Hearst Corporation: Leading the Way

April 28, 2010 at 11:55 am Leave a comment

In 1969 Congress passed the Newspaper Preservation Act, which would exempt newspapers from certain antitrust laws in an effort to keep failing newspapers in business. With the passage of the Act, newspapers in the same city – former competitors – could become horizontally integrated by forming joint operating agreements, or JOAs.

Under a JOA, the business operations (advertising, production, marketing, etc.) of both papers are financed by the more profitable “parent” publication. The two share revenues, with a greater share going to the parent. Though they’re financially intertwined, each paper retains its own staff and editorial independence.

Then-president Richard Nixon was reluctant to sign the Act into law because it violated his laissez-faire capitalist principles. Richard Berlin, chief executive of Hearst Corporation, wrote a letter to Nixon with the following message:

“Those of us who strongly supported the present administration in the last election are the ones most seriously concerned and endangered by failure to adopt the Newspaper Preservation Act. The fact remains that there was almost unanimous support of the Administration by the newspapers who are proponents of the Newspaper Preservation Act. It therefore seems to me that those newspapers should, at the very least, receive a most friendly consideration.”

Nixon signed the bill soon after, and in 1972 every Hearst paper endorsed him for re-election. He won with 60 percent of the popular vote.

One of the strongest opponents of the Newspaper Preservation Act was UC-Berkeley law professor Stephen Barnett. He predicted that the Act would lead to an industry dominated by powerful newspaper chains that would kill off the weaker paper once the joint operating agreement expired.

Until recently, Hearst Corporation was involved in a JOA with the Seattle Times Company under which the Seattle Times financed the production of Hearst’s Seattle Post-Intelligencer for 26 years. The Post-Intelligencer ceased print publication in 2009 after four years of arbitration to terminate the JOA at the request of the Seattle Times Company. All this despite an April 2007 announcement that Hearst’s Post-Intelligencer would be “allowed” to continue publishing until at least 2016.

Though some JOAs are still functioning normally, Barnett’s prediction has turned out to hold a great deal of truth. The Newspaper Preservation Act effectively transformed two-newspaper towns into one-newspaper towns, including:

  • Miami in 1988
  • Pittsburgh in 1992
  • Nashville in 1998
  • Denver in 2009

It’s important to note that these cities would have become one-newspaper towns with or without the passage of the Act. The difference is that, without the Act, the failing newspapers would have been allowed to die years (and possibly decades) before they did. The Newspaper Preservation Act, with the stated goal of protecting journalism from market forces, turned large publishers into the dominant newspaper chains we see today.

12 Cities Still Have JOAs

Stephen Barnett Obituary

Seattle JOA Timeline

“Seattle Will Remain a 2-Newspaper Town”

Publishers’ Big Lies

HISTORY

Hearst Corporation could never have come to fruition without the mining fortune of George Hearst. Hearst purchased the San Francisco Examiner in 1880 in an effort to “further his political ambitions.” When he was elected to the U.S. Senate in 1887, he handed the paper over to his only son, William Randolph Hearst.

Starting with his takeover in 1887 of the Examiner at age 23, William became the genius behind Hearst Corporation, which for much of the 20th century was the largest newspaper chain in the United States.

Hearst started his first magazine (Motor) in 1903 and acquired Cosmopolitan in 1905 and Good Housekeeping in 1911. He bought his first radio station in 1928 and his first television station (WBAL-TV of Baltimore) in 1948. During the 1930s, Hearst and his newspapers led way for a powerful and effective anti-marijuana propaganda campaign designed to generate fear of marijuana and its users. His aim was to eliminate the threat the hemp plant posed to the timber industry, which he’d invested in heavily in order to expand his newspaper chain. (Hearst, an unabashed racist, at the same time sought to bring down blacks and Mexicans by associating them with the “deadly drug.”)

Hearst’s media ventures were so profitable that he was able to build the extravagant, 90,000-square-foot Hearst Castle on the family’s coastal estate in central California.

William Randolph Hearst was succeeded by Richard E. Berlin as company president. Berlin was the man who wrote the letter to Nixon persuading him to sign the Newspaper Preservation Act of 1970.

The company enjoyed a steady stream of various media acquisitions throughout the 20th century. In 1965 it transformed Cosmopolitan from a fiction publication to what would become the most-read women’s magazine in the world. In 1984 Hearst was a founding partner in the A&E and Lifetime cable networks, and went on to acquire a 20% stake in ESPN in 1991.

