The Si Way

Just eight years after Si Newhouse spent tens of millions to move Condé Nast into 4 Times Square, he was ready to move out. 

In the first week of October 2007, Mr. Newhouse signed a deal with the real estate developer Douglas Durst to build a new tower for his company over a platform on the West Side rail yards at the southeast corner of 33rd Street and 11th Avenue. The building would be 1.5 million square feet, more than double the 700,000 square feet occupied by the magazine conglomerate at 4 Times Square, a building it shares with the law firm Skadden. It would be a symbol of the company’s dominance in the publishing industry, set apart from midtown, looking down on the competition—big enough to accommodate growth, expansion and more magazines, too.

“We’ve run out of space, and this would be an enormous step forward,” said Mr. Newhouse, in a tired warble, appearing in a promotional video made by Douglas Durst’s team. “We hope to be part of the development of the Hudson Yards project with Durst for the next 100 years,” Mr. Newhouse continued.

But, only weeks after the agreement was signed, the Condé Nast engine buckled. House & Garden, the shelter magazine that Mr. Newhouse had brought back to life in 1996, was abruptly closed. Mere months later, his real estate deal was dead: Mr. Durst hadn’t bid high enough to build a project on the far West Side of Manhattan.

Just a year after he’d contemplated a move, Mr. Newhouse was confronting a dramatically different economic landscape than when he’d been talking to Mr. Durst. The Dow had plummeted. The banks had failed. And even Condé Nast was contracting. Cuts, modest at first, were made: 5 percent of all budgets in October 2008. A few months laster, in March 2009, another 10 percent cut was ordered. The significant closures of Portfolio and Domino followed.

>>READ THE BACK STORY ON THE END OF A CONDE NAST ERA

The prospect of the company growing enough to fill 1.5 million square feet of space, even years from now, seemed unfathomable.

And then finally, inevitably, there was the sudden announcement this summer that McKinsey was coming in to help CEO Chuck Townsend “rethink” the business that Si Newhouse had built for five decades. At the end of the firm’s tour of duty, four more magazines had been axed, including the elite, glossy ur–Condé Nast product Gourmet, and the seemingly promising start-up, Cookie. Over the past week, the “trickle” of layoffs that Mr. Townsend told us to anticipate two weeks ago have been made. By the end of next week, there will have been about 400 layoffs total in October.

One wonders whether the fabulous, powerhouse publisher that Si Newhouse envisioned inhabiting that massive tower on the West Side will remain fundamentally intact. Condé Nast executives say it will, but can it?

WHEN SI NEWHOUSE, who is now 81 years old, went to Condé Nast in the early 1960s, the company was just a small part of the Advance Publications business, which his father had built. The newspaper side of the company was thought to be the more desirable one (Newhouse pere installed his son Donald at the head of it). But Si persevered to build Condé Nast into the force that it became, and in the process changed the magazine world forever.

When the Newhouse’s bought it, the total circulation of Condé Nast magazines was 415,000 and the company was losing money. But, as these stories go, Mr. Newhouse made the most of his opportunity. Under the tutelage of one-time Vogue art director and eventual Condé Nast editorial director Alex Liberman, Si Newhouse learned what to love about magazines—what they looked like, how they felt, how they smelled. He was smitten. Over time, he made readers smitten, too. He also discovered how he could work in business. Instead of hitting cocktail and dinner parties, he poured over spreadsheets and market reports. When something wasn’t working, he called attention to it, and fixed it.

By the early 1970s, Mr. Newhouse became known as a ruthless leader. The moment that circulation and advertising numbers slumped at Vogue, Si Newhouse threw the legendary editor Diana Vreeland right out onto the street. He brought Grace Mirabella in to take it over, but again, by 1988, when numbers were sagging, he dumped her in favor of Anna Wintour. (The move was announced to the world by Liz Smith on Live at Five on Channel 4—Ms. Mirabella didn’t even know she’d been sacked.)

Mr. Newhouse was able to revive Vanity Fair in 1983 because the numbers made sense. He could experiment with editors until he stumbled upon Tina Brown, who changed it entirely.

The magazines looked prettier, glossier, and expenses were let loose, up and through the roof. This was Si Newhouse’s Condé Nast: big budgets, big splashy pictures, the best writers and editors with total creative control who became wealthy celebrities in their own rights. Money poured, and magazines got bigger and bigger and better. No other publisher could compete.

“Si is arguably the most knowledgeable guy in the history of American magazine publishing and global magazine publishing,” said Tom Wallace, Condé Nast’s editorial director. “He is irrefutably the most successful.”

IN THE PAST, when goings did get tough, Si Newhouse could rely on his family’s fortune to keep Condé Nast exactly as he wanted it to be: awash in talent, elite. In 1985, The Columbia Journalism Review described the Newhouse family’s Advance Publications newspaper holdings, which were and continue to be presided over by Si’s brother Donald, as “cash cows in a pasture.” In 1987, in a story about the Newhouses, Fortune said, “It is almost impossible to wreck big monopoly newspapers. About all they will let you do is get richer and richer.”

But one leg of that table has gotten wobbly. The Newark Star-Ledger, the crown jewel of the Newhouse empire, lost $40 million last year. That paper, along with the others, has become a burden rather than a savior.

