Value Added: U.S. News & World Report returns to the ranks of profitability

Thomas Heath
Reporter April 28, 2013

Brian Kelly worked as a business journalist in Chicago, where he saw declining advertising decimate the paper he worked at, the Chicago Sun-Times, and strangle the Chicago Daily News.

He saw a similar occurrence in Washington, where he presided over Regardie’s monthly business magazine from its inch-thick heyday in the 1980s to its famous flame-out during the early-1990s real estate bust.

Thomas Heath is a local business reporter and columnist, writing about entrepreneurs and various companies big and small in the Washington Metropolitan area. Previously, he wrote about the business of sports for The Post’s sports section for most of a decade. View Archive

So after Kelly — a former editor at The Washington Post — ascended to the top spot at money-losing weekly news magazine U.S. News & World Report in April 2007, he had one thought:

Not on my watch.

In 2009 Kelly and his publisher, Bill Holiber, went to see their boss, billionaire businessman Mortimer Zuckerman, to discuss a disturbing trend.

The mood in the mogul’s book-lined, 18th-floor offices on the east side of Manhattan hardly reflected the sunny view of Manhattan and the nearby CitiCorp Center, one of the jewels in Zuckerman’s real estate crown. Zuckerman in 1984 bought the magazine, founded in Washington in 1933, and had many years of robust profits. The publication earned more than $20 million some years.

But by the time of the fateful Manhattan meeting, U.S. News, known for its right-of-center, meat-and-potatoes style, was losing money — drip, drip, drip. 2006. 2007. 2008.

Print circulation had dropped to 1 million from 2.5 million a decade earlier, and advertising pages were down by half. Bureaus had been closed. Layoffs followed layoffs.

Kelly recognized an abyss he had seen before.

“I never had faith that things were coming back,” he said. “I’ve witnessed advertising declines for the last 30 years. The Chicago Daily News was a great newspaper. The same with Regardie’s. Great readership. People love the magazine. We are winning awards. But that ad market dried up and boom . . . it was over. When the market turns, you’ve got to do something else.”

The “something else” was to wind down the print edition and invent a new business with a proven source of revenue: lists.

Starting in 1983 with its ranking of best colleges, U.S. News was mining a data trove that Zuckerman marketed as “news you can use.”

First came the lists of colleges. Then law schools. Business schools. Hospitals. By the time Kelly was sitting in Zuckerman’s office trying to map a salvage operation, U.S. News had made a name for itself with its rankings.

And those rankings did well on the Web. The magazine’s online audience at the time was 3 million and climbing — fast.

“I thought it had a real chance, but nobody had ever done this before,” said Zuckerman, a modern-day press baron who sold the Atlantic magazine to Washington businessman David Bradley in the 1990s and who still owns the New York Daily News.

Thanks to the rankings, “we were . . . better positioned to take advantage of a Web platform than most other magazines.”

Kelly and Holiber had been salivating over the rankings’ online opportunities for years, recognizing that the bite-size information is similar to the journalism U.S. News had in its DNA. The lists were easily digestible, orderly and full of facts. Readers ate it up.

And it was bottomless.

“We had the potential of hundreds of thousands of pages of data to put online,” Kelly said. “It told me we had tremendous scale and longevity.”

The shift transformed U.S. News & World Report. Today its fourth-floor “newsroom” in an office building near the Georgetown waterfront is eerily quiet and variously empty, with few grizzled journalists and none of the fast-moving intensity that rings through some newsrooms. But there are reminders of the glory days, such as glitzy magazine covers and iconic photos from its long history.

The company employs 130 journalists, staffers and producers. There are an additional 40 or so employees on the business side.

It survives thanks to a variety of revenue sources. The company made several million dollars last year and probably could hit $10 million in 2013. That’s on revenue well over $40 million.

And there’s still the subscriber-only U.S. News & World Report weekly magazine, which is heavy on Washington news, gossip and political analysis, as well as health and financial policy and news you can use. The edition includes a weekly quiz, pro and con debates on issues, and a commentary by Zuckerman.

“We put out a whole magazine every week,” Zuckerman said. “It so happens we are able to support the journalism. We try to cover everything we think is appropriate. We do it well. I’m sure we could improve on it.”

But the real money isn’t in old-fashioned journalism. It’s in the rankings. You can surf through “best of” lists on travel, health, education, cars, law and money. All have content stories and blogs layered around the rankings. Dive into the best vacations in Europe and you may find yourself staring at a reservations site for a hotel in Nice, France. Or follow the list of best family cars and you may arrive at the best price for a Toyota Prius in your Zip code. There are 26 lists on nursing homes alone.

In the world of webbies, it’s pretty sticky stuff.

“When you are researching for something you want, you are using a different part of your brain than when you are just grazing the news,” said Kelly, 58, who graduated from Georgetown University with a degree in economics.

There have been embarrassing stumbles, including when the magazine chose not to rank George Washington University last year following a disclosure that the school had misreported statistics about the academic achievement of its incoming freshmen.

But the brand is powerful. Punch in a search for “best hospitals” or “best colleges” on Google and up comes the U.S. News rankings.

In December 2006, the magazine drew 1.6 million unique visitors to its Web site. It’s 20 million a month now. By comparison, The Washington Post has about 35 million and the Huffington Post gets 40 million to 50 million.

About 20 percent of total revenue comes from the search for cars, hospitals and the like. An additional 30 percent comes from online display advertising. Then there’s the hospitals, colleges and financial institutions that pay from a few hundred dollars to more than $20,000 to license the U.S. News “best of” badge, which brings in an additional 15 percent of the total revenue.

The rest comes from a hodgepodge of joint ventures, partnerships and digital products, including its Compass search engine, that help customers explore in detail a college for their child or a hospital for themselves. There’s an online store for consumers, where you can buy e-books on the rankings or on specialty topics dealing with religion, science and history. They even host conferences such as the upcoming “Hospital of Tomorrow” this fall in Washington, which medical industry types pay through the nose to attend.

Like his boss, Kelly doesn’t run from the rankings. He defends them as a vital form of journalism.

“When we rank something like mortality rates in hospitals, it’s more powerful than 100 news stories.” he said. “Long-form, narrative journalism can’t cover the number of institutions we assess. The facts are there.”

And so is U.S. News & World Report, which celebrates its 80th birthday this week.

For previous columns, go to washingtonpost.com/business.

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