Blog Post

By Selling Stake In LMK, Hearst Sharpens Its Focus As A Tech Incubator

Hearst’s sale of a majority stake in its niche entertainment topics site/app collection LMK to digital holding company Black Ocean may not have been the biggest deal the company made this year. But it does highlight the ways that Hearst, and other major publishers, are looking beyond operating editorial properties as part of their business and becoming incubators of startups that can then be sold.

Hearst has long experimented with businesses that had a vague relationship to its editorial and programming properties. But as the print and local broadcast advertising that has always served as the foundation of those businesses experiences industrywide weakness, publishers will increasingly give what was once a side project like LKM more visibility in the hopes of turning it to a stand alone business in its own right or selling it off to another entity.

Earlier this year, Hearst unveiled its latest in-house start-up, Manilla, a free, personal account management service that lets consumers organize their bills, finances, travel rewards programs and, of course, magazine subscriptions, through an online portal.

Hearst is the 100 percent owner of Manilla,which is headed by NBC (NSDQ: CMCSA) exec George Kliavkoff, who gave up his role as EVP and Deputy Group Head of Hearst Entertainment & Syndication to become CEO of the new venture. At the time, Kliavkoff said that down the road, the door could be open to outside investors, though he was sure to add that that wasn’t necessarily the ultimate goal.

Hearst’s rivals appear to be moving in a similar direction. Over the summer, for example, Condé Nast launched Idea Flight, an iPad app that’s intended as an organizer for in-person meetings. The non-editorial app marked a new direction for Condé Nast as “service provider” not just a publisher.

When he was in the entertainment group, Kliavkoff had a role in creating LMK, which stands for “Let Me Know,” and offers mini-channels around specific celebrities like Lady Gaga or Angelina Jolie or sports teams and personalities. It currently powers 69 topic-specific iPhone apps.

In an e-mail exchange, Black Ocean co-founder and CEO Oliver Ripley told paidContent that the company had acquired a 70 percent stake in LMK, though he declined to disclose the price that was paid for it. Black Ocean has already redesigned the app and has quickly implemented other changes.

“We changed the business model behind the LMK app from a cost per download to an advertising-supported model because we believe that quality content can be brought to people for free,” Ripley said. “When Hearst developed the LMK app, their model revolved around users paying $1-2 to download a topic; we are not asking users to pay anything. The LMK app can be downloaded from iTunes for free; concurrently we have developed an Android app, which Hearst didn’t have before. It will be available later this month and we’re contemplating creating an app for BlackBerry.”

Ripley also believes that LMK can be integrated seamlessly with different sites and different technologies. The company is currently developing plans to connect the app with one or several of the Black Ocean properties sometime next year.

For Hearst, the benefits are obvious: if Black Ocean can develop LMK further, its 30 percent stake gives it all the benefits without the day-to-day management headaches. In the meantime, Hearst will continue to sharpen its app focus around its existing print titles, where is has been moving aggressively. Last month, Hearst Magazines said it had exceeded the number 300,000 in paid distribution for its digital editions across iTunes, B&N Nook Color and the Zinio Newsstand. It’s also been heavily marketing digital subscriptions for its tablet newspaper apps The San Francisco Chronicle and Houston Chronicle.

Digital media makes it easy for publishers to experiment in unfamiliar areas. It’s also forcing them to do, given the changing competitive landscape. But it’s worth asking how far publishers can take ventures such as a Manilla or an Idea Flight. By building enough attention around LMK, without necessarily pouring too much capital in it, Hearst appears to have found the right strategy for these kinds of ancillary business: nurture it through the challenging startup period, then let it go.