Paul Hoffman is the publisher of Chicago-based Encyclopaedia Britannica and his office looks like it should. It’s in the stately Britannica Centre on Michigan Avenue. The large room is all lacquered wood and brown leather. There is a long bookshelf that holds the famous 32-volume Britannica. But there sits Hoffman, 41, wearing a Curious George T-shirt and blue jeans on a Thursday afternoon.
“Typical office wear,” he laughed. “I wear blue jeans and listen to Nirvana.” When he talks, he leans over his desk, smiles wildly, and stares at you with wide-open eyes. He was hired a little more than six months ago to transform this 230-year-old company from a slow and stodgy print publishing house into a hi-tech content provider for the information superhighway.
“We are in the digital age,” Hoffman stated, confidently. But competition in the digital age is brutal. Hoffman and Britannica are up against the big boys, like Microsoft and IBM. Britannica has the daunting task of trying to accomplish something no one has been able to do: make money selling information over the Internet.
“They are dead. Forget about them,” says Jamie Katz about Britannica. Katz is a computer consultant who has designed Web sites for several reference publishers. “The Internet is an encyclopedia and it’s free. Who needs them? Everything I want to know is out there in a million different places.”
Hoffman said computers won’t kill Britannica. “A love of narrative is hard-wired into the human brain,” he said. “There is a sense of narrative and structure to each Britannica article. It’s rare to find that on the Internet.” Britannica now has on-line and CD-ROM editions that, Hoffman said, will be one-stop shops for authoritative, in-depth information, a respite from the junk and spam that clutter the Internet.
Even if computers don’t kill Britannica, its owner might, some observers say. Hoffman was hired by Swiss billionaire Jacob Safra, who bought the company in 1996 for a reported $135 million. Critics say Safra and his handpicked CEO, Don Yannias, know nothing about encyclopedias, publishing or the Internet.
“It’s really a shame. They don’t know what they’re doing,” said one former Britannica staffer who was a key decision-maker. “Somebody described Safra as ruling with a Whim of Iron. That’s a quotation of Oscar Wilde. We need someone with a vision, with a plan. The role and purpose of the encyclopedia is being redefined in this age. Safra isn’t aware that that process needs to happen. He and Yannias make up the entire two-person board of directors. It’s obvious they are not getting the kind of outside input that is needed. Capricious is the word.”
“Capricious? I have to look that up before I answer,” Yannias said. When told the word means impulsive or unpredictable, Yannias responded, “I don’t see any of that. The company is clearly moving down a path that’s been clearly defined, given the need to be flexible in a changing marketplace. He (Safra) has the right to say what he wants to say; he owns the company.”
Reports about Safra are sketchy. He is supposed to be in his late 30s, a graduate of the University of Pennsylvania and a resident of Geneva, Switzerland. Yannias, a business partner of 10 years, is the only Britannica staffer with whom he regularly communicates.
Hoffman, like most Britannica staffers, won’t talk about Safra. But he will say that the company has changed under Safra, and for the better. “For years, this company was run in a sleepy way,” Hoffman said.
No wonder. For decades it made a fortune selling the $1,500 print set. Families took great pride in displaying its leather-bound volumes and invited Britannica’s roving salespeople into their homes. In 1990, its best year, Britannica made an estimated $650 million.
By all accounts, Britannica’s managers just did not understand the new CD-ROM and Internet technologies. They thought people would always pay a huge premium for the Britannica name. From 1994 through ’96, in a startling misstep, they charged a flabbergasting $995 for a single-disk text-only CD-ROM. It bombed. Profits disappeared. In 1996, Britannica’s annual sales dropped to an estimated $325 million, half of its print-age peak. In the meantime, companies like Grolier and Microsoft offered CD-ROM encyclopedias that contained exciting multi-media features for less than $100.
“Britannica got hit by the digital steamroller,” said Bill Bass, an analyst for Forrester Research, an industry observer. “Microsoft came along with Encarta and understood the new distribution channel real well. They pre-installed Encarta on every computer that came out for price points that were 5 percent of Britannica’s. People would buy a computer for $2,000 and it already had an encyclopedia with it. Britannica got hammered.”
“That’s ancient history,” Hoffman said of the dark days before 1996. He points to the new Britannica CD ’98, which was released just before Christmas for around $125. It is the first Encyclopaedia Britannica edition ever offered in retail stores.
“It’s the hottest-selling reference title there is,” he said. “Stores can’t keep them in stock.” The two-disk set has all of Britannica’s text and all sorts of moving images, audio and interactive displays. More than 110,000 copies were sold by February. Britannica has never before sold much more than 100,000 sets in any one year. It expects to sell more than 165,000 CDs by the summer. The new CD-ROM product is not without its difficulties, however. More than 10 percent of the disks produced contain an error that prevents users from properly installing the Britannica software on their computer. There is a fix provided by the technical help line, but some users have had trouble obtaining that information.
