Brewster's Crucible

Folio: The Magazine for Magazine Management, Oct, 2001 by Jillian S. Ambroz

Gruner Jahr USA's CEO, who revitalized a struggling publisher in less than a year, is now grappling with an ad downturn, the departure of key hires and the loss of autonomy from his German owners. But that hasn't stopped him from pushing forward with plans to propel the publisher into the industry's top tier.

What a difference a year makes. When Daniel Brewster Jr. was lured away from American Express Publishing to run Gruner Jahr USA Publishing in June of 2000, he was handed nearly carte blanche to banish the second-tier blues from the owner of magazines like Family Circle and Parents. Brewster didn't waste much time changing a company best known for cheapness and micromanaging by its German overlords. In little more than six months, he spent nearly $600 million for Fast Company and Inc., struck a deal with Rosie O'Donnell to take over the struggling McCall's, and hired top talent from both Time Inc. and Conde Nast Publications. He's invested tens of millions of dollars in revitalizing G J's women's magazines, performing facelifts on everything from Fitness to Child to HomeStyle, with results ranging from good (Child gaining 4.5 points of marketshare) to great (YM up more than 40 percent in ad pages). And he's created an incubation lab for launches.

But the flurry of early activity has now given way to a much more sober outlook. The pricking of the Internet bubble has called into question the wisdom of buying the business titles. Two of his prize hires-The New Yorker's David Carey to run the business magazines and Harper's Bazaar's AnneMarie Iverson to edit YM-have now left. And the advertising downturn, combined with a decision by parent company Bertelsmann to float its share on the public market, is constraining Brewster's ability to maneuver.

Brewster, however, remains bullish on G /-J's prospects. He spoke to Folio:recently about the changes happening at his company and in the industry at large.

When you were hired, you and Bertelsmann both said that to be a player, you needed scale. But then the ad downturn hit. How has that changed your goals and strategy?

Scale is important because of the consolidation that's occurring throughout the industry. Since all publishers are affected (some to a greater and some to a lesser extent), as a relative matter, scale, as an objective, doesn't change. We all get larger, we all get smaller. Within the group of publishers we intend to be one of the top-five players-and that goal remains exactly the same. As for growth, this environment makes things a lot tougher than we had anticipated, but our focus is on the health of our core magazines right now.

How has Bertelsmann's decision to play in the public markets affected the way you approach the business?

We haven't seen any increased focus on short-term goals. Bertelsmann's shares are most likely to be offered to the public market in 2004. What we have seen is increased cooperation among the various divisions of Bertelsmann, domestically and internationally, to put together more comprehensive marketing programs for our top clients. So, whereas the book group and the music group, and even the European television group used to operate entirely independently, we're now being encouraged to cooperate where possible. In fact, recently a high-level committee was created within Bertelsmann to facilitate that. The reason is that the market would discount the value of Bertelsmann stock if it were seen as just a holding company and not an aggregated media company. Beyond that, there's a tremendous opportunity for additional sponsorship revenues.

When you bought Fast Company and Inc. for nearly $600 million, you anticipated a substantial profit from both magazines this year. That's going to be significantly less. Has that experience altered the way you're approaching acquisitions?

Fundamentally, no. In any business decision of significant magnitude, which those were, there are lessons learned. But at the same time, it's very rare that premium quality properties--both of which combined allow us to move into a new segment of the market--are available. Strategically, as a company, we had been entirely dependent on the women's segment--and this allowed us to expand into the business market. It gives our portfolio much more balance as it relates to advertising spending by category. Ultimately, it was a portfolio decision.

What did you learn from those acquisitions?

On the Fast Company acquisition, there was a [$150 million] earn-out for the seller based upon the performance of the title, and I'm very glad we did that. That's a fair way of doing a transaction. The price is adjusted based upon profit performance. At the time we purchased Fast Company, it was our belief that it could have sold for more than we paid outright, with no escalation clause built in. Our purchase was based upon an escalation clause--which, given the current advertising environment, will likely have the effect of reducing the overall price.

Are you impressed with Rosie's performance so far?