In 2000 Hearst ended one of its joint operating agreements by buying the stronger San Francisco Chronicle from the Chronicle Publishing Company and selling its original newspaper, the San Francisco Examiner, to a local publishing family (who have since turned the Examiner into a free tabloid). This action was the final step in a century of consolidation, as observed by the Virtual Museum of the City of San Francisco:

Between 1900 and 1999 almost every major newspaper in this city has been bought by Hearst and absorbed into the San Francisco Examiner. The last major merger, in the 1960s, saw the folding of the combined San Francisco News and the Call-Bulletin, known as the News Call-Bulletin, into the San Francisco Examiner. Now, the Examiner ends more than one century of fierce newspaper competition with its parent corporation buying the Chronicle.

Mining Hall of Fame: George Hearst

The San Francisco Chronicle

A Brief History of Hearst Corporation

The San Francisco Examiner, 1887-2000

Virtual Museum of San Francisco

Why is Marijuana Illegal?

Media Awareness Project

HOLDINGS

As of 2010, Hearst Corporation is the proud owner of…

53 newspapers (15 dailies and 38 weeklies).

14 American magazine titles (and some 200 international editions), including:

  • Cosmopolitan (purchased in 1905 from John Brisben Walker)
  • Good Housekeeping (purchased in 1911 from Clark W. Bryan)
  • Popular Mechanics (purchased in 1958 from H.H. Windsor)
  • Redbook (purchased in 1982 from now defunct Charter Co.)
  • Esquire (purchased in 1986 from now defunct 13-30 Corp.)
  • Marie Claire (started in 1994, based on French magazine of the same name)
  • O, The Oprah Magazine (launched in 2000)
  • Seventeen (purchased in 2003 from Primedia)

29 regular TV stations (reaching 18% of U.S. households)

a 20% stake in ESPN (Disney-ABC owns the other 80%)

a 37.5% stake in A&E Television Networks (including A&E, Lifetime, and History channels)

  • Disney-ABC owns 37.5%
  • NBC Universal, recently acquired by Comcast, owns the other 25%

Two radio stations (WBAL-AM and WIYY-FM, both in Baltimore)

Hearst Ranch, where free-range, grass-fed animals are raised and later sold online as steaks, beef jerky, pork, and other meat products.

COMPETITORS

Hearst Corp. reigns as one of the largest newspaper publisher in the U.S., with $4.8 billion in revenues in 2008. Below is a summary of Hearst’s major competitors, along with their revenues for that same year.

Gannett Company* ($6.8 billion) has the largest total circulation in the U.S., with 90 daily newspapers and nearly 1,000 non-dailies. Gannett also owns 23 televisions stations reaching 18% of American households.

The Tribune Company ($5 billion) owns 26 U.S. newspapers (daily and non-daily) and 26 television stations. Lucrative holdings include the WGN television and radio stations and the Chicago Cubs baseball team.

The New York Times Company* ($2.9 billion) publishes the New York Times, the International Herald Tribune, and the Boston Globe, plus 15 other regional newspapers and the general online information source About.com.

The McClatchy Company* ($1.9 billion) owns 30 daily U.S. newspapers. With its 2006 purchase of Knight Ridder, McClatchy obtained 50% of the joint news-sharing venture McClatchy-Tribune Information Services. The Tribune Company owns the other half.

MediaNews Group ($1.3 billion) owns 54 daily U.S. newspapers and more than 200 niche magazines. Like Hearst, it is privately owned. Hearst actually invested $317 million in MediaNews to fund its purchase of the San Francisco Chronicle in 2000, but had to give up its stake when MediaNews filed for Chapter 11 bankruptcy earlier this year.

Chapter 11 bankruptcy doesn’t terminate the company, but gives it a chance to restructure its debts and assets so that it can (ideally) return to a state of financial solvency. The video below provides a more in-depth explanation of this complicated process.

*Although each of these publishers is in serious debt, The McClatchy, New York Times, and Gannett companies are in particularly dire financial straits right now. Between Dec. 31, 2007 and Dec. 31, 2008, the price of their stocks fell dramatically. The New York Times’s went from $17.50 a share to $7. Gannett’s fell from $39 to $8. Most shockingly, McClatchy’s stock lost 94% of its value, falling from $12.50 to 80 cents in just one year.

Hearst, MediaNews, and the Tribune Company (which has also filed for Chapter 11 bankruptcy) are relatively stable in large part because they are not publicly traded. More on that later.

Print Ownership Chart

Center for Public Integrity: Gannett Co.

Center for Public Integrity: Tribune Co.

The State of the News Media

MediaNews’ Bankruptcy Plan Approved

Chapter 11: Bankruptcy Restructuring

PEOPLE

Hearst’s board of directors consists of 20 individuals. Seven are Hearst’s descendants (Austin, John, Stephen, William, Virginia, George Jr. and George III) and 13 are non-relatives. Directors Frank A. Bennack Jr., Cathie Black, and Ronald J. Doerfler are of particular interest as interlocking directorates – people who serve on the boards of other corporations in addition to Hearst’s.

