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Dusting Off The Britannica


The Corporation: STRATEGIES

DUSTING OFF THE BRITANNICA

A new owner has digital dreams for the august encyclopedia

Remember the Encyclopaedia Britannica, that venerable leather-bound collection that took up most of the family bookshelf when you were a kid? Without it, generations of budding scholars never could have been able to hand in their science and history papers on time. But those were in the olden days--before CD-ROMs and the Net became the study tools of choice for many kids. So it seemed almost inevitable that the 229-year-old publishing house that puts out the 32-tome reference series was itself destined to fade into history.

Thanks to Swiss-based financier Jacob Safra, however, Encyclopaedia Britannica Inc. is alive and starting to kick once again. With no publishing experience, the secretive, wealthy Safra--a nephew of the famed global banker Edmond Safra--may seem an unlikely savior for the troubled imprint. But Safra is betting he's the man to usher Britannica into the digital age. A real estate investor and the owner of California vineyards, Safra paid $135 million for the publishing company in 1996 and anticipates sinking at least an additional $30 million into the venture in an attempt to revive its flagging performance.

HAVE TO HUSTLE. In just a bit over 18 months, a new management team at Britannica--led by chief executive Don Yannias, a longtime Safra investment adviser--has hurried out a series of promising products. They include a revamped, more graphics-intensive CD-ROM package, a complete online subscription service, and a new Internet search engine. "We want to be recognized as a publishing company in the broadest sense," says Paul Hoffman, the former editor of Discover magazine who signed on in late July as publisher. "But we will be true to our heritage. We won't come out with a guide to the 50 hottest actors or the 10 top sex sites on the Web."

Safra and his team will need to move fast. Since 1990, the privately held company has lost money in almost every year. Estimated sales in the fiscal year ended Sept. 30 were about $325 million, just half their level at the 1990 peak, with any profits from a turnaround several years away at best. Safra's challenge is enormous. As book sales were falling--they're down 83% since 1990--the company's cash-strapped management was slow to move into electronic media. It all but ceded the market to aggressive upstarts such as Microsoft Corp.'s Encarta. While the software giant offered cut-rate deals on its Encarta CD-ROM or gave it away free with personal computers, Britannica continued to market its book to consumers for about $1,500 a set--almost as much as an entire personal computer.

HIPPER AUDIENCE. Now, to turn it all around, Safra is betting the company on the belief that it can outmaneuver such powerhouses as Microsoft and IBM with a range of CD-ROM and Internet services that trade on Britannica's fabled brand name. It's a high-risk strategy that will test Safra's patient capital. He will have to get consumers to defy the current Internet culture--where most information is free--while competing against the marketing clout of Encarta and IBM's CD-ROM joint venture with World Book.

Meanwhile, Safra is hoping to attract a wider, hipper audience with the Oct. 14 debut of the Britannica Internet search engine that will compete with Yahoo! Inc. and others. Screened by a staff of 30 Britannica editors, the Britannica Internet Guide promises to function as a sort of Net quality police: When a query is entered, its editors will filter out marginal Web pages and offer consumers what they think are useful sites on such topics as geography, history, and sports.

Although the service is free to its users, Britannica hopes to line up such advertisers as Eastman Kodak Co. and General Electric Co. to sponsor specific sites. It will also direct users to the fee-charging Britannica site to pick up a few additional bucks. And to lure users, the company has budgeted a multimillion-dollar ad campaign.

It's a nifty idea in theory, but several other editor-screened search engines, including offerings from Microsoft and Excite, have been scaled back or scrapped in the face of consumer resistance to filtering the Net. Britannica executives, though, are convinced they are offering a better product. "What [the others] didn't have behind them was the brand and editorial quality," says Joan Julian, vice-president for online services at Britannica.