Hoffman said the new management recognizes that computers are wonderful for the industry. He said encyclopedias are now cheaper, easier to use, more up-to-date and more exciting. Britannica’s competitors realize all of this, too. In the post-Christmas season, Collier’s CD-ROM encyclopedia and Microsoft’s Encarta line have been selling more units, but Britannica has maintained a respectable 25 percent of the CD-ROM encyclopedia market. Since Britannica costs up to twice as much as the other products (or higher), more money is being spent on Britannica than on any competitor.
This is all good news, but Britannica is a long way from claiming success in the computer era. CD-ROMs are an interim technology, most industry observers say. As soon as home computers can receive data quickly through cable or faster telephone modems, virtually all content will be delivered on-line.
That’s a problem. “No one is making money on-line,” analyst Bass said about information services. “And they won’t for two to three years. After three years, it will look like the magazine industry. You have a lot of players but 80 percent of them will fail.”
No one really knows how the on-line marketplace will work, Bass said. “The things that tend to happen are bad. Prices fall. Companies fail. It’s good for the consumer but it’s bad for companies that are trying to make a buck.”
“This is a period of investment for us,” admitted John Hallberg, 41, who is in charge of worldwide marketing for Britannica, acknowledging that the company has yet to turn a profit in the computer era.
“I lived and breathed Cheerios every day for four years,” Hallberg said, mentioning his 50th anniversary Cheerios coin bank and a Cheerios pencil holder sitting on his desk. From 1989 to 1993, Hallberg ran the Cheerios business. He spent much of his time studying what the general public felt about the famous brand.
“When you talk to consumers, they conjure up even stronger imagery and emotions about the product than you do,” he said. “I think Britannica has a lot of that. It’s been around forever. People grew up with this brand name. It’s not a cultural icon on the same level as Coca-Cola, but it’s up there.”
Hallberg said that, on the Internet, consumers have access to endless streams of free but unreliable information. As the initial excitement of Web surfing dies away, consumers will crave an authoritative, in-depth source for useful information. They will even be willing to pay for such a service. “There is so much value in the Britannica brand,” he said. “People trust it.”
Hallberg pointed to the two on-line services Britannica hopes will ensure its success. Britannica On-Line (http://www.eb.com) offers the entire text of the encyclopedia and a growing number of interactive and multi-media features.
For a different service, Britannica editors comb through the Web’s many pages, seeking those that meet Britannica’s standards for quality of information and presentation. The best sites, currently more than 65,000, are categorized, summarized and linked on the Britannica Internet Guide, which is still free (http://www.ebig.com).
Even if Britannica finds on-line customers with wallets in hand, they still need to find a way to charge them. In the on-line information industry, there are three pricing models, and Britannica is preparing to use some or all of them. Britannica currently uses the subscription model, in which customers pay a monthly or annual fee for unlimited access. The subscription service–Britannica On-Line–has been available for four years and has performed moderately well among home consumers. It also reaches almost 5 million college and university students and professors.
Britannica is also looking at micro-transactions in which occasional users pay a tiny fee to search for a limited number of articles. But there is one money-making method that is sure to dominate.
“It’s advertising that’s driving the game,” Bass said. “Britannica’s going to need to put advertising up on the Web site. That’s antithetical to their history. They’re not good at it. They’ve never done it. They didn’t do real well the last time something required a mind shift.”
Mind shifts are what newcomer Hoffman loves and is quite good at, say his many supporters in and out of Britannica. When he was president of Discover magazine for 10 years, he branched into the Internet, documentary film, prime-time TV and even a Disney theme park attraction. On his own, he has written non-fiction books and mystery novels and hosted the PBS series called “Great Minds of Science.”
Since the future of the on-line information business is so uncertain, publisher Hoffman plans to expand Britannica into “TV, video, interactive, whatever makes sense.”
Hoffman hopes to fully exploit the rapidly changing media of this digital age. But, he said, he cannot forget that Britannica is built upon a tradition that started in 1768.
“I am the high priest at the temple of knowledge,” said Alex Soojung-Kim Pang, who makes sure that every new word or bit of information entered in the encyclopedia is accurate and thorough. He oversees 20 people who check and recheck every fact. Pang’s work, like that of most of the almost 200 full-time editorial staffers, is slow and often tedious. Without it, the Britannica name would be meaningless.
If Hoffman is successful, more people will use the Encyclopaedia Britannica in the next few years than ever before. If he fails, the oldest and largest encyclopedia in the English language will be gone.
In his office a few days later, Hoffman wore a glow-in-the-dark T-shirt depicting the solar system. He said he isn’t worried.
“No medium has killed off the previous one. Television did not kill off radio. Movies did not kill television. People will always want an encyclopedia.”