U.S. News and World Report Inc.
U.S. News and World Report Inc.
1050 Thomas Jefferson St., N.W.
Washington, D.C. 20007
Fax: (202) 955-2049
Web site: http://www.usnews.com
Incorporated: 1933 as United States News
Sales: $330 million (1999 est.)
NAIC: 51112 Periodical Publishers
U.S. News and World Report Inc. (USN&WR) publishes a weekly newsmagazine of the same title. It is the nation’s third leading weekly newsmagazine, behind Time and Newsweek. Major sections of the magazine include Outlook, a quick take on national and international events of the week; U.S. News, often supplemented with national surveys and interviews with newsmakers; World Report, an analysis of events worldwide, especially as they affect the United States; Business, with an emphasis on data-analysis of economic trends along with profiles of business leaders and coverage of major business developments; Science & Ideas, featuring forward-looking reporting on science and health topics; and News You Can Use, a mix of practical information and enterprising stories. USN&WR also publishes annual guides to the best colleges, best graduate schools, best hospitals, best mutual funds, and other subjects. USN&WR is owned by Mortimer Zuckerman, whose media holdings also include the Atlantic Monthly, the Daily News (New York), and Fast Company.
Early History: 1933–84
In 1933 journalist David Lawrence founded a weekly newspaper he called United States News. As the title implied, it was devoted to domestic news. It was the successor to the newspaper the United States Daily, which Lawrence had founded in 1926. In 1940 United States News was recast as a magazine. Following the end of World War II, Lawrence founded a new magazine in 1946 called World Report, which covered international affairs. As domestic and world affairs became more intertwined in the post-World War II years, the two magazines United States News and World Report were merged to create U.S. News & World Report in 1948. Lawrence served as editor of the magazine until his death at 84 in 1973.
In 1962 USN&WR became an employee-owned company. The magazine developed a family atmosphere for its employees. It provided an analytical approach to the news and did not offer any entertainment features such as became commonplace among its competitors.
Diversification and Change: 1980s
In the early 1980s USN&WR diversified into computer-based publishing and a satellite transmission network. The magazine considered itself a pioneer in the technology of magazine production and distribution. It helped fund the Atex editorial computer system and led the industry in the use of digital scanning and satellite transmission of copy to printing plants around the country.
In 1981 USN&WR entered into a $200 million joint venture with Boston Properties, Inc. to develop 3.5 acres of land it owned in Washington, D.C. The land had been acquired by founder David Lawrence. Under the terms of the 50–50 venture, USN&WR would supply the land and Boston Properties the development. The head of Boston Properties was Morton Zuckerman, who had recently purchased the Atlantic Monthly in 1980. By 1984 a new 160,000-square-foot headquarters had been built for USN&WR on the property, with plans calling for such developments as a new Hyatt hotel, condominiums, and more office space. USN&WR eventually experienced a cash shortage from expenses associated with its diversification and liabilities associated with its profit-sharing trust.
USN&WR ended 1983 with a paid circulation of 2.1 million, making it the third most widely circulated weekly newsmagazine behind Time (4.6 million paid circulation) and Newsweek (three million paid circulation). Revenues for 1983 were estimated to be $150 million, up ten percent from 1982.
In December 1983 an unidentified bidder offered $100 million to purchase the magazine, four times the appraised equity value of the outstanding shares. With 60,000 shares outstanding, the employee-owned company had seen the value of its shares increase in the past three years to $420 per share. A subsequent appraisal in early 1984 put the value at $625 a share, or a total of $38 million. In 1980 shares were valued at $152 a share.
In February 1984 the directors announced the company was for sale and that bids would be considered. In addition to the magazine and real estate, the company operated a typesetting service, newsletters, and a radio programming business. As financial information about USN&WR became public, it appeared the company was in weak financial condition and burdened by its Washington, D.C., real estate venture. Instead of earning net income between $5 million and $8 million, it appeared that USN&WR’s pretax profits were about $4 million before extraordinary items or profit-sharing, and that net income was around $2 million. One analyst had pegged net income at $7.5 million early in the bidding process.
Investment banker Morgan Stanley & Co. was hired to advise management on the sale. It set a minimum bid of $100 million for the company. Morgan Stanley also screened potential bidders by examining their financial condition. Final offers were due by May 11, 1984.
