Advance Publications Inc. History

Address:

950 Fingerboard Road
Staten Island, New York 10305
U.S.A.

Telephone: (718) 981-1234
Fax: (718) 981-5679

Private Company
Incorporated: 1924 as Staten Island Advance Company
Employees: 24,000
Sales: $5.35 billion (estimated, 1996)
SICs:: 2711 Newspapers; 2721 Periodicals

Company History:

Family owned and operated, Advance Publications Inc. is a multibillion dollar international communications empire that publishes newspapers, magazines, books, and electronic media. It is the second-largest publishing concern in the United States. The founder, Samuel I. Newhouse, built his success on hard work, innovative business methods, and the help of Newhouse family members, who took over the company after the founder's death and continued his idiosyncratic organizational system.

The Beginnings of an Empire

Solomon Neuhaus--later called Samuel I. Newhouse and finally just S.I. Newhouse--was born in 1895 in New York City. He was the oldest of eight children born to recent immigrants from Eastern Europe. Financial success eluded the first generation, the suspender business of the father having failed in 1905. After graduating in 1908 from eighth grade in Bayonne, New Jersey, Newhouse briefly attended a business school in New York City. He carried bundles of newspapers across the Hudson River to earn money for the fare to and from business school. This was Newhouse's first newspaper job. Newhouse earned no money the first month he was employed by Judge Hyman Lazarus, a city magistrate who operated a law office, Lazarus & Brenner, in Bayonne. After showing his worth as an office assistant that first month, Newhouse was given $2.00 a week.

Starting a steady rise in the firm, Newhouse became the accountant, real estate manager, and general troubleshooter for Lazarus. The judge had acquired 51 percent of the Bayonne Times in payment of a debt. It seemed at first to be a losing proposition, but Lazarus hoped to stem the losses until he could sell the newspaper, which he had moved into the same building as the law firm. To that end Lazarus gave Newhouse responsibility for the business aspect of the Times. Newhouse concentrated on increasing both advertising revenues and subscriptions, and the paper showed a profit within a year.

By 1916 Newhouse, at the age of 21, was earning $30,000 a year for his myriad responsibilities with Lazarus & Brenner, as well as with the newspaper, where he now worked for a percentage of the profits. This same year he finished his study of law at New Jersey College and passed the bar examination in New Jersey. After losing his first and only trial, a debt-collection case, Newhouse paid his client the disputed amount out of his own pocket and retired from trial law.

When the United States entered World War I in 1917, Newhouse, as the sole source of support of his family, was exempt from conscription and concentrated on building up the Bayonne Times, which enjoyed increased circulation as people sought to learn the latest war news. Newhouse devoted much of his free time to learning about the newspaper business, which impressed him as a feasible way to make his fortune. His model was William Randolph Hearst.

Despite Newhouse's lofty ambitions, his first step in this direction was less than successful. With borrowed money from his family, along with his own savings, Newhouse went into partnership with Lazarus to buy The Fitchburg Daily News Company of Fitchburg, Massachusetts, for $15,000. Newhouse took pains to make the new paper a going concern, but faced with antagonism directed toward him as both an outsider and a Jew, he decided within a year to sell the property to Frank L. Hoyt, publisher of the competing Fitchburg Sentinel. Persuading Hoyt of the benefits inherent in owning a newspaper monopoly, Newhouse was able to turn a profit on even this first, relatively unsuccessful newspaper deal.

Strong Growth in the 1920s and 1930s

By 1922 Newhouse was ready for another acquisition and with Lazarus bought 51 percent of the stock of The Staten Island Advance for $98,000. In 1923 the circulation of the Advance rose 50 percent, and the number of pages had doubled with additional advertising. In November of that year the Advance's masthead listed S.I. Newhouse as publisher.

The Staten Island Advance proved to be the foundation of the publishing empire Newhouse established in the 1920s. In 1924 Newhouse, along with St. John Mclean and William Wolfe, bought out Judge Lazarus's interest in the Advance and incorporated the Staten Island Advance Company, renamed Staten Island Advance Corporation shortly thereafter. Newhouse owned 60 percent of the new company, and his two partners split the rest. Although the business consisted of just one newspaper at the time, its stated purpose was "to engage in, conduct, manage, and transact the business of publishing, selling, binding, and distribution of books, journals, magazines, newspapers, periodicals, and all other kinds of publications" and to collect and distribute "news and press reports and dispatches and information of every sort and kind by any and all means." Newhouse would fulfill this stated purpose with the help of associates: Charles Goldman, the legal representative of the firm; Louis Glickman, the accountant, whose tax advice convinced Newhouse of the wisdom of reinvesting profits in newspaper acquisitions; and Louis Hochstein, whose editorial expertise was to guide many Newhouse concerns starting with the Advance.

