NEW YORK (AdAge.com) -- When the British media baron Richard Desmond and his company, Northern & Shell, introduced a U.S. edition of OK five years ago this month, they expected the formula that worked in the U.K. to apply here, too: Playing nice with stars would vault OK above the thicket of established gossips. Jessica Simpson appeared on the first cover as part of a multi-issue deal in which she got $200,000 and the right to approve what OK wrote about her.
Fast forward to last month, when OK ran a very different story on Ms. Simpson. "Confirmed," announced the cover, "Finally, a Baby for Jess." The gossipy write-around with no involvement from her relied on a doctor (not the star's doctor) who said she looked pregnant. "A rep for Simpson tells us the story is 'absurd and not true at all,'" sniffed Gossip Cop, a website that says it polices the gossip industry.
OK Managing Editor Mark Pasetsky defended the recent package. "On the inside story we were very clear we had an outside expert that said she appeared to be pregnant," he said.
But the very American stretch to get newsstand sales, all the more conspicuous for the "confirmed" claim, says a lot about OK's first five years in the States. Mistakes, management from afar, brutal competition and the recession have combined to leave OK, at age 5, still striving.
Perhaps the very first decision, to proceed without a U.S. publisher for a partner, meant no one could tell Mr. Desmond and his lieutenants in London just how poorly the British model would work here. They spent grandly on exclusives only to see readers drift off again afterward, emphasized newsstand sales to the detriment of subscriptions and bored Americans with fuzzy features like Ms. Simpson's 10-page interview in the first issue. "It was constantly like, 'It worked in the U.K.,'" said a former staffer. "Well, this isn't the U.K."
Northern & Shell says OK broke even last year and will enter the black in 2010, meeting a six-year plan for profitability. But the company had also promised to spend some $100 million on the title over six years. Instead it spent $175 million before five years were up.
For all that investment, moreover, OK lies far short of Mr. Desmond's ambitions. He wants OK to lead celebrity weeklies in the U.S., but after five years it has surpassed just two -- Bauer Publishing's In Touch and Life & Style -- in ad pages. It stands ahead of just one rival, Life & Style, in paid circulation and in retail dollars.
Most recently OK has failed to deliver the circulation that it promises advertisers on 24 out of the 25 issues from January through June of this year, according to its reports with the Audit Bureau of Circulations.
"For $175 million they should have had a big, robust, profitable magazine," said one former high-up at OK. "He's a very smart guy and he's done a lot, so you've got to admire him for that. What's really sad is all that money went into something where there's not much to show for it."
Mr. Desmond and his lieutenants tell a different tale, countering that they've got quite a lot to show for their investment. OK quickly became one of the country's top newsstand sellers, charging to 17th place by the second half of 2006. It ranked eighth among all magazines for newsstand dollars in the second half of last year. Ad pages shot up 30.4% in the first half of this year, following double-digit spikes in 2009, 2008 and 2007, according to the Publishers Information Bureau. And OK attracts more younger readers than any other celebrity weekly, something that advertisers like to hear and rivals would rather forget.
"We achieved the impossible, and we will carry on achieving the impossible until we're No. 1 in America," Mr. Desmond said in an interview.
OK's start here was rougher than Northern & Shell expected. "We were very surprised," said Christian Toksvig, an exec VP at newspaper publisher Metro International who was the CEO of OK's U.S. edition at the start. "We thought we were going to create a cultural phenomenon. We were very much inspired by what Us Weekly had done. We thought that we could do that again with the friendly cover, the luxurious feel, and the direct interviews with celebrities instead of discussion about celebrities. We priced it at the same price as People and thought we'd sit back and enjoy the ride."
That's not what happened. "It turned out we had to work more carefully with the editorial concept and the distribution in order to get acceptance from advertisers," he said.
Some of the adjustments that followed could have been avoided if OK had secured an American publishing partner. But a handshake deal to go 50/50 with Rupert Murdoch's News Corp. came to nothing, according to Mr. Desmond. "I didn't realize that when you shake his hand it's a call option on his part," he said. A News Corp. spokeswoman declined to comment.
Up in smoke
And Mr. Desmond found Hearst Corp. too corporate for his liking in a partner. Victor Ganzi, Hearst's president and CEO at the time, refused to let Mr. Desmond light a cigar in his office. "How could I deal with a partner who wouldn't let me smoke a cigar in the office?" Mr. Desmond recalled. "So I thought, fuck it. I've got the money. It'll take longer, but I'll own it 100%."
