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Pearson tries to paint America pink

Marjorie Scardino did it for the `Economist', now it's the `Financial Times'. Steven Solomon on an expensive US gamble
WHEN Pearson announced last week that 1997 pre-tax profits had risen 15 per cent to pounds 323m, it made upbeat noises about a make-or-break gamble - its challenge to the Wall Street Journal on its home turf.

Speaking in his new New York office last week, Richard Lambert, the Financial Times editor, was more measured. "If you walk into the Federal Reserve, you'll see the FT under a lot of people's arms. But if you go over to the White House, no one has it."

The US campaign is the linchpin of the FT's pounds 100m five-year plan to turn its international edition into a global franchise. The outcome will play a large part in determining whether Pearson's American chief executive, Marjorie Scardino, can deliver on her promise to re-focus operations around the group's core media franchises and ultimately double Pearson's market capitalisation.

Investors are hoping Ms Scardino will do for the FT, which last year sold only 35,000 copies a day in the US, what she did for the Economist when she was a senior executive there: she tripled the magazine's circulation in 10 years, largely due to success in her native land. "We're only aiming for 100,000 to 150,000 readers. That's not too much in a huge market like the US," says Stephen Hill, chief executive of the FT Group.

A foretaste of the virtuous circle Ms Scardino is aiming for came when the FT raised its advertising rates, helping parlay its 12 per cent circulation growth to 353,000 - it recently passed the 100,000 mark in Europe - into 15 per cent higher ad revenues. The result was a profit margin of 19.5 per cent on operating profits of pounds 76.7m - 11 per cent of Pearson's overall profit.

The FT has invested an estimated pounds l6m and a lot of prestige in the US launch. Mr Lambert relocated to New York for a year, and the paper slashed its basic subscription rate in the US by 20 per cent to $364 (pounds 220) and offered introductory trials at $225. At the newsstand, where 10,000 copies are sold, it cut the price from $1.50 to $1.10. Big money was spent on an ad blitz featuring the paper's motto "No FT, no comment" on airport billboards and cable TV stations CNBC and CNN, whose financial newscasts feature in many Wall Street trading rooms. Signs are it is working. "We started with 33,000 and now we're just over 50,000. But these are the very early days," said Mr Hill. Kevin Lavalla, managing director of newspaper publishing at specialist investment bankers Veronis, Suhler & Associates, agrees. "15,000 additional readers is a major accomplishment."

Norman Pearlstine is editor-in-chief at Time Inc, the company that publishes Time and Fortune magazines and the former Wall Street Journal executive who launched the newspaper in Asia and Europe. "If the FT's goal is 100,000 circulation because it needs it to support its advertising niche, it's a challenge. But with aggressive pricing and improved delivery, it's doable," he said.

The FT's American strategy, says Mr Hill, has two dimensions. "By growing the international side, it doesn't matter where, you add credibility to your advertising story. It helps you get a higher rate per page." His second target is to win a sliver of the lucrative US-to-US advertising market. "We don't know what the circulation level is for a niche publication to attract US-to-US advertising," he confesses. "But 100,000 to 150,000 at least gives you a seat at the table."

These are the minimum levels for eligibility in the North American readership surveys used by the big media buyers to place ads. Yet right now the FT in the US is so small and specialised that it is regarded virtually as a start-up publication. "Ad volume in North America is a little soft," admits FT managing director of the Americas, Stuart Arnold. "We are not increasing our rates so far."

The FT faces formidable obstacles, chiefly the US's financial giant, the Wall Street Journal. The FT's circulation in the US is a tiny 2.8 per cent of the Journal's 1.8 million. An FT subscription costs twice as much as the Journal's. In the competition for advertising the Journal's $142,861 per US national page yield is 11 times greater than the FT's, while still offering a rate per thousand readers a third cheaper. FT executives are betting that the Journal simply has better market opportunities to pursue with its regional editions than risk alienating its readers by devoting resources to crushing the FT's US bid. But the Journal will not make it easy. "It was always in the Journal's playbook going back to 1983 that if the FT ever got really aggressive it would increase its international coverage," says Mr Pearlstine.

Although the Journal's owner, Dow Jones' spokesman Dick Tofel, calls it an unrelated coincidence, the Journal added a foreign news page and doubled its international equities listings ahead of the FT's September launch. This weekend it launches a weekend section akin to the FT's in the UK.

Dow Jones' shedding earlier this week of its troubled financial information business for $510m gives managers more resources to devote to Dow Jones' international expansion.

Another obstacle for the FT's game plan of winning US readers by presenting an international perspective is that it must compete as only a third read in a crowded space. "The FT has to find a niche between the comprehensive geo-political coverage of the New York Times and the expanded international coverage of the Journal - and that's a very narrow place," says Mr Pearlstine. "And if you're getting the Economist already, I'm not sure the FT adds enough value for enough people. It may be harder for the FT than for the Economist."

Mr Hill sees it differently. "The New York Times and Wall Street Journal offer only US viewpoints. They may have increased coverage, but they don't have 36 to 38 international pages as we do. If you want really deep coverage with an international viewpoint, then you come to us. The Economist summarises a lot of information and it is opinionated. It is not trying to be a useful daily business tool as we are."

Mr Pearlstine summarises the problem for the FT the US: "How much interest is there in the US for international news? Try to get Americans interested in the euro, or in business conditions in Indonesia, beyond those already following it. It's very hard."

Mr Lambert has been doing his best to do that by tailoring the North American edition to US interests. The front page has longer content summaries like the Journal. Main stories are reprioritised: for example, the European Union's Common Agricultural Policy reform story which ran on Europe's cover on Thursday was carried on the second page of the US edition. The lead stories were the link-up between a US and European financial exchange and a proposal to reform the US tax agency, the IRS. The US edition has one full page of North American coverage compared to three-quarters or half a page in other FT editions. Exclusive to the US edition is a half page of Latin American news.

Mr Lambert is emphasising trade and regulatory stories with a cross-border significance. He thinks the FT especially distinguished itself with its continuing and in-depth coverage of the recent Asian crisis. "Our challenge," he says, "is getting people to give us 20 minutes a day."

Beyond marketing, the largest expense for the FT is distribution. In many parts of America, the paper arrives a day late or not at all. The FT covers Europe with seven printing and distribution locations: in the US it has only two, one on each coast.

In May, the FT will begin printing at a Chicago plant. Trucks, less susceptible to bad weather, will distribute the paper throughout the Midwest. At the end of 1998, FT managers hope to open a fourth site in Miami or Boston.

A recent study threw up good and bad news for the FT. It showed that the market, although still under 1 million, is bigger than previously thought. But it also showed that few people had heard of the paper, while those who knew it "want to feel that we address their concerns from their American perspective", said Mr Arnold.

But unless the FT can rapidly achieve a critical circulation mass, it faces the prospect of a large investment sinkhole which would test Ms Scardino's commitment and the depth of Pearson's pockets at a time when other, larger media titans are also trying to expand their international franchises. And if it doesn't make it, will Ms Scardino pull the plug?