Staten Island proved to be a good place to own a newspaper in the 1920s, a decade of intense land speculation and business activity. Many newspaper stands were at first reluctant to carry the Advance, but Newhouse increased circulation by adopting a Brooklyn newspaper's home-delivery system, and by 1928 he had made enough to buy out his two partners in the company for $198,000. By this time Lazarus had died, and Newhouse, no longer associated with the Bayonne Times, had married Mitzi Epstein. The Newhouses had two sons, Samuel I. (Si) Newhouse, Jr., in 1927, and Donald E. Newhouse in 1929. Despite the challenge to the Advance by the Staten Islander and a politically motivated libel suit, Newhouse was able not only to prosper during good times but to survive the stock market crash of 1929 and the Great Depression. Newhouse had invested his company's profits in the newspaper, not in stocks; thus, in 1932 the bank account of the Advance stood at close to $400,000. Staten Island Advance Corporation did not lay off or cut the pay of any employees.

When Newhouse learned in 1932 that Victor, Bernard, and Joseph Ridder were willing to sell their 51 percent of shares in the Long Island Press, his cash-rich position made it easy to acquire that newspaper. Newhouse's younger brother Norman became the managing editor of the Advance, and Hochstein was made the managing editor of the Press. This purchase was to bring Newhouse into conflict with the newly organized American Newspaper Guild, when, in 1934, the Press became the first newspaper in U.S. history to be picketed by its editorial workers. Labor problems continued at the Long Island paper throughout the 1930s, and New York City mayor Fiorello LaGuardia was twice called in to arbitrate. The issue for Newhouse was control. Later Newhouse--quoted by the November 27, 1989, issue of Barron's--would say, "I refuse to stand by passively and allow any union to 'bust' me." He continued, "As I learned at the Advance nearly 40 years before, to yield to others the controls that are vital to your own security is suicide."

Despite these labor problems, Newhouse was able to acquire six newspapers during the 1930s. The first of these acquisitions, in 1935, was a 51 percent share in the Newark Ledger of Newark, New Jersey. For this newspaper Newhouse used the recently developed technique of market survey to help shape the newspaper to a new, affluent suburban readership. When Newhouse bought as a package the North Shore Journal in Flushing, New York, and the Long Island Star in Long Island City, New York, in 1938 for $250,000, he combined the two into the Long Island Star-Journal, and by merging physical operations he was able to make a profitable enterprise out of two unprofitable newspapers. Newhouse repeated this merger strategy when he bought the Newark Star-Eagle and merged it with the Newark Ledger to form the Newark Star-Ledger in 1939. The same year he acquired the Syracuse Herald of Syracuse, New York, for $1 million and combined it with the Syracuse Journal (a property he picked up at about the same time from Hearst Corporation for $900,000) to form the Syracuse Herald-Journal. To help offset the cost, 428 Journal employees were fired immediately. In 1942 Newhouse bought for $1.3 million the only remaining Syracuse newspaper, the morning Post-Standard, establishing a highly profitable monopoly during World War II, even with shortages of newsprint and other supplies.

In the 1940s Newhouse acquired the remaining 49 percent of shares in Long Island Daily Press Publishing Company, purchased half of the Jersey City, New Jersey, Jersey Journal, and bought all three newspapers in Harrisburg, Pennsylvania. Operating out of a car with a telephone, Newhouse, with the help of the trains, managed to visit most of the newspapers he owned on an almost weekly basis, making informal notes as he visited the operations and maintaining a wealth of information in his head.

