NCMM Executive Director Thomas A. Stewart goes behind the globalization story of Highlights with CEO Kent Johnson.
Transcription
Hidden Pictures and Goofus and Gallant. Behind the familiar kids magazine Highlights for Children, there's a surprising story of global growth.
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Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid-sized companies and help you take advantage of new opportunities.
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Today's podcast is about how a children's publisher grew from a tiny town in rural Pennsylvania till today, it has a presence in 40 countries in 16 languages. That company is Highlights for Children, and we'll reveal the hidden pictures in its global journey. I'm Tom Stewart, the executive director of the National Center for the Middle Market at the Ohio State University Fisher College of Business. We're the nation's leading research outfit studying mid-sized companies, which account for a third of private sector employment and GDP and the lion's share of economic growth. It is the market that moves America.
The National Center for the middle market is a partnership between Ohio State and SunTrust Banks, Grant Thornton LLP, and Cisco Systems. With me today is Kent Johnson, who is the CEO of Highlights for Children, a fourth-generation, family-owned business headquartered here in Columbus. Kent, welcome.
Thank you, Tom. It's good to be here.
Kent, you're the fourth-generation CEO, but I'm among the first generation of your readers. Growing up in the Midwest in the 1950s, my classmates and I had Highlights for Children delivered every month in the school year. We pored over the hidden pictures and riddles and other features that kids today are enjoying still. In that time, a lot of what you might call classic middle American publications have come and gone-- Life magazine, Saturday Evening Post, and more. Even Reader's Digest isn't what it was. But Highlights is still there, still going strong. What's the secret?
You know, I don't know if there's any secret, really. We were founded as a mission-driven company focused on helping children become their best selves, and our magazine business has continued to evolve. When you were a child, we had one magazine, Highlights for Children. We thought that could serve a broad age range. We now have three. We start with infants with Highlights Hello, and they graduate to our preschool magazine, Highlights High Five, and then into the Hello that most adults know and love from their childhood.
But I think it's been our consistency of our philosophy and our values and our dedication to children that's allowed us to thrive and grow. I think it's also been critical for us to expand beyond magazines, to get into other products, to move into retail. We have book club products we send to consumers at home. But also, more recently, expanding into digital products and into international markets has allowed us to stay a thriving company.
So let me dig in a little to the product expansion, because I think that's-- I mean, we sort of said two things that are sometimes in tension with one another, which is staying focused on your mission and considerably diversifying your product line. How have you kept the mission and the expansion both working in harmony rather than causing dissonance?
Yeah, I mean, I think the key for us is even though when my great-grandparents started the company, they were sort of at retirement age, so 59 and 61, and they threw their life's learning in the field of parenting and education and publishing, at that point, into a product for children called Highlights magazine. But their idea was more about serving kids and families. So we view that our commitment, that our sustainability, is about a philosophy and of values. We want to help children to become their best selves. We want children to be confident, caring, curious, and creative. And that is what we think stays consistent.
Now, the products or the experiences we create or the media we get into all serve that sort of larger objective. So that's where-- I like to talk internally, and I say to people, we're not a magazine company. We're a company for kids. And we're an educational experience creator, an educational publisher. But we look at everything through the lens, if we do this or if we expand our business in this way, will it create more positive value for children and families around the world?
Does it help that it's a family company?
I think it does. I mean, we believe that by setting up a private company, a family-owned company, it allows us to keep a focus on the long term. I think that's the other thing. That a 71-year-old company. You go through ups and downs, and you have to have a commitment to creating value for your customers over decades and generations. We believe it's very difficult to do what we do if you're too focused on quarterly results and the short term kind of health. Of course, we focus on all time scales. I want things to work short term and long term, but--
You've got to pay the bills, right?
Got to pay the bills. You have to keep the lights on, and it's an exceedingly competitive and fast-changing world. But I think we need to focus on how do we succeed this week, this month, this quarter, this year, this decade, and how do we leave a company that's serving more kids for the next generation of kids? We try to hold all those time scales in our vision at the same time. And I think being a private and a family-held company and being a mission-driven company allows you to do that. I mean, we have about 600 employees, and most of them are not in the family. But we ask all of our employees to buy into our mission and think long term about what we're trying to do as a company.