Frank A. Bennack Jr. was the CEO of Hearst from 1979 until 2002. From 2002 to 2006 he was on the board of Wyeth (formerly known as American Home Products), a pharmaceutical company best known for producing Robitussin and Advil. Drug giant Pfizer purchased Wyeth in October 2009. Bennack had also served on the board of JPMorgan Chase for 23 years, ending in 2004. He has been on the board of Polo Ralph Lauren since 1998.

Cathie Black is on the board of IBM, which does more than $1 billion in business with the federal government through contracts with the Departments of State, Defense, and Energy. She is also on the board of Coca-Cola, which has a contract with the Department of Defense as well, providing beverages to troops overseas. Black is consistently ranked in Fortune‘s list of the 50 Most Powerful Women in Business.


Ronald J. Doerfler is Hearst’s Chief Financial Officer. He’s also a director of the asset management and financial advisory firm Lazard, which advises Hearst rival the Tribune Company and the United Auto Workers, one of the most politically active labor unions in the U.S. Through Lazard, Doerfler is tied to Philip A. Laskawy and Steven J. Heyer (see below).

Philip A. Laskawy is on the boards of such big-name corporations as Fannie Mae (the Federal National Mortgage Association), General Motors (American automaker), Discover (financial services company), and Progressive (auto insurance provider).

Steven J. Heyer, a former president of both Coca-Cola and Turner Broadcasting, now sits on the boards of the NCAA, the Special Olympics, and Phorm, Inc.

Web of Board Members Ties Together Corporate America

Interlocking Directorship Definition

Pfizer’s $68 Billion Wyeth Deal

50 Most Powerful Women

LABOR

Hearst employs approximately 20,000 people worldwide. Some belong to labor unions (usually called newspaper guilds), but many do not. The Albany Times-Union is one Hearst paper with a large guild, comprising about 300 workers at present. Because of the union, Hearst cannot cut workers’ pay or raise their health insurance deductibles. The union has also been able to preserve benefits such as severance pay and voluntary buyouts, so if staff cuts on the horizon, they at least come with a silver lining.

Employees at Hearst Tower in New York have it better than those employed by individual newspapers. Check out this tip that an anonymous Hearst employee sent to the Manhattan media gossip blog Gawker:

“We just received the invite to the annual Hearst holiday party. It’s clear there is some belt tightening going on here. For as long as anyone can remember, the party has been at Tavern on the Green and it has been a drunken affair, highlighted by copious amounts of good quality food, especially in the shrimp category…It’s a Hearst trademark. Famously, the company once hired a consultant to cut costs and they said that the first thing Hearst had to do was cancel the holiday party. Hearst said no. So they said, ok, get rid of the shrimp. Now it appears they have.”

Most people in the newspaper industry would probably balk at this tipster’s lament. While corporate managers are cutting shrimp, most newspaper managers are cutting staff. As always, the most secure place to be at times of crisis is at the top.

The Albany Newspaper Guild

Benefits Could Be Cut Without a Union

Hearst Makes Already-Tight Belts Tighter

Hearst Tower

STRATEGIES

Unlike most major corporations, Hearst is privately held. This comes with two advantages:

  1. It doesn’t have to worry about pleasing shareholders.
  2. It doesn’t have to file financial statements with the Securities and Exchange Commission.

Like most major corporations, Hearst uses political donations and lobbyists to gain favor from elected leaders who can create policies that will make it easier for them to do business and turn profits.

Graph from The Center for Public Integrity

Between 1997 and 2006, Hearst Corporation donated more than $500,000 to various politicians, 65% of whom were Democrats. In 2004 the corporation donated $7,250 to George W. Bush and $12,950 to John Kerry. This indicates that, though Hearst favored Kerry slightly, it sought political favors from the future president regardless of his identity.

Hearst Corporation has been using vertical integration for most of its history. In the early 20th century William Randolph Hearst invested in hundreds of acres of timber forests in California, and even owned the paper mills that processed the timber into newsprint.

Now, in 2010, Hearst is in the final stages of acquiring the digital advertising and search optimization company iCrossing. This asset will likely give Hearst an edge in driving traffic to its numerous websites.

Hearst has also become horizontally integrated as it has acquired assets in different media platforms. Hearst Corporation is the parent company of Hearst Newspapers, Hearst Magazines, Hearst Television Inc., Hearst Entertainment and Syndication, Hearst Books, and Hearst Interactive Media. In addition, Hearst Magazines owns a subsidiary, National Magazine Company, which oversees the publishing of 20 titles in the United Kingdom.

Hearst Corporation: Political Influence

The Center for Public Integrity

Hearst Nears Deal to Buy iCrossing

The Most Useful Plant Ever Banned by Law

Advertisements

Entry filed under: Uncategorized.

How does this relate to newspapers? Commodity Profile: The Oshkosh Northwestern

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed


Recent Posts


%d bloggers like this: