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Management in Practice

Can you say 'Cosmo' in Russian?

You can find Cosmopolitan on news­stands in Korea, India, Russia, Greece, Brazil, China, and 50 other countries. How did the idea of the “fun, fearless female” go global — and pull in profits for Hearst?

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In 1993, three years after the breakup of the Soviet Union, George Green, the head of Hearst Magazines International, landed in Moscow to ex­­plore the possibility of launching a Russian edition of Cosmopolitan.

At first blush, it appeared to be a difficult market to crack. Hearst’s news division was struggling to co-publish a newspaper with the Russian newspaper Izvestia, but the paper had trouble at­­­tract­ing advertisers and meeting a regular production schedule. Corruption and organized crime were rampant. Green recalls meetings with Russian distributors: “They were all carrying weapons; I mean, you couldn’t go out at night without checking your guns at the door.”

After a career that touched all aspects of the business of magazine publishing, rising to the role of president and COO at the New Yorker and then publisher of seven Hearst titles, Green had become the first president and CEO of the newly created Hearst Magazines International (HMI) in 1989. At the time, Hearst published fewer than 20 editions outside the U.S., all under licensing agreements. Green’s task was to expand the company’s reach.

While weighing the possibility of starting a Russian Cosmopolitan, Green went for a walk in Moscow. “I went into food stores, I went into beauty stores, I went into department stores,” he says. “I wasn’t sure what I’m looking for, but I was looking. Then I noticed that every single cosmetics brand in the world was there, but there was no way for any one of those cosmetic brands to distinguish itself from the others. There was nowhere for them to advertise; there was no promotion. There were pamphlets put out by the Women’s Workers’ Party, but no magazines. And I said to myself, ‘I’ve got a business.’”

Launching that business proved challenging. When its initial partners dropped out, the group had to find new backers; eventually, a Dutch private lottery company agreed to invest. Russian banking was limited, so every transaction had to be in cash. Russian advertising agencies brokered ads but did not yet have creative staff to produce them, so the new Russian staff of Cosmopolitan created ad pages along with editorial content. The new venture then discovered that no printing presses in Russia were capable of printing a glossy magazine. The Dutch partners found a printer in Holland and trucked the finished magazine to Russia, but every border crossing was a struggle.

In spite of these challenges, Russian Cosmopolitan launched in May 1994, after just six months of setup work. The first edition had 40 pages of ads, sold 50,000 copies, and was an immediate financial success. Advance payments from advertisers and distributors exceeded start-up costs, allowing the venture to return Hearst’s initial investment on the first issue. Russian Cosmopolitan would eventually become the best-selling women’s magazine in Europe, publishing more than a million copies of each issue. “This was as good an investment as I will have ever made, or expect to make, for Hearst,” Green says.

While Cosmo’s success in Russia was extraordinary, Green was able to replicate its basic pattern of market entry, turning Hearst’s magazines into global brands. His timing was right, hitting the inter­national scene just as a new set of wealthy consumers emerged worldwide, hungry for the name-brand consumer goods that advertised in Western-style magazines. Under Green’s leadership, HMI became the largest U.S. publisher of magazines worldwide, with joint venture revenue of more than $150 million annually by 2008. HMI now has 200 editions of Hearst titles, from Good Housekeeping to Esquire to Cosmopolitan to Harper’s Bazaar, published in 36 languages and distributed to more than 100 countries. Cosmopolitan is the most successful title, with more than 59 editions in 34 languages and an estimated 100 million readers. Many of the international editions have surpassed their U.S. titles in editorial and advertising pages — as well as profitability.

The rewards of globalizing

For U.S. publishers beset by a competitive environment, rising costs, and the growth of the internet, international markets present a number of attractions. For instance, in the United States, 90% of magazines are delivered through the mail, usually under heavily discounted subscription prices. In most other countries, the ratio is reversed — most sales are of single copies retailed through newsstands. Furthermore, on foreign newsstands, magazines have a much longer shelf life — with minimal returns or credits, newsstands display several issues simultaneously. U.S. newsstand sales have to be made quickly, and unsold magazines are returned to the publisher. In addition, in many international markets, the range between wholesale and resale prices is much more favorable to the publisher.