Despite Britannica's stellar reputation, however, experts say the odds are against the success of Safra's strategy. The online subscription service faces the toughest battle. Safra is pitching the service to universities and to corporations from Hewlett-Packard Co. to Disney. But despite recently cutting the annual fee from $150 to $85, the service has only 11,000 paying customers so far. While Safra vows to sign up 100,000 users within five years, millions of consumers are already using Encarta and Compton's CD-ROM encyclopedias. "Britannica can be the quality leader, but there's likely to be a long, lean period for anyone trying to sell information," says Bill Doyle, senior analyst at Forrester Research Inc. in Boston. "The problem is that there are so many reasonable and free options that are good enough."

To exploit Britannica's wealth of information more fully, Safra is ordering up development of CD-ROMs on subjects ranging from black history to Shakespeare while eyeing specialized cable-TV programming. And for those who still like to crack open a big, heavy tome, Safra has cut deals with 300 bookstores and super chains, which are stocking the books at a still-pricey $1,500.

ALTRUISM. Why should Jacob Safra care about the plight of a floundering encyclopedia company? Although Safra, a graduate of the University of Pennsylvania, isn't talking, those close to him say his motivation seems to be as much altruistic as financial. Members of his management team describe Safra's stewardship as a quest to preserve what he considers a cultural treasure, whose early contributors included John Locke and Benjamin Franklin. For most of its history, the Encyclopaedia Britannica has been an august repository of serious information. Packed inside its volumes, stretching four feet on a bookshelf, is writing from 80 Nobel laureates. There are a staggering 300 entries between Mozart and mussels.

As a youth, Safra often lost himself in the musty pages of the family Britannica, according to friends. He wants future generations to have access to the same intellectual universe at the click of a mouse. "When the opportunity to own Britannica came up, it was almost a dream come true," says CEO Yannias, a longtime Safra confident. "Making money wasn't the sole driving force."

A good thing, too. When Safra took control of Britannica, he found an ossified management culture, dominated by book salesmen. The company had repeatedly botched its new-product development. For nearly a decade, senior managers, editors, and owners squabbled over countless strategies. One big misstep: selling the company's Compton unit, a CD-ROM pioneer, for $57 million in 1993. Britannica also made a misguided and unprofitable diversification into after-school reading centers. So powerful was the hold of Britannica's old direct-to-home sales force on the culture that when the first Britannica CD-ROM was finally introduced in 1994, it was priced at a staggering $1,200, more than four times Encarta's sticker price.

Within months of buying the company, Safra slashed the price to $300. And he sacked the entire 500-person book sales force. The move meant book sales plummeted even more dramatically than before. But it also opened up the company to new-product possibilities. Then, Safra aggressively hired away top talent from publishing, software, and packaged-goods companies. From Walt Disney Co.'s Discover magazine, he tapped Hoffman, who had boosted the science magazine's circulation by 50%, to 1.2 million, by appealing to a more general audience.

MURKY OUTLOOK. Hoffman and the others will have their work cut out for them. Even some of Britannica's biggest fans wonder whether there will be enough mass appeal for its high-end offerings. "There is not another product like Britannica. It's the best there is," says Nancy R. John, library manager at the University of Illinois at Chicago. "But is intellectual content something the entertainment society will embrace?" Competitors put it more succinctly. Craig S. Bartholomew, Microsoft's reference group general manager, says drily: "Many a business model has run into the Net and died."

Indeed, it is unclear how Safra will actually manage to build a business around a subscription-based online information service. To increase brand recognition, he is almost giving away the service to universities, charging just 50 cents per student. And despite the plethora of cheaper alternatives, he's convinced that the Britannica name will somehow appeal to consumers as an alternative to all the clutter on the Net. The few subscribers who are already signed up clearly prize their Britannica subscriptions. "There are thousands of little things you need answers to when you are writing," says Chere Wood, a screenwriter and inventor in Bountiful, Utah.

Still, Safra must convince many, many more consumers awash in information that there's a real store of value in the Britannica legacy and that its new corps of editors can maintain and expand it. "Clearly, we don't have the dollars of Microsoft or IBM," reflects Yannias, "but our tradition and trademark are worth more than that." Yannias and his boss, Safra, had better be right. Otherwise, no amount of money will keep the book that Ben Franklin helped write on the shelves and in the hard drives of American consumers.By Richard A. Melcher in ChicagoReturn to top


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