It was also during the 1940s that Newhouse was labeled a "literary chiffonier" (French for ragpicker) by critic A.J. Liebling of The New Yorker, reflecting Newhouse's reputation for picking up and turning around small, undistinguished newspapers that were in financial difficulty or plagued by family squabbles. Indeed, the Jersey Journal was one such transaction involving a dispute between Walter Dear and his nephew, Albert Dear. In this case Newhouse, after buying almost half the paper from Walter Dear in 1945, was able to acquire only after lengthy litigation the remaining shares from Albert Dear in 1951. In 1947 Newhouse acquired the Patriot Company, publisher of the Patriot and the Evening News in Harrisburg, Pennsylvania. A socially prominent former Newhouse employee, Edwin Russell, acted as a front man for Staten Island Advance Corporation in convincing the owner, Annie McCormick, to sell the company to Newhouse.

Postwar Years

In 1949 Staten Island Advance Corporation became Advance Publications Inc., and in the 1950s Newhouse established a new reputation as a major competitor in newspaper publishing. With the purchase of the Portland Oregonian in 1950, he paid a record $5.6 million. The Oregonian was a prestige newspaper, considered one of the best in the northwestern United States. Before expanding his operations beyond the Northeast, Newhouse made sure his brother Theodore (Ted) Newhouse would agree to fly to Portland once a month to report on the Oregonian. This was in line with Newhouse's oft-stated policy of family control.

Newhouse was ready to pay a record price for a newspaper because of his unique way of assessing a paper's value. Rather than follow the industry rule that a newspaper should be valued at approximately 10 percent of its net earnings, Newhouse considered possible earnings based on its potential market. Because of his policy of retaining earnings, Newhouse was able to buy without borrowing.

When Newhouse bought the St. Louis Globe-Democrat in 1955, paying $6.5 million, he added another jewel to his newspaper group (to use a term preferred by Newhouse). Newhouse disliked the term "chain" because he felt that it suggested that the parent company imposed some degree of editorial uniformity on its properties. In fact, Advance allowed its newspapers a notable amount of editorial latitude. The publisher of Advance's Birmingham, Alabama, paper in 1962 was an unabashed racist, while Newhouse himself was staunchly liberal. Newhouse's papers varied as much in quality as in editorial standpoint. This policy was unlike that of most other chain publishers. Newhouse, as quoted in The New York Times (August 1979), was "not interested in molding the nation's opinion."

This policy of local autonomy helped in the purchase of the St. Louis Globe-Democrat, as E. Lansing Ray, the conservative owner, was convinced that the paper would continue with its long-held editorial policies. It also persuaded the Hanson family to sell the Birmingham News and the Huntsville Times in Alabama to Newhouse in 1955 for $18.7 million. In fact, because of Newhouse's attention to business operations rather than editorial stance, his papers took a wide range of positions. For example, one paper, the Newark Star-Ledger, supported right-wing senator Joseph McCarthy during his ascendancy, while other Newhouse papers attacked McCarthy. Although Newhouse did not invent local autonomy, Advance was the first major newspaper chain to practice it.

The 1959 purchase of Condé Nast Publications for $5 million was supposedly suggested by Mitzi Newhouse, S.I. Newhouse's wife. According to Newhouse, "She asked for a fashion magazine and I went out and got her Vogue." Condé Nast published not only Vogue but also Glamour, House & Garden, and Young Bride's. As far back as the 1924 statement of Advance's purpose, Newhouse had a declared intention of publishing magazines. By buying another magazine publisher, Street & Smith, which also published women's magazines, and merging it with Condé Nast, Newhouse became a major publisher of magazines as well as newspapers. He also ran a national news service in Washington, D.C., and radio stations in Portland, Oregon, and Syracuse, New York.

Despite labor problems that were to begin in 1959 with a stereotypers' strike at the Oregonian and an American Newspaper Guild strike at the St. Louis Globe-Democrat, Newhouse was able to continue expanding his operations throughout the 1960s, beginning with acquisitions of portions of the Denver Post and of three newspapers in Springfield, Massachusetts. In 1961 Newhouse established a newspaper monopoly in Portland with his purchases of the Oregon Journal for $8 million. In 1962 Advance paid $42 million for the Times-Picayune Publishing Company in New Orleans, Louisiana. Newhouse borrowed money outside his family for the first time to make this purchase, but now, with both the New Orleans newspapers, the morning Times-Picayune and the evening States-Item, Newhouse owned more newspapers than any other U.S. publisher. The $15 million that Newhouse donated to Syracuse University for a school of communications indicated his new stature in publishing. When the S.I. Newhouse School of Public Communications was opened in 1964, President Lyndon Johnson gave the dedication speech.