So talk to me about the global journey. Of course, I may be just looking at this from my own personal experience when I think of the magazine, as you said, that I knew and loved when I was a kid. I think of it in a classroom in a suburb of Chicago, Illinois, and I don't imagine it global. But how did you start expanding? What led you-- when did this happen, and what led you to sort of think that there was a big world out there and that you could have a place in it?
Yeah, and I think it's-- you know, we've had different chapters in our evolution of our company in terms of our international. And I think in previous decades, we did partnerships around-- when we were just a company with Highlights magazine, we did some magazine partnerships abroad. I think even our founders went on some trips to Europe to look at the educational systems and ways we might fit. I think what was different in our recent approach is we decided to really create a sustained and dedicated business group focused on it.
And really what led to it-- and we started exploring, I think, 2007/2008-- was we realized that we'd created the digital asset management systems and the infrastructure that would allow us to better ably serve diverse uses of our content around the world. And we also saw that the world was becoming more and more digital, which, in our view, opened some opportunities for us to better serve markets.
We also were motivated. We kind of took a step back and asked ourselves the mission question, that if we were serious about helping children become their best selves, we had to acknowledge that there are a lot more children born outside of the United States than inside the United States. And if we're investing in incredible content and products in the US, doesn't it make sense, from both a business and a mission strategy, to look at ways we might expand outside the borders of the United States?
So let me go back to one thing you said there which struck me as being interesting. You talked about the digital content asset management. And what I think I heard you say is that as we move from line of type to pixels, suddenly our product becomes much more fungible. I mean, you can move it around more, and it becomes more flexible, and it's less expensive, I guess, than-- there's less cost and more flexibility in the underlying technology. And that's sort of like that give you a sort of a technological permission. Is that right?
It's that and it opens up-- I think there's disruption in many markets around education and consumer content consumption, as well as in English language learning, that's driven by what's enabled by technology. So what we found-- and really, we didn't know what would be successful internationally. So one of the things we did is we went in with an open mind and some patience. We, in all markets, sort of looked at and often would try to see how would we have a-- would we find a partner to have a magazine in that market?
But what we've learned is our international business is not primarily magazine subscriptions or magazine formats, but the digital kind of evolution, the digital capabilities-- for instance, now we take magazine content that was published in our magazine, some of the best edited, vetted content from the United States, and we might do partnerships with private language schools in Korea, where they're delivering that content digitally into the classroom and into the homes. Or doing that type of thing in platforms in China.
So the digital opens up new business models. But also, by being flexible, we're not just going and trying to be what we are in the United States in all these markets, but looking at, particularly, English language learning. Sometimes that's consumer based. Sometimes it's school based. Looking at kind of new models in some of these markets has been exciting and successful for us.
So you've got-- so just to take Hidden Pictures, which is the Highlights feature that I remember, I mean you've got-- in a sense, what I hear you saying is you've got sort of two sets of product lines. One is your content in the language-- in Spanish, in German, in Korean, whatever it is. And the other is your content used to teach English. So the Highlights for-- so that in Hidden Pictures, I could look at it and I could-- if I were a student in Seoul, could look at it and the English words for those Hidden Pictures would be the vocabulary lesson.
Yeah, and I think I think Hidden Pictures is a great example that I'm actually sort of allows us to straddle both print and digital but also both kind of consumer sort of puzzle-oriented activities in a native language in a country and sort of more educational. So Hidden Pictures has actually now been translated into 20 languages. And so we do about-- with our partners, and we have multiple partners in China, we do about a million copies of Hidden Pictures in Mandarin with no English in China each year. So all sorts of different formats, color, black and white, Mandarin, bilingual, and English. And also, Hidden Pictures is a great-- it's where we're seeing our most success in the United States in the digital app space.
