Pecker's pickle

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One Tuesday afternoon last July, five days after the controversial details of a contract with California Gov. Arnold Schwarzenegger blew up in the press, American Media's top executives in New York, Florida and California gathered for their weekly teleconference.

Conflict-of-interest accusations had already forced Mr. Schwarzenegger to cancel the contract, but company executives followed the lead of David J. Pecker, their chairman, president and CEO. He said nothing about it.

His meetings are like that, said a former American Media executive who left the company on bad terms. "David only wants information to go one way and that's to him," the executive said. "Everyone reports to him but nobody reports to each other."

It's been a long haul for Mr. Pecker to get to a place where everyone reports to him. And now that he's there, it's unlikely he wants to hear anything that derails him from his ultimate goal: respectability.

Six years after striking out on his own to buy American Media, Mr. Pecker is not where he thought he would be. His much-ballyhooed plans to go public have been delayed-he now says an IPO may be a couple years away. His quest to be a mainstream media mogul has been derailed by scandals as public as Arnold Schwarzenegger and as petty as internal politics. He's still struggling to shake a tabloid, street-fighter aura and that whiff of back-room politics that clings as prominently to him as his signature mustache.

Governator

In an interview at the American Media offices on Park Avenue, Mr. Pecker remained reticent on the Schwarzenegger incident. "It is a political story out of L.A. and has absolutely no effect on our business," he said. "He was an icon before he was governor. He always will be.... It didn't have any effect on advertising."

Advertising, of course, was precisely why the incident tarnished Mr. Schwarzenegger, who held the title executive editor of Flex and Muscle & Fitness. The Governator, who last year vetoed legislation intended to discourage high-school students from using nutritional supplements, was to receive about $8 million over five years from American Media, whose fitness magazines feed off supplement advertising.

As summer went on, The Los Angeles Times continued to turn up unflattering details suggesting that American Media, publisher of The National Enquirer and Star, was protecting the governor. There was the contract with an alleged mistress that bound the woman to speak only with American Media (which did not print anything about her account). Later the paper reported on its attempts to secure exclusive rights to an old video hosted by Mr. Schwarzenegger in the "Girls Gone Wild" vein (again, the company did not use the material).

If Mr. Pecker, 54, was scathed by the attention, he refuses to show it. He remains focused on preparing to take American Media public.

To that end, he bought Weider Publications (which included Flex, Muscle & Fitness and Shape) and Country Music. He launched the Spanish-language Mira, chased auto advertisers with first one new car title, Auto World Weekly, which closed, and then another, MPH. Then in June 2003, Mr. Pecker famously lured Bonnie Fuller away from Wenner Media's Us Weekly to sprinkle her unique brand of editorial fairy dust on his tabloids.

But all that activity also saddled American Media with nearly $1 billion in debt that, combined with a 23.6% decline in operating income for the most recent fiscal year, led Standard & Poor's and Moody's Investors Service this summer to downgrade its ratings. Hal Diamond, director-corporate ratings, Standard & Poor's, which downgraded the company's debt to a "B" rating from "B+", said the investment to relaunch Star and National Enquirer "has not yet improved the company's profitability," though added the company can still comfortably service its debt. Thomas C. Ferguson, assistant VP-analyst, KDP Investment Advisors, which has a hold rating on the two American Media bonds it covers, sees a potential flaw in Mr. Pecker's plans. "The thing I have the most trouble getting comfortable with is my lingering sense that they're in a space that has become tremendously overcrowded, and that they are helping become overcrowded."

On this topic, too, Mr. Pecker projects calm. American Media recapitalized in 2003 with new funds from Thomas H. Lee Partners and Evercore Partners, Mr. Pecker's original backer. "We have 10 years to do something," Mr. Pecker said. "It doesn't have to be done tomorrow."

A little time probably couldn't hurt, as Ms. Fuller's experience as chief editorial director has shown. When she transformed Star from a rough-stock tabloid that blue-chip advertisers shunned into a glossy celebrity weekly, its paid circulation initially fell, from an average of 1.26 million during the first half of 2003 to 1.18 million in the first half of 2004. But the company said it has since climbed to 1.4 million in the first half.

Star even began running scent-strip perfume ads for Estee Lauder this month, which once would have been inconceivable. Advertising, however, remains a challenge. The four former Weider titles tracked by the Publishers Information Bureau ran 2,714 ad pages from January through August, down 3.3% from the same period last year. And while Star has made inroads, its ad-page count through August (578.6) remains less than half that of Wenner's Us Weekly (1,162.4).

"I don't think he gets the credit for the success of the Star," Ms. Fuller said of her boss. "A lot of magazines companies wouldn't have done what he did. They would have thought you couldn't turn around a tabloid."

Cost-cutting

Mr. Pecker is more often credited, if the word applies, with cost-cutting and a rigidly top-down management style that makes abrupt exits by senior talent uncomfortably common.

The company has sought a new chief financial officer since Thomas Severson left last year after just a few months. Lance Ford served four months as American Media's president of advertising and publishing before bolting to Conde Nast.

