How Many Magazines Did We Buy Today?

Bertelsmann's U.S. unit is expanding fast--but in jittery times

On a Monday morning last June, the 650 employees of the magazine company Gruner+Jahr USA Publishing made their way across the street from their midtown Manhattan offices to the Grand Hyatt Hotel. The event was a meet-and-greet with the new boss, who, much to their surprise, was standing in the doorway of the hall, shaking every employee's hand. At that inaugural breakfast--now referred to by workers as "bagels with Brewster"--G+J's new CEO, Daniel B. Brewster Jr., offered up a few more surprises.

The son of a former Democratic U.S. Senator from Maryland who knew a few things about pressing the flesh, Brewster, 45, told his staff that the company's multilayered management structure would thenceforth be history: His door would always be open. He explained that his mandate was to transform the U.S. magazine unit of German conglomerate Bertelsmann (with mostly lethargic women's titles such as McCall's and Family Circle) into one of the premier publishers in the U.S. Finally, he said, the historically tightfisted company would spend freely to make G+J dominant.

Brewster wasn't kidding. In the ensuing six months, the former chief of American Express Publishing Corp. has shelled out more than $600 million buying magazines, revamping old ones, hiring talent, and establishing an incubator to launch new titles. The only thing his German bosses asked in return for giving him autonomy to run G+J USA, say insiders, was to double the size of the company in five years. "I think he thought they said five months," says one G+J executive.

That's because Brewster has taken the barely visible magazine group and given it buzz in short order, especially with the hefty $342 million he paid for Fast Company in December. Brewster is testing a new magazine, Friday, for professional women in their 20s and 30s, expected to appear later this year. "What he's doing is not for the faint of heart. It's very competitive," says Jack Kliger, CEO of rival Hachette Filipacchi Magazines Inc. "My job is not to make it easy for him. But I do envy his war chest."

BOLD GAMBLE. Still, Brewster's bold moves come as advertising spending is slowing and publishers are freezing hiring and shuttering titles, the latest victim being Hachette's George. So are Brewster's full-on expansion plans at the peak of the market a kamikaze mission? Brewster insists he's not crazy. First, he believes the ad downturn is not going to be devastating. "People will still want to read magazines," he says. And, Brewster adds, his plans to reduce reliance on mostly women's titles and broaden out to include emerging companies, family, and teen lifestyle, will give G+J a stronger base to weather downturns. So while his rivals retrench, Brewster "is gambling big," says magazine consultant Samir Husni. "Either he wins big or he loses big."

At Bertelsmann, the brass figure there's little choice but to plunge in. A leader worldwide in book publishing, radio, TV, and music, and whose European magazine division is No. 1 in that region, Bertelsmann saw its U.S. magazines as laggards. With revenues of less than $1 billion, G+J USA ranked No. 7, way behind leaders such as Time Inc. and Conde Nast. Since taking over as Bertelsmann CEO in 1998, Thomas Middelhoff's edict for his executives has been: Be No. 1 or No. 2 in your markets. The barely profitable G+J USA didn't measure up. So when G+J USA CEO John Heins left in February, Bertelsmann went looking for a mover and shaker. With $7 billion in cash after selling a stake in America Online Inc., the privately held Bertelsmann had plenty to throw at the plan.

Brewster immediately became a top candidate. After an earlier career as a journalist that included a stint as a CNN correspondent, he jumped to the business side in 1985, rising through the ranks at Time Inc. In 1993, he was appointed CEO of American Express Publishing and was lauded for launching new titles Travel & Leisure Family and T&L Golf. When approached by Bertelsmann, Brewster says the idea of a turnaround intrigued him. "My impression was of a sleepy company that was underfunded," he recalls. After winning promises that he could run things his own way, Brewster signed on. In just a month, he had snapped up Inc., a magazine about small businesses, for $200 million.

In November, Brewster announced he was relaunching the 125-year-old women's title McCall's in April as Rosie, a vehicle for talk-show host Rosie O'Donnell that will incorporate more celebrity, motherhood, and pop-culture stories. Brewster is hoping O'Donnell's cachet and her promotions on TV will improve the magazine's plight. While most magazines were reporting record numbers of ad pages in the past year or two, McCall's had lost 18% of its ad pages since 1996.

PRETTY PENNY. Then came Brewster's biggest play, when he bought the New Economy magazine Fast Company, with a circulation of about 680,000, for $342 million from publisher Mortimer B. Zuckerman. The price tag goes up an additional $150 million if the magazine hits certain performance targets over five years. Time Inc. and Conde Nast also were interested in the five-year-old, award-winning magazine. Still, the price left many aghast. Indeed, Brewster paid $342 million up front for a single title, whereas Time Inc. months before paid $475 million for the 26 titles making up Times Mirror Co.'s magazine unit, notes Will Iselin, a director of London investment bank ARC Associates. Counters Middelhoff: "It's the price you pay for strategic entry." And Brewster argues that Fast Company is not just a magazine: It has conferences and books, and it's viewed as a movement. There's a real sense of zeitgeist with this," he says.

Brewster claims the numbers look good, too. He predicts operating profits will grow from $16 million in 2000 to $32 million this year, as the magazine expands from 11 issues to 12 with three additional special issues. But analysts are doubtful. The 195 ad pages in Fast Company's December issue are down 21% from the December, 1999, issue, and further declines are predicted for the industry, according to Media Industry Newsletter. Brewster adds that Inc. and Fast Company, both based in Boston, can save up to $5 million a year by combining purchasing, subscription acquisitions, and back-office operations.

Brewster will need all the savings he can get. If timing is everything, he may be setting off on his mission just as the slowing economy makes empire-building harder than ever.

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