By June 1984 it was announced that USN&WR would be acquired by Morton B. Zuckerman. In acquiring the magazine, Zuckerman outbid nine other competitors, who reportedly included United Marine Publishing Inc. (publisher of Inc. and High Technology), Hearst Corporation, Family Media Publishers (publisher of Ladies Home Journal), and Gannett Company, among others. Zuckerman would later acquire the Daily News in 1993, and in 1995 he helped launch Fast Company, a new business magazine.
Zuckerman was a wealthy real estate investor and developer who owned Boston Properties Inc. His previous business arrangement with USN&WR to develop its 3.5-acre real estate holdings in downtown Washington, D.C., may have helped with his winning bid. Many of the other publishers who were considering purchasing USN&WR were not experienced with the business of real estate development. Zuckerman graduated from Harvard Law School and taught for nine years at Harvard Graduate School of Business. At the time of the acquisition Zuckerman said he had no plans to radically change the magazine’s editorial direction. The sale was completed in October 1984 for a purchase price of $176.3 million.
Valuing the Employee-Owned Company
As a result of the acquisition, employee shareholders received $2,842 a share for their holdings. Less than ten years earlier, in 1975, an employee retired and sold his stock back to the company for $65 a share. At the time he and other employees were satisfied with the price; but following the sale of the company in 1984, some 220 former USN&WR employees filed a $100 million suit against the company, several former directors, and the magazine’s appraisers, American Appraisal Associates Inc. The plaintiffs claimed they were entitled to almost $100 million from USN&WR and its profit-sharing plan, which represented their share of the proceeds of the sale.
At USN&WR, most of the employee-owned stock was held in a profit-sharing plan, with the remainder held by individual employees through a stock bonus plan. Technically, the employee ownership structure was not an employee stock ownership plan (ESOP), but the same valuation methods could be applied to both. Appraisers could choose to value employee-owned stock using a minority basis, which would be the value of the stock if only a minority interest in the company were available, or a control basis, which would be the value of a controlling interest. At issue was whether employees who sell back their minority shares should receive the same price a purchaser would pay for control of the company.
While the U.S. District judge’s opinion on a pre-trial motion indicated he thought some defendants may have run afoul of legal requirements, in June 1987 he ruled that the company’s directors acted “in an entirely appropriate manner” and that the appraisals were “perfectly reasonable and acceptable.”
Hiring Senior Editorial Staff
After the sale to Zuckerman, USN&WR hired several top editors to improve its senior editorial staff. Zuckerman commissioned Harold Evans, former editor of the Times of London, England, to develop an editorial plan for the magazine. Richard C. Thompson was hired away from Business Week and named publisher, while James C. Mason was also lured from Business Week and named associate publisher. Mason would leave the magazine in 1986, and Thompson assumed a part-time schedule in 1991.
In March 1985 Zuckerman selected Shelby Coffey of the Washington Post to succeed Marvin Stone, who had been associated with USN&WR for more than 25 years, as editor of USN&WR. Stone had resigned in January 1985 and was expected to be appointed to a position with the U.S. Information Agency. Within a year Coffey stepped down and was replaced by David Gergen. In July 1986 Michael Ruby was named to the new position of executive editor to assist Gergen. Ruby was formerly assistant managing editor of Newsweek.
U.S. News & World Report is a weekly national newsmagazine devoted largely to reporting and analyzing national and international affairs, politics, business, health, science, technology, and social trends. And, in a NEWS YOU CAN USE section, it provides practical advice on how to live smarter and better.
In August 1988 senior writer Roger Rosenblatt was named to replace David Gergen as editor. After two years at USN&WR, Gergen wanted to expand his horizons. Among other things, he had been appearing as a regular analyst on “The MacNeil-Lehrer News Hour” on public television. Under Gergen USN&WR’s circulation rose to 2.362 million, the highest in the magazine’s history. By comparison, Time had a circulation of 4.7 million and Newsweek 3.2 million.
New Ways to Deliver Information: 1990s
In 1991 USN&WR created a new section, “Outlook,” to provide a new look and a faster review of the week’s news in the magazine. In May 1991 USN&WR launched a new magazine, Family Fun, in association with Jake Winebaum, a former senior executive at USN&WR. Family Fun was aimed at parents with children from ages 3 to 15 and focused on family activities, such as vacations, entertainment, and at-home education. Winebaum was the magazine’s publisher, and USN&WR provided production and advertising sales support. Within a year, Family Fun was sold to Walt Disney Co., with Winebaum continuing as the magazine’s editor and publisher.