Another former executive said Mr. Pecker's approach impedes his success. "He can't give up any control," the executive said. "Everyone is fighting for their lives. That can become pretty sinister after a while."

Some editors have chafed under a research-driven cover-selection pro- cess, in which a panel of thousands picks the best cover. "For some magazines you'd have to get over 60% to get average sales, if you got 80% you'll have tremendous sales and if you got 40% it's going to be below average," Mr. Pecker said. "The editor makes the final decision. If there's a major disagreement with the research, I would like to know why."

The focus on numbers-like Mr. Pecker's notoriously long hours and demands on his lieutenants-seem to stem from his start as a back-office guy. His father died without life insurance when Mr. Pecker was 16, leaving him to support a mother who did not work and an ill sister. After high school, he worked as a bookkeeper for a 35-person construction company and attended Pace University in the mornings and evenings. In what would become a pattern, he assumed increasing responsibility for areas like administration, facilities and payroll.

At Price Waterhouse, his first job out of school, he took it upon himself to learn everything about the businesses he was auditing, discovering, among other things, that one client used horse meat in its dog food. "You worked until you couldn't work any more," Mr. Pecker recalled of that early `70s period. "It was a very, very competitive environment."

When CBS called looking for accounting help at its magazine division in Greenwich, Conn., the 25-year-old boy from the Bronx visited Connecticut for the first time. It was his entree into magazines.

There he was able to visit distribution facilities, paper mills and printing presses. "I was probably one of the only people who worked, again, 12 hours a day," he said. "Did people take advantage and dump stuff on me? Yes. They gave me more stuff to do. And with that I got promotions."

After eight years with CBS, Mr. Pecker staked a claim on the front office when he and his boss, Peter G. Diamandis, engineered a $650 management buyout in 1987. Diamandis Communications, as the company was renamed, sold most of itself to Hachette Publications (now Hachette Filipacchi) for $712 million in 1988. (He delayed his honeymoon for a year because of the CBS transaction.)

When Mr. Diamandis and other former CBS Magazines executives departed in 1990 over conflicts with Hachette's Parisian owners, Mr. Pecker stayed as the top-ranking American executive in the division.

"Daniel," he said, referring to Daniel Filipacchi, chairman of Hachette Publications, "introduced me to a world that I had never experienced before. I had to get my first passport."

Over the next five years, Mr. Pecker doubled Hachette's U.S. ad sales to $550 million and expanded its portfolio with acquisitions like Premiere, Mirabella, Travel Holiday and Family Life.

A penchant for cozying up to the famous also became apparent during this time, as when he agreed to back a pet project from David Lauren-Ralph's son. The 20-something general-interest title, Swing, became a joint venture of Hachette's, in what some saw as a calculated move to curry favor with his father. That short-lived project was followed by another joint venture with a famous son-George, John F. Kennedy Jr.'s politics-and-pop-culture brainchild.

Like the Weider purchase by American Media, the expansions at Hachette did not go entirely smoothly. After Hachette bought a half-stake in Premiere in 1995, he chopped the staff of about 80 roughly in half.

A year later, top Premiere editors quit after Mr. Pecker ordered them to kill an article that was skeptical of Planet Hollywood's public stock offering; critics pointed out that Premiere's other half-owner, billionaire Ronald Perelman, had a joint venture with Planet Hollywood. (Another shareholder, Sylvester Stallone, is now a business partner of Mr. Pecker; Sly magazine will publish its fourth test issue in January.)

Mr. Pecker displayed an impeccable ability to analyze mountains of data-and used the sharp elbows that would become renowned, said Didier Guerin, then Hachette president.

"Soon David and I clashed, as I refused to be surrounded by his mediocre lieutenants," Mr. Guerin said. "Managing [Hachette's flagship] Elle, where you sell the quality of the environment rather than its numbers, was my specialty and was difficult for David to conceptualize."

"In 1991, David launched a smart power struggle against me in front of Daniel," Mr. Geurin said. "Although I had been Daniel's right-hand man for 10 years, David won and I resigned."

Mr. Pecker denied there was any struggle, saying that Mr. Filipacchi increasingly turned to him for his knowledge of the U.S. market.

Today at American Media, Mr. Pecker's management style remains equally dominated by his old bottomless appetite for information, particularly financial data, said Mark M. Edmiston, managing director at AdMedia Partners. "From a sheer brainpower standpoint, he's very smart," Mr. Edmiston said. "Under really difficult circumstances he has done a great job." That said, Mr. Edmiston added, the quandary remains. "How do you exit?"

Mr. Pecker's answer: Keep an eye on growth books like Shape, which he said is now worth more than the $357 million that he paid for all of Weider, and look for still more to buy.

David Pecker

Age: 54

Born: Sept. 24, 1951

Birthplace: The Bronx, New York

Married: Oct. 31, 1987; no children

Homes: Greenwich, Conn., and Boca Raton, Fla.

Base salary: $1.5 million

Outside interest: Cars

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