COMPANY: The American
HEADQUARTERS: Westhampton Beach, N.Y.
TYPE OF BUSINESS: Newspaper for Americans abroad, primarily in Europe and the Middle East
FOUNDER: Hesh Kestin, former European bureau chief for Forbes magazine
CAPITAL: Around $5 million from Kestin and a secretive French financier whom Kestin will describe only as "resembling the guy on the Monopoly set"
KEY COMPETITION: International Herald Tribune, USA Today
COMPETITIVE STRATEGY: Claim Sunday niche; achieve extremely low break-even point
Hesh Kestin drew two postmortem conclusions from the demise of the English-language newspaper he started in Israel in the 1980s: "Never start a business with too many people or too much new furniture." Not surprisingly, his new venture-- The American, a Sunday-only newspaper for overseas Yankees--has startlingly little of either.
Kestin's idea is to encroach on the International Herald Tribune's turf by publishing on the one day it does not. He'll also avoid the Paris-based Tribune's mammoth cost structure (the eight-story office, the staff of 250), which has it in deep financial waters, wondering if it should quit the notoriously expensive city that's been its headquarters since 1887.
Instead, Kestin has set up shop on the left bank of the Atlantic Ocean, in a small clapboard building near his Long Island home. There, his staff of 12 assembles the splashy tabloid with the aid of 12 Macintosh computers. Aside from a handful of original articles by contributors, such as a sex columnist in Atlanta, most stories are pulled off wire services, and the 40 finished pages are zapped to Frankfurt for printing via an ISDN line. The furniture in Kestin's office came from a thrift shop. "It's a commando operation, not a standing army," he says. "We're really the beneficiaries of the on-line revolution."
The result: The American's operational break-even point is a trifling 14,000 copies, peanuts compared with the International Herald Tribune's worldwide circulation of 190,000. "Given a market like that," says Kestin, "and given our breakeven, this was a no-brainer." Sales topped 20,000 copies just two months after the paper's June debut--thanks in part to unexpected demand from non-American readers--putting it operationally in the black at a stage when most newspaper start-ups are swimming in a red sea.
What about the all-important number of advertising pages? Actually, Kestin doesn't much care. Unlike most U.S. newspapers and magazines, which take a bath on circulation and derive profits from ad sales, The American obtains 80% of its revenues from--get this--the paying reader. While other new publications practically give away subscriptions to inflate circulation figures and extract higher ad prices, Kestin's paper is resolutely full fare (some would say overpriced): $4 a copy, on average. "As a business concept," he adds, "it's closer to a newsletter than a newspaper. You're trying to reach a very tight niche. And you're not selling advertising. You're selling the paper."
Now Kestin is agonizing over whether to keep his break-even point steady or to promote aggressively and watch it inch upward. Meanwhile, skeptics point to the skeletons that litter this industry's landscape. "It will be a pretty tough road," warns Richard McClean, publisher of the International Herald Tribune, from his Paris office.
But Kestin believes his paper is a different creature entirely. "Why would I want to build the kind of elephant that has to be fed by advertising all the time," he asks, "when I can work perfectly well with a smaller mammal?"