So the ability to follow on internationally with Hidden Pictures as a digital play pattern-- but what we see is children and adults love Hidden Pictures, and it turns out, that's pretty universal. It's not limited to the United States. I will add that a lot of our educational use comes from the deep archives of content that originally was produced for our magazines or our books. So we'll do a lot of stories that might have supplemental educational value that we've added to them as opposed to our more puzzle-oriented content that people know.
I guess you've got 600 employees now. You've been doing this for 10 years, roughly, in a sustained way. It sounds to me, from your description here, I'm seeing a universe of opportunities. Wow, I can do this. I could do this. I could do this. I could do this. How do you stage them? How do you prioritize them? I mean, you're not a big company. How do you sort of figure out where to go next and where to go later?
Yeah, I think we try to be-- we're prudent. We're a little bit, sometimes maybe too much, we're incrementalists. So I think in the early phase, I had an executive who seemed to have the right mindset and curiosity and creativity and to sort of explore this international market. Of course, we did some research, some desk research, and got some reports. But really, what we did is started sending someone to the major, three or four major, international book fairs to set up a stand and just show potential customers what we had.
So you were in Frankfurt and Bologna and those places?
Bologna, Frankfurt, Beijing, London. You know, to go and just-- because you can meet people from all over the world at those fairs. And by talking to other US companies that were trying to build businesses-- but mostly talking to the customers and finding out, when people were walking the halls of those book fairs, what were they looking for? And how did they react when they saw the types of content and products we have?
And I think over a couple of years, we did two things. We sort of evolved how we presented ourselves. We also probably made some investment decisions in terms of how to have our content ready for partnerships. But we also started to build relationships. So I think what we found internationally is it does take some time. And To get into a big partnership or a deep relationship in a country, you have to get to know the company for a while before you can really start that partnership and have it be successful.
And are you working entirely through partnerships, or is any of this your own operation?
In our international group, we probably have about 10 US-based employees and about 10 agents and partners, consultants, who are based in foreign countries. So we really have taken a B2B, partnership-first approach. So we're trying to go to many markets at the same time. And we believe the key thing is for us not to be arrogant and presume that we can quickly understand a market that's not the US market, but to find partners whose vision and values and mission is aligned with ours who do have deep knowledge in that market and to work with them.
And so being flexible and really, I think, growing as a company in our maturity of understanding how to select the right partnerships and build those relationships to be mutually successful has been one of our key strategy points.
So one of the key things you said right there is in picking the right partner, you want somebody who has some of the same mission or values and that you want somebody who sees the world and the world of publishing for children through a similar lens. Is that fair?
Absolutely, and I think what we've learned and what I believe is you can do good business without that, but it has just too much potential to-- where your view of things would diverge over time, and it could become short-lived. We're very interested-- and I say this whenever I meet any of our international partners. We want partnerships that last 10 years, 20 years. We're not interested in a one- or two-year partnership. We set up relationships, sometimes, to test and learn about each other that might have a shorter time horizon, but we're always trying to find a long-term, sustainable way to reach and impact kids.
Have you ever had any that failed, that broke up? Have you had any partnerships were you've said after a couple of years-- I mean, you mentioned some experiments, which is a little different. But some others where you said, you know, XYZ is just not the right partner in this market. We need to go on to something else.
Oh, yeah, absolutely. I mean, I think we've been lucky that it's usually not sort of antagonistic or something negative has happened. But sometimes with a partner, they may be a startup or they may be trying something new. And I think we always want to build in a way that if the idea doesn't work as successfully in their market as we both hoped, there needs to be a way that we part as friends and then can come back again. So I think it's never 100%. And we want to be involved in with companies that want to try things that aren't guaranteed to succeed.
So we work with a spectrum of stable, large, established publishing companies. We like working with family-owned companies. We work with some state-owned companies in China. But we also like working with entrepreneurs, smaller companies that can move quickly and try things. And sometimes things don't work, and that's OK. But we always want to make sure there's a chance that if it works, we could have a long-term, successful relation.