So can the Condé Nast of the future continue to look like the Condé Nast of the past? The company would say yes, although the confidence in that belief seems better suited to boom times than bust. The printed word will endure. Advertising will return. Profits can be what they were a few years ago.

Perhaps, thanks to the company’s radical scaling back, some of those things will come true. But that doesn’t mean that Condé Nast will return to being the Si-inspired institution that has been so revered. Just look at the past three months: Chuck Townsend has been the star of Condé Nast, the Si whisperer. Having a money guy steal the spotlight is a major shift for a company that has in the past been embodied and defined by superstar creative types like Liberman and James Truman, who was the Condé Nast creative director for most of the ’90s. (Ron Galotti and Steve Florio certainly had their share of attention, but they never owned the spotlight quite the same way.) But these days, the man of the hour—the man closest to Si—is in the executive suite on the 11th floor at 4 Times Square.

“I think when you get hit by the typhoon that Condé Nast got hit by, the first thing you have to do is rely on someone like a Chuck to do what Chuck does,” said one former Condé Nast executive.

When Mr. Townsend hired McKinsey, he didn’t ask for a model on how to figure out the future. He asked how to make 2010 a better year. McKinsey delivered an analysis of the company’s spending, the ratio between edit and ad pages, how it all compares to the wider industry. 

“It was purely a financial decision,” said an insider, about McKinsey’s visit. “It was about efficiency, how your salespeople perform, how your editorial costs run in comparison to other averages. There was nothing strategic about it. It was an analysis of numbers, expenses and revenue—not even how to handle it. There were no specific recommendations.”

Indeed, executives unapologetically said that McKinsey’s analytics were in service of a short-term fix, not a reformed goal.

“The purpose of this is to shape the company to prosper in what we expect will be 2010 revenues,” said Tom Wallace, the editorial director at Condé Nast. “If 2010 repeats ’09, which is a bad year, we’re fine. Even if there’s a double dip. We’re prepared for it. If there’s any improvement at all, we’ll be in extremely good shape.”

But is that enough at this point? What about the grand launches that we’ve associated with Si Newhouse’s Condé Nast? And what about online efforts, which everyone seems to agree are integral to the future of media? (The company announced on Tuesday that GQ will be available for $2.99 on your iPhone starting next month. But even Mr. Wallace conceded to us that a smartphone “is not ideal” for magazine pieces. It’s a start, but nothing like a solution.) Doesn’t Mr. Newhouse need a new whisperer, à la Lieberman or Truman, to take his company into the post-McKinsey era?

“It’s not visionary stuff,” said the former Condé Nast executive of the current state of the company. “It’s about cutting and pulling back and restoring some of the fundamentals. That’s what every company has to do—otherwise they go out of business. One hopes that after that, a new vision can assert itself that is not just about how Chuck thinks. At some point, the company will need a new visionary.”

“THERE IS NO particular global view about what Condé Nast should be,’’ said Mr. Newhouse in an interview in 1989 with The New York Times Magazine. Instead, he said, “thinking pragmatically” is the key to his company. When it comes to starting, buying or revamping a magazine, Mr. Newhouse said then that he does it “if it seems like a good idea at the time.’’

Twenty years and one big giant media retrenchment later, there’s no evidence that Condé Nast has a new strategy. But it remains to be seen how, in this climate, Condé Nast can live at the same altitude it has inhabited for the past 50 years.

“How would you know what’s going to happen in the magazine business?” said Mr. Wallace. “You would look at its vital statistics. You would look at its sources of income from consumers, and from advertisers. And you would look at where you’re finding your circulation. We have no problem with circulation for print magazines.

“We have what we believe is a short-term problem with advertising revenue,” he continued. “That problem seems to be improving. How long will there be print magazines? I don’t know. But for as long as there will be, Condé Nast is well positioned.”

The core belief of Mr. Newhouse’s company—that advertising will return, that everything will be O.K.—is decidedly a risk. One has to wonder if Mr. Newhouse is simply comfortable to look into the next frontier, if this confidence in the old model is born as much from familiarity as from true belief.

“We’re so attached to a great publishing model that served us so well from World War II to September 15, 2008, but what if they don’t know that the model has died?” said Samir Husni, the director of the Magazine Innovation Center at the University of Mississippi. “How many electrical shocks can you send before they see it’s dead?”

But Mr. Wallace fundamentally disagrees.

“The advertising revenue until proven otherwise is cyclical,” said Mr. Wallace. “And if it is proven otherwise, we’ve already adjusted for it.”

The 16 million people—and if you add in The New Yorker, the 20 million people—who read Condé Nast magazines every month, will stay right there, he believes. Along with the advertisers.

“I was the editor of Condé Nast Traveler during the Persian Gulf War. If you may remember, that was the end of travel as we know it. It was shutdown worldwide. It was followed by avian flu, SARS, hurricanes and typhoons and God knows what. There were bankruptcies on a massive scale in the hotel business.

“Travel came back,” he continued. “And Traveler came back. And then we went to September 11, Persian Gulf II. Stuff happens. And every time that happens, there is someone who wants to say it’s the end of the world.”

Si Newhouse, despite everything, still isn’t one of them.

For the famous pragmatic thinker who built the Condé Nast empire, it’s his greatest risk yet.

jkoblin@observer.com

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