Without guidance from an experienced American partner, missteps piled up. "The focus group was the national market, the most expensive focus group you could have," an early business-side employee said.
OK didn't push to sell many subscriptions, for example, because newsstand sales are almost all that matters in the U.K. But U.S. magazines typically rely on a big subscription component to amass the largest paid circulation possible -- all the better to lure advertisers. Trying to match their size without offering cheap subscriptions is exceedingly difficult.
"The expectation from Desmond was that we would take the market by storm," the employee said. "Subscriptions are a cost; he deemed that unnecessary."
Among the course corrections: abandoning the logo, the oversize format and the price. The blocky white-on-red logo imported from the U.K. said "tabloid" to Americans, not "sophisticated," as Northern & Shell had expected. The size meant OK didn't fit in some of the many, many newsstand pockets Northern & Shell had secured at great expense. And even though matching People's newsstand price demonstrated confidence and ambition, OK was also fighting In Touch and Life & Style, which cost $1.99 at the time. OK cut its cover price from $3.29 to $2.99, the first of five price changes in either direction that would follow.
Perhaps most importantly, OK's editorial mission needed a redo. An expensive consumer ad campaign around the launch mocked the celebrity weekly leader by advising readers to "Avoid Dull People." But it was OK's celebrity embrace that left Americans cool. "It's only People that can get away with 'I'm So Happy With My Marriage,'" said a former editorial staffer who was there at the start. "Everyone else is scratching and clawing for market share."
Gradually, OK changed its approach. When Britney Spears had a meltdown during an exclusive OK cover shoot, which editors had envisioned as a positive comeback story, OK was forced to sell the breakdown instead. The August 2007 cover story that resulted sold 743,900 copies on newsstands -- Star magazine's newsstand territory.
For a few years, the newcomer was finding an encouraging stride. It had passed Life & Style Weekly in total paid and verified circulation during the second half of 2006 and, from the summer of 2007 through the end of 2008, OK's paid and verified circulation averaged more than 900,000 copies, far ahead of Life & Style's in the second half of 2008 and even a bit in front of In Touch.
An exclusive cover story on Jamie Lynn Spears' baby in the July 21, 2008, issue delivered 911,000 newsstand sales and total circulation of 1.5 million, now brushing up against Star's overall circulation as well. OK followed up with big baby exclusives about Jessica Alba the next week and Matthew McConaughey the week after that. "We were on fire," said an OK staffer from that time.
But Northern & Shell, still managing the title closely from London and seeking more revenue, had also raised the cover price to $3.49 from $2.99 in July. Newsstand sales started to wobble. The economy was souring, putting pressure on any magazine that was someone's second read. OK restored the lower cover price in December 2008, but reversed itself yet again three months later.
The sales erosion only continued in 2009. OK was cutting its draw -- the number of copies a magazine sends to newsstands -- in a bid for fewer returns from retailers and more efficient sales. But its efficiency fell below 2008 levels, according to data from the Magazine Information Network, or MagNet, which tracks magazine sales.
That August, OK announced it was cutting its circulation guarantee -- retroactive to July. Such changes are normally announced to advertisers months in advance, not back-dated. Over the final six months of 2009, In Touch's circulation pulled back in front of OK's. "The bummer about it all is there was so much promise if we had stayed the course," the staffer said.
Former staffers say a pullback on buying exclusives was responsible for some of the slide. Although there are exceptions, such as the photos of Michael Jackson's final moments last summer, which OK secured for a reported $500,000, former staffers said the magazine has become far less willing to spend big on celebrity exclusives during the past two years. Like many of OK's exclusives, the Michael Jackson cover sold well, but the benefit didn't carry over into the next issue.
"You've spent millions on these exclusives, and the minute you don't have the exclusive, the sale goes back down to 250,000," the former high-up recalled.
"We realized that, from a financial point of view, it didn't make sense to spend $500,000 on a wedding," another former editorial employee said.
OK still buys big stories, according to Northern & Shell executives, and can share the cost among editions of OK around the world. If you don't see as many exclusives on the covers, that's because there aren't as many to go around. "These exclusives don't space themselves evenly," said Paul Ashford, editorial director at Northern & Shell. "We had this summer of babies, and it was reflected in our magazine. This spring we've had the spring of diets."