What's the biggest challenge? Is it getting the partner right, getting the content right? I mean, as you look back and look forward, what are some of the-- I guess, also, the other question is getting the markets right. You mentioned moving into a lot of markets at once, and that seems-- I know some manufacturing companies that I talk to in the middle market think that they've got to move one step at a time, in Canada first and Mexico second and the UK third and open a market one market at a time. But you seem to have moved pretty broadly.
So I guess as you talk to other CEOs and listen to other CEOs, what are the lessons that they want to hear from you or that you want to give to them?
I think, in a way, we were able to start with a whole world point of view, because it wasn't capital intensive to do that. We could go to the marketplace where publishers from around the world were and sort of have the same conversations or the same investments across many countries. So we are kind of attacking it all at once. But of course, what we did see is we needed to react to the market. Initially, we saw much more appetite and innovation and growth potential for us across Southeast Asia. So our biggest markets are China and Korea and growing in that region of the world.
We found we didn't have much success-- there wasn't much need for us in Europe, particularly Western Europe. So we didn't put much resources there when we were starting.
Because there were more incumbent, established companies in the space, less of a greenfield?
Yeah, exactly. There was much more mature publishing and a much larger kind of appetite for the homegrown and the consistent. Whereas in Asia, a lot more desire for American brands, and English language learning was such a drive. And also, just a little bit more of a dynamic publishing and educational industry. More recently, in addition to Highlights and all the consumer brands, the consumer products that our listeners know, Highlights for Children also have some educational subsidiaries.
So I would say in the last-- including Zaner-Bloser. It's a curriculum company based here in Columbus. It does language arts curriculum for primarily elementary school. And in the last four or five years, we've had some really great growth around curriculum, particularly in the Middle East and in Mexico and South America.
So we do see different markets resonating with different parts of our portfolio. And that's just been a let's try things and learn. And we have to match the content and the partner and the market need, and every market's different. I mean, that's the other advice we've learned. You just have to look at every one of these as unique countries.
So I'm hearing a few things, as we sort of come to the end of this. One, I'm hearing the critical importance of knowing who you are. I mean, call that mission and values or whatever it is, but knowing who you are and finding partners-- or knowing who you are, valuing the opportunity to use partners to leverage the assets that you have, and finding, then, partners who share that vision of who you are.
I think it's an interesting mix of finding partners who are well established and partners who are entrepreneurial and innovative, new, and also an interesting question of finding markets that are well established and markets that are entrepreneurial and new and finding that mix. And being prepared to be surprised, I guess, and to follow the flow of demand rather than the preconceptions that you have. Is that a fair summary?
Absolutely. I mean, we talk our international team would clearly identify that the willingness and ability to be flexible with our partners and to really listen to them, not try, particularly at the early stages of the business development, to not try to inflict our notions of what the business model or the business should be on our partners. So we've been flexible.
I think we are maturing as a business. So one of the really neat things for us to see is when we have successes in one country, we're now able to take those as case studies to other countries and sort of be able to say to somebody in Brazil, look at this product that's been really successful in Korea. If we did that together in Brazil, we've got evidence that it works in another market.
So I think we're maturing to be able to look at how one model might be more transferable and become more routine. But to start the business and to explore international, being flexible and being willing to listen, select good partners, and really listen to them. And think of it as a partnership. Not that we're just selling them content, but we're trying to partner with them has been critical for our success.
And building those learning loops so that when you're listening, you're not only listening. You're hearing what they say and then learning how to translate, I guess would be the word, into other markets, other activities, and so on and so forth. Kent Johnson, CEO of Highlights for Children, thank you very much for joining us. And for more about Highlights, you can check out their website, which is highlights.com. But Ken, thanks very much.
Thank you, Tom.
And thank you all for listening to The Market That Moves America. Never miss a new episode. Subscribe to the podcast on iTunes, Stitcher, Google Play, or wherever fine podcasts can be found. Or you can subscribe and learn more about us at the National Center for the Middle Markets website, middlemarketcenter.org. Thanks a lot.
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