing services is so important, you’re really tapping into new budgets.

Edwards: For me personally, it’s managing the integration of the Hachette business, that’s going to be the priority.

Guelton: It’s pretty obvious, the big priority for me too will be the integration into U.S. business.

Brennan: At McGraw-Hill Construction, it’s about prioritizing technology, both in top-line revenue growth as well as improving efficiencies in operations.

Goodenough: As I always say, you can’t save your way to prosperity. So, that’s the key. How do we get there? Product development. What does that mean? I didn’t say new-product development, I said developing existing products to the full potential. I didn’t say electronic product development, though certainly digital products are the most important imperative.

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