USN&WR spun off several book publications from its news pages. In 1991 a team of USN&WR reporters wrote Triumph Without Victory: The Unreported History of the Persian Gulf War, which was co-published by Random House and Times Books. Other books included America’s Best Hospitals, published by John Wiley & Sons, and Letters for Our Children: Fifty Americans Share Lessons in Living, which was based on a 1994 magazine feature and published by Random House in 1996.
In 1992 USN&WR beat Time and Newsweek for the most ad pages for 1992. USN&WR had 2,170 ad pages compared to 2,100 each for Time and Newsweek. USN&WR publisher Thomas R. Evans boasted that USN&WR had a 34 percent share of the news weekly ad market, up from 23 percent in 1985 when USN&WR was acquired by Zuckerman.
In 1993 USN&WR celebrated its 60th anniversary. With electronic delivery of information the apparent wave of the future, the magazine became available on CompuServe Information Service. It had negotiated to be on America Online, but lost out to Time. After two years on the CompuServe Information Service, USN&WR introduced in 1995 a comprehensive web site (www.usnews.com) that included a digital version of the magazine. The web site also featured video and sound feeds, hotlinks to other sites, daily live sound bites, regular news updates, interactive educational games, and more. In 1994 USN&WR had created a new video and multimedia production division, U.S. News New Vision. It also experimented with a new cover wrap to boost single-copy sales, which had fallen 14.5 percent between comparable periods in 1993 and 1994. Overall circulation remained 2.28 million.
Capitalizing on the reputation of its popular annual guide to colleges, USN&WR in 1995 launched its first CD-ROM product, The U.S. News Complete College Adviser. It was designed to help students select a college and guide them through admissions applications and financial aid forms. USN&WR’s Colleges and Careers Center web site was introduced in January 1997. That was followed in 1998 by the U.S. News Getting into College Kit, which included a video, a guidebook, and a CD-ROM.
Fast Company, a new business magazine aimed at an audience younger than Business Week, was launched under the auspices of USN&WR in 1995. It was overseen by Zuckerman, Fred Drasner (president and CEO of USN&WR), and two former editors of the Harvard Business Review.
The late 1990s were marked by several top editorial changes at USN&WR. In 1996 James Fallows was hired as editor, replacing husband and wife coeditors Michael Ruby and Merrill McLoughlin. Fallows brought in several top editorial managers and staff members, which caused several others to leave the magazine.
In 1997 USN&WR moved its business operations, including personnel, finance, and circulation, from Washington to New York City. The magazine’s editorial offices remained in Washington. The move reflected Zuckerman’s desire to run all of his media holdings from the Daily News building on West 33rd Street in Manhattan.
As part of an orderly management transition, Thomas Evans was promoted from executive vice-president and publisher to president and publisher of USN&WR. Drasner, former president and CEO, retained his CEO title and would oversee overall strategic business direction. Eric Gertler was named executive vice-president. Harold Evans was named editorial director of all of Zuckerman’s publications, effective early 1998.
In October 1998 Drasner relinquished his CEO title and was succeeded by Daily News associate publisher Ira Ellenthal, who was also named group publisher for USN&WR, Atlantic Monthly, and Fast Company. Drasner remained CEO and copublisher of the Daily News as well as cochairman of the company’s executive committee, which was responsible for overseeing all of the group’s magazines. Eric Gertler, who had recently been promoted to COO, was given the additional title of president. Then in 1998 editor James Fallows resigned. He was replaced by Stephen Smith, a veteran of both Time and Newsweek. In 1999 Smith rehired many of the editorial staff that had departed when Fallows was hired.
USN&WR’s paid circulation was holding flat at 2.2 million, but in the first half of 1998 circulation of Fast Company jumped 86 percent to 254,555. While USN&WR was not likely to catch Time or Newsweek in terms of circulation, it could be expected to remain competitive in terms of advertising revenue. The magazine had a new, experienced editor, and Zuckerman had several other ventures that would presumably keep him too busy to make too many changes at the number three newsmagazine.
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—David P. Bianco