Setbacks frequently triggered anger from Mr. Desmond and his lieutenants, weighing on the staff in America. "They're just vulgar," a former employee on the business side said. "They're just unprofessional, screaming, yelling, slamming down phones."
Mr. Desmond's manner could alienate outsiders, too, with whom he was trying to do business. "He's a rude, crude guy," one media buyer at a major agency said. "He tries to be a smooth operator, but when you try to educate him on the U.S. market and how it's been working, he gets defensive. Any time you're giving him real facts, he gets defensive."
Mr. Desmond and his top executives admit that he, and they, can be strong-willed. "I think it's fair to say that Richard has very clear ideas," said Stan Myerson, joint managing director at Northern & Shell. "He's a top-class negotiator and a tough negotiator. He doesn't like to take prisoners. We get out there, all of us, and we sell. We like to achieve things. It's not so much that anyone's trying to be unpleasant."
"I'm not known as 'Easy Richard,'" Mr. Desmond joked.
Parts of the British Press have actually nicknamed Mr. Desmond "Dirty Des," a reference to the porn magazines he once owned. Northern & Shell still owns adult TV channels, along with properties including the Daily Express and Daily Star newspapers, editions of OK around the world and now the British TV network called Five, which the company bought last month for $161 million.
Mr. Desmond has also used nicknames for his competitors in American celebrity magazines, monikers that he and his lieutenants describe as lighthearted but some others considered crass.
"I called Wenner a tart to his face," Mr. Desmond added. It's not clear whether that happened before or after Mr. Desmond approached Mr. Wenner about sharing some back-office operations, an idea that Mr. Wenner rejected, according to executives familiar with the proposal.
Wenner Media, Ms. Min and Bauer declined to comment.
Some who have worked for Mr. Desmond agree that he's basically a good time. "He likes to shock with things that are very un-politically correct," said Mr. Toksvig, the launch CEO. "It is a show that he puts on because it's just his persona. If somebody looks like they can't take it, depending on if he needs something, he will turn it off again and say, 'I'm sorry, I'm just having a laugh.'"
Kent Brownridge, the onetime Wenner No. 2 who served five months as OK's general manager, said he, too, liked working for Mr. Desmond. "He's kind of a grand old-style capitalist. He puts his money up. He's a rip-snorting, beating-the-desk, 'This is what I want' guy. But he doesn't sit there not putting his money out, so he's brave."
'I'd never had taken the job'
Launch Editor Sarah Ivens said working at OK was a positive experience despite the many difficulties along the way. "If I'd known how hard launching OK would be, I'd never have taken the job," said Ms. Ivens, who left at the end of 2008 and consulted for OK for another year as it cycled rapidly through successors. "Lucky I didn't have foresight because although I had to deal with the trickiest, strangest people ever, I learned many important life lessons," Ms. Ivens said. "And I'm proud I took a magazine from nowhere to No. 8 in American retail figures."
At one point someone at OK decorated the offices with pieces of paper that said "500" in red numerals, reminding staffers to strive for newsstand sales of 500,000. It's only done that once this year, when an April cover said "Confirmed: Finally, a Baby for Jen" and pictured Jennifer Aniston smiling with a hand on her stomach -- a forerunner of July's "confirmed" pregnancy story about Jessica Simpson.
OK has also recently run covers with yellow circles in the upper left-hand corner shouting "Special! 99 Hot Pics!" or "Special! 99 New Photos!" The numbers are the biggest part, followed by the word "special." So they look at least a little like 99¢ price specials, although OK has cost $3.99 since April.
"It is clearly misleading," said Baird Davis, the former head of circulation at Ziff Davis and now a magazine industry consultant. "Ninety-nine is a number people associate with price."
Even with OK's newsstand troubles today, the Northern & Shell team exudes confidence. A new emphasis on subscriptions means OK is meeting its circulation guarantees again, Mr. Myerson said.
"When you look at the full effect of everything we've done, the cumulative effect, we don't really regret any of the decisions we've taken," Mr. Ashford said.
Mr. Desmond argues that it doesn't matter how long OK takes to reach its potential. He's still got the money. "We struggled hard in England," he said. "We took six years to get there, but at the end of the day we got there." If it takes 10 years to make OK the celebrity weekly leader in the U.S., it takes 10 years. "And it won't take 10 years," Mr. Desmond said.
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