Green’s strategy for international markets differs from that followed by most U.S. publishers. Some simply offer a license to a foreign publisher, while others insist on total control of international editions. Wherever possible, Green has partnered with a local company, cre­ating a joint venture that has editorial and publishing control.

Local partnerships have operational advantages. Launches are quick and overhead is low. With its links to local practices and people, the new venture is less likely to be taken advantage of on the business side or to violate cultural taboos on the editorial side. Most importantly, Hearst and the local partner both have a stake in the game and shared goals for financial success, setting the stage for a cooperative relationship.

With a local partner, Green can launch a title quickly, at times getting from idea to customer in 90 days. Green notes, “We already know what we want to do, so if you test it, all you’re going to end up doing is wasting money.” When a new edition launches quickly, he adds, “Your pre-launch costs are eliminated, you get revenues right away, and from a financial point of view you’re increasing your return quite dramatically because you have reduced your upfront investment.”

Hearst’s international editions have little contact with related U.S. titles. Instead, HMI has developed its own staff and technology to facilitate sharing of content and ideas. The central HMI office manages with light-handed control. The HMI staff serves as guides and provides a central clearinghouse for articles and images. No one in HMI’s New York office reads each edition before it comes out; instead, HMI maintains the brand by working closely with editors and art directors in each location who understand the brand and can adapt it to local conditions and interests.

Cosmopolitan in China

With such a light touch on both the editorial and the publishing side, HMI leads with persuasion, not power — an approach that was tested when the Chinese edition of Cosmopolitan broke one of the brand’s cardinal rules.

Green launched the Chinese magazine in 1998. In China, magazines are required to have government licenses, and foreign companies are limited to 50% ownership. Moreover, rules require local content control. Since the number of licenses is limited, new publi­cations usually partner with holders of existing licenses, which are primarily government agencies. HMI partnered with another American publishing company, International Data Group (IDG), and a company called Trends Communication, a Chinese advertising company owned by the government under the supervision of the National Tourism Association. Trends had the license to publish a women’s magazine, Trends Lady. Hearst and IDG took an equity position in the company to publish Cosmopolitan in Mandarin.

Hearst and IDG each eventually held 20% equity stakes, with 10% held by Chinese nationals and the remaining 50% owned by the Chinese government agency. As a 20% owner of the joint-venture publisher, Hearst received 20% of Cosmo’s net profits in addition to royalty payments.

The magazine cover displayed two titles, Trends Lady in Chinese characters and Cosmopolitan in English, except for a few months in 1999 when the publication was not allowed to display the word Cosmopolitan. In April 2006, the Chinese government stopped issuing new licenses to foreign magazines outside science and technology, but those already approved could continue to publish — a boon for Cosmopolitan and other titles already in place.

By 2007 Cosmopolitan/Trends Lady had become the leader of the 16 publications in China designated as women’s magazines: number one in circulation, pages of advertising, and estimated advertising revenues. It was selling 250 pages of advertising each month. Maintaining the desired 50-50 editorial-ad balance required significant local writing in addition to international Cosmopolitan content.

The disagreement between HMI and the Chinese company came in early 2008, when the Chinese Cosmopolitan put a man on the cover. Having a woman on the cover was considered a key component of the Cosmo brand. HMI vice president and executive editor Kim St. Clair Bodden explained to the Chinese editors that although the woman on Cosmo covers was usually an international celebrity, readers responded to the “fun, fearless female” on the cover with personal identification: “I’d like to be like her, or I’d like to be her friend.” The Chinese staff countered that the cover figure was very popular in China, and readers admired him.

It was difficult to resolve these divergent views across language and cultural barriers. Green could not dictate editorial decisions, but, he says, he could offer a business perspective, speaking the common language of profit and loss. Green flew to China and told his partners, “It’s not appropriate for the brand. From a busi­ness point of view, this turns off advertisers, and we should not continue to do it. We have to keep the advertisers.” Green adds, “That was persuasive.”