Increased media attention meant increased media criticism, and in Increased media attention meant increased media criticism, and in 1966 this came with the publication of John A. Lent's Newhouse, Newspapers, Nuisances: Highlights in the Growth of a Communications Empire, which concentrated on Newhouse's dealings with labor unions. Given that Newhouse operated, according to the November 27, 1989 issue of Barron's, "not only one of the most powerful, but one of the most secretive family businesses in America," the public curiosity was understandable. Nevertheless, Newhouse preferred to work his deals discreetly, and as a private corporation Advance could maintain a very low profile.

Newhouse continued to make acquisitions throughout the remainder of the 1960s, expanding further into the southeastern United States with the purchase of two Alabama newspapers, the Mobile Register and the Mobile Press, and of the Mississippi Press-Register, all in 1966. Newhouse's largest deal of the decade turned out to be his acquisition of the Cleveland Plain Dealer for $54.2 million in 1967, breaking his own record for the highest price ever paid for a newspaper and again requiring a bank loan. This gave Advance 22 newspapers in 16 cities that produced each day more than 3.2 million papers and grossed almost $500 million a year.

In the 1970s Newhouse seemed to be slowing down. Advance bought 49 percent of a massive paper mill in Catawba, South Carolina, in 1970. In 1971 Advance bought both the Bayonne Times, the paper at which Newhouse had started his career, and the Newark Evening News. He merged the Times into the Jersey Journal, and within one year shut down the Evening News, which he had purchased for $20 million. Newhouse still had one massive newspaper deal left in him, however. In 1976 he purchased for $305 million Booth Newspapers, publisher of eight papers in Michigan, as well as Parade magazine, a syndicated Sunday newspaper magazine supplement.

As he built his empire, Newhouse organized his businesses to minimize taxes. Advance Publications served as the central holding company, publishing The Staten Island Advance and owning the Long Island Daily Press Publishing Company. From there the various companies owned varying shares of other companies, making it possible for one company to loan money to another and allowing a cash-rich company to reduce its surplus earnings. In addition, the way Newhouse had set up stock holdings in Advance made it difficult, if not impossible, for him to lose control. Newhouse owned all 1,000 shares of common stock, including the 10 shares of Class A stock that carried voting privileges. The 3,500 shares of preferred stock were all owned by family members.

With S.I. Newhouse's death in 1979, this arrangement was to provide the opening for an Internal Revenue Service (IRS) tax suit that threatened the financial position of Advance throughout the 1980s. Valuing all stock at $187.25 a share, the family filed an inheritance tax return with a liability of $48 million. The IRS found the common stock more valuable than the preferred and demanded $1 billion.

After the Founder's Death: Advance in the 1980s and 1990s

With Newhouse's death the leadership of Advance became diffused among his surviving two brothers, Norman and Ted, and his two sons, Samuel I. Jr. (Si) and Donald. During Newhouse's lifetime the organizational structure had been decidedly imprecise. When Business Week inquired in 1976 what titles his two brothers held, Newhouse responded, "I couldn't really tell you." Instead of titles the family members had regional or special responsibilities. Si oversaw the magazines and Donald the Eastern newspapers, while Norman handled Midwestern and Southern newspapers; Ted took care of Western and Massachusetts properties. In addition, Newhouse nephew Richard Diamond led The Staten Island Advance, while nephew Robert Miron oversaw the Syracuse, New York, broadcasting headquarters.

In the years following Newhouse's death, his family, jointly headed by Si and Donald, oversaw a rapid growth of Advance largely by managing the company's existing assets. Si and Donald, however, made some major changes. The first was in 1980, when they paid $70 million to RCA Corporation for Random House publishing, the leading general-interest book publisher at the time, thus acquiring the third type of media listed in Advance's statement of purpose. By selling its five television stations to the Times Mirror Company for $82 million, the Newhouses were also able to finance their expansion into cable television systems, becoming the eighth-largest cable operator in the United States in 1981.

Of the $700 million worth of communications purchases made by the Newhouses in the 1980s, only one was a newspaper, New Jersey's Trenton Times. The greatest amount of activity had been in magazines, with the start-ups of such magazines as Self in 1982 and Vanity Fair in 1983; the purchases of Gentleman's Quarterly and, in London, Tatler, World of Interiors; and the buying of minority shares of The Face and Arena. Perhaps the most notable acquisition was the New Yorker for $200 million in 1983. Si Newhouse continued the family policy of allowing publications considerable editorial liberty while eschewing conventional corporate planning. "There is no particular global view about what Condé Nast should be," Si Newhouse told the New York Times in September 1989. "We think pragmatically."

