The new owner of HBR Russia on the challenging local market
In September 2014, Russia adopted a law limiting foreign ownership of mass media outlets to 20 per cent, and prohibiting foreigners from being the founders of mass media outlets. In May 2015, Men’s Health, Women’s Health, Harvard Business Review and National Geographic were sold to entrepreneur and former chief executive of Russian publishing house Kommersant, Damian Kudryavtsev.
Along with the magazines, the deal also included two Russian newspapers, The Moscow Times and an influential business daily, Vedomosti.
Tell us about magazines circulation, geography of distribution, and website traffic
Each of the four magazines has print circulation of 30-150,000 copies. Men’s Health is a leader with 150,000, and HBR has around 30,000 We sell magazines all over Russia, in cities with populations larger than 300,000. But the majority of the audience is in Moscow. Some magazines have a larger presence in regions, some have less presence. We also distribute titles in foreign countries, where a percentage of the population speaks Russian, notably, in Karazhstan and Ukraine. The digital audience of all our magazines’ digital properties is around 3.5m per month.
How many people work on the editorial team, and were any staff replaced after the change of ownership? Are you involved in day-to-day operations?
The total number of people working in the magazine business is is around 230, including sales and tech support. Men’s Health/Women’s Health have 30 people. Most were working there before the management team changed. We’ve hired some staff members, too, but not on the editorial side. I am not really planning to get involved in day-to-day operations. However, I may be forced to get involved because the Russian economy is currently in crisis. Some decisions need to be made quickly, and some aspects of the business need to be changed due to the change in ownership. I do have meetings with editors and business teams from time to time and whenever they need me, but I am not directly involved in operations.
Is the business profitable?
It is hard to speculate what is going to happen to the revenue this year, because, as mentioned, the economical situation in the country is tough. My guess is that 2016 will not be profitable. In 2015, the profit was low, but some time ago profits in this business were high. If the country resolves the financial crisis some time soon, I expect the business to be profitable again.
What are revenue sources?
The main sources of revenue are traditional advertising sales. The second place is subscription sales, print, digital and newsstand sales. Numbers vary, depending on the brand. We are also currently developing an events business, both producing events for sponsors and selling tickets to events organised by our brands. I expect this business to be profitable soon. We also have an opportunity to sell merchandise, but this is a new business to us, and there is a lot to do there before we will start seeing any results.
The Russian advertising market has some specialties that are not typical for ad markets of the USA and UK, for example advertising budgets are very limited and they are distributed among insiders.
I disagree. The Russian advertising market does not act any differently than ad markets in other countries. We do have quite a different situation in the media market in general because we are one of a few countries with such high levels of support from the government. This does not concern my company, though. As for advertising in Russia specifically, the truth is that if you have created a quality media product, then large marketing budget holders and ad agencies will get to know you. They will be seeking you. Just knowing someone on a personal level decides nothing. If your product is bad, knowing people, being an insider, a personalised approach – all these things mean nothing.
Are you new to magazine publishing business?
No, I am not new. I used to work for publishing house Kommersant. At the time it had six or seven brands, among them special interest publications and Kommersant-Weekend magazine that actually had around 10 per cent market share of the luxury market in Russia. All advertising agencies in the country or large advertisers know of me, even though I am not directly involved with sales. In Russia there is very little difference between advertisers who only work with newspapers, or those who only work with magazines. It is one of Russian specialties: it is hard to maintain a sustainable business running a newspaper alone. Publishing houses should offer a large product line otherwise production costs for one individual product are going to be very high. All large media companies are involved in both, news and magazine production, with some exceptions, of course.
You were an executive at publishing house Kommersant from 2006-2012. Is there anything from then that you would like to implement in this new company?
the previous company had a challenging management system and equally challenging corporate structure. The company had two equally important owners, foreign and Russian, and management team had to mingle between interests of those two parties. This had a certain effect on company’s performance indicators. This new company will also be a very transparent company, and I will implement the best of what I have learned from my years with Kommersant. I expect to make some improvements on the technical side of production, however this has nothing to do with my experience at Kommersant. This relates to my personal interest in innovations and technology.
The subscription distribution system in Russia is underdeveloped. The only method of distribution is corporate sales, the rest is newsstand sales. Do you think this is an advantage or disadvantage? Is there a Russian distribution “know-how”?
Yes, that is true. Distribution in Russia is not working, and certainly it is a disadvantage of our market. But media companies have adopted to this situation. Let’s take HBR as an example. Its audience in Russia is small but very loyal, with high income. They are influencers, and they are ready to pay a high subscription price for the type of content that HBR offers. However, newsstand sales of this brand are low. Men’s Health is exactly the opposite: high newsstand sales and low subscription numbers. Russia has troubles with all types of distribution: print and digital subscription and newsstand sales. Newsstands in Russian don’t get a percentage from physical copy sales. Newsstands get paid for providing shelf space. It’s a space retail rather than traditional newsstand sales.
What brings more readers, print or online? What advertisers value more – print or online?
Online brings more readers. Advertisers care about both platforms, digital and print. However marketing budgets for print are still larger. Native advertising formats are still new for Russia, they are more developed online, rather than in print or cross-platform. There are a few titles that have successful examples of native ads. Cosmopolitan is doing a good job. We are also working on this, especially in Men’s Health and Women’s Health.
The global health and wellness industry is a US$3.4tn market, with seven per cent YOY growth. Most of this market is in the USA and UK. What about Russia?
Before the crisis this market was growing in Russia as well, but at a smaller growth rate. People are more active in larger cities, and their interests in this type of media is higher. There is a big potential for this industry in Russia. However, health, fitness, organic living, and such things are not priorities when people are concerned with country’s future and economical situation.
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