The Newhouse style of business continued to make money but drew criticism. Pointing to the purchases of Crown Publishing and a variety of British publishers, Barron's commented that "the family-style decision-making that produced such remarkable results when buying local newspapers from disgruntled heirs may not work so well when evaluating international publishing acquisitions." The sale for $200 million of Random House's college publishing division--usually the most steadily profitable part of publishing&mdashø McGraw-Hill was questioned. Newhouse was also charged with lowering the overall quality of American journalism.

As the 1980s were particularly good years for newspaper publishers, so cable television was a good growth industry in the 1990s, and Advance would take important steps toward becoming a major player in the cable industry. Also, in 1990 the long-standing litigation with the IRS was settled in the Newhouses' favor. The judge ruled that the total tax liability would be approximately $48 million, close to the amount that the Newhouses claimed. By 1996 Forbes magazine listed Si and Donald Newhouse as sharing a fortune worth at least $9 billion.

Advance continued its moderate pace of acquisition in the 1990s. In 1993 Condé Nast purchased Knapp Publications, whose periodicals included Architectural Digest and Bon Appetit. Also that year the company bought the electronic publishing division of Bantam Doubleday Dell. In 1994 Advance acquired 25 percent of the computer and multimedia magazine Wired. In 1995 Random House made an agreement with Planeta Internacional to distribute its Spanish-language books throughout the U.S. and Canada. Planeta was the number one book publisher in Spanish-speaking countries. Also in 1995 Advance purchased American City Business Journals for $269 million. At the time of the purchase, American City Business Journals owned 28 weekly business newspapers, three motor sports magazines, and an advertising firm. Meanwhile, Random House continued to be a good investment for Advance, enjoying a record year in 1996 with best-sellers from Oprah Winfrey, Michael Chrichton, Colin Powell, and Pope John Paul II.

Advance made several moves in the 1990s to establish itself as a cable television and entertainment powerhouse. In 1993 the company offered $500 million to back QVC's bid to purchase Paramount, though QVC later lost their bid to Viacom. In 1994 Newhouse Broadcasting Corp. combined its cable operations with Time Warner to create Time Warner Entertainment-Advance-Newhouse. Robert Miron, then president of the Newhouse cable division, told Broadcasting & Cable that they had been looking to pair with a larger company. "What we lacked was size, certain geographical strengths and a really proficient technical expertise," said Miron. "We did not want to be a seller, although day-to-day control was not a key issue." Time Warner was to handle day-to-day management of the joint operation. The ownership was divided on the basis of the number of subscribers, giving Advance one-third and Time Warner two-thirds of the new company. To establish a greater market share in an area it already served, Time Warner Entertainment-Advance-Newhouse agreed to trade cable stations with Cox Communications Inc., which gave them Cox's Myrtle Beach area cable system and a smaller system near Waco, Texas.

In 1996 Advance began a new service on the World Wide Web to provide regional news from Advance's three New Jersey newspapers--The Star-Ledger of Newark, The Times of Trenton, and The Jersey Journal of Jersey City--and from Advance's News 12 New Jersey, New Jersey's only state-wide, 24-hour television station. Offered for free, the new service was titled New Jersey Online (http://www.nj.com). It was affiliated with Newhouse Newspapers New Media and supported entirely by advertising revenue. Advance was originally resistant to the on-line venture but was eventually persuaded by people at America Online that the future of news distribution required a move in that direction. New Jersey Online's intent, as described by Susan Mernit in the paper's "Frequently Asked Question" site, "is to be the Internet's World Wide Web destination and resource for people who live and work in and are interested in New Jersey." Three of the on-line paper's productions--NJO Weather, the Yuckiest Site on the Internet, and RockHall, Advance-owned Cleveland Plain Dealer's Rock Hall of Fame site--were selected as a "Cool Site of the Day," a well-known and sought-after designation on the internet.

Principal Subsidiaries: Condé Nast Publications, Inc.; Parade Publications, Inc.; Random House, Inc.

Advance Publications Inc. History

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