Full transcript: Hearst Magazines President David Carey on Recode Media

On this episode of Recode Media with Peter Kafka, Hearst Magazines President David Carey talks about how the 130-year-old media giant is striking a balance between its print legacy and the digital future.

You can read some of the highlights from the interview here, or listen to it in the audio player above. Below, we’ve provided a lightly edited complete transcript of their conversation.

If you like this, be sure to subscribe to Recode Media on Apple Podcasts, Spotify, Pocket Casts, Overcast or wherever you listen to podcasts.

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Peter Kafka: This is Recode Media with Peter Kafka. That’s me. I am part of the Vox Media podcast network. I am here today with David Carey, president of Hearst Magazines. I think of him as the guy who runs Hearst, but that’s not officially true.

David Carey: In my spare time. There is someone else who really runs Hearst, but I run the magazine division.

Tell us some of the fine titles that you are in charge of at Hearst.

We are proud to be the world’s largest publisher of monthly magazines, so our biggest businesses are Cosmopolitan and Elle and Harper’s Bazaar and Esquire and Town & Country. We are about to, in January, close on the acquisition of Rodale, bringing Men’s Health and Women’s Health and Prevention and Bicycling and Runner’s World into our portfolio, which will put us at over 300 media brands around the world.

So there are a handful of giant magazine publishers left. You are one of them. You said you’re the biggest by revenue, by title, revenue?

Biggest monthly publisher, so I think Time historically was larger in terms of revenue, but mostly from the weeklies. We’re the biggest monthly publisher in the world.

I think this will air in January, at which point in time it will still be a separate magazine but at some point that’s supposed to get subsumed by Meredith. Let’s start there. What is ... And you just mentioned the Rodale deal that you will have closed, I think, by the time this thing comes out. What is spurring this round of consolidation in the magazine business?

Well Peter, I’m disappointed this airs in January because I was hoping to remind people, magazines make a great holiday gift for your loved ones.

You can still buy them in January.

You still can.

They’re much better, usually.

What else can you buy that’s less than $20 that reminds people a dozen times a year of your thoughtfulness?

Buy a subscription.

Exactly. So I’m here to sell magazine subscriptions.

I think we’re in a period of massive media consolidation, not just the magazine business.

Clearly.

But by the time this airs, perhaps the Disney-Fox move gets done. When the Murdochs are taking money off the table, that’s a big statement all by itself. You’ve seen the deregulation of the local TV business, which is gonna spur huge amount of M&A. You’ve seen the relaxation of cross-ownership of newspapers and television, the same market. No doubt, the rate of consolidation only picks up. The magazine business, I think, has been overdue for this for some time. Obviously our acquisition of Rodale, the Meredith acquisition, historically the kind of No. 4 company in terms of size.

Meredith has always wanted to buy portions of Time Inc. Now it looks like that’s finally gonna happen.

Bought the whole thing in an enormous synergy play. Meredith’s trailing earnings are $375 million and they hope to get $400 million just in cost save out of the deal. Businesses operate better at scale. Obviously, some of this is driven by ... I hear there’s two big companies in the digital space that have a lot of the revenue growth and that people realize ...

Along with Schmoogle and Schmacebook?

Exactly. I forget their names from time to time, but companies need to bulk up in order to have sufficient scale to be able to drive enough revenue.

So you mentioned Murdoch selling out. I wrote something that said that. We think alike, great minds. If Rupert Murdoch is selling, why would you want to be buying what he has, right? He’s one of the sharpest operators. [Jeff] Bewkes [Time Warner CEO], also a smart guy.

Bewkes said the same thing a year ago.

I want to sell, and that deal may not happen. He runs to Time Warner trying to sell to AT&T. That’s now gonna be litigated. So when you have guys who are sort of at the peak of their form saying, “Now’s a good time for me to leave the table,” that would worry me as a buyer. You’re now a buyer, at least in the magazine — well, actually in a bunch of stuff — but in the magazine business. What about this makes you want to spend more money?

Yeah, so keep in mind, the Hearst corporation is highly aquisitive, but we don’t really do any deals that ever threaten a company bigger than us. So we do a series of two- to four hundred million dollar deals per year, which is fundamentally within our capacity to do that.

We’ve long admired the Rodale businesses. In fact, we publish Men’s Health and Women’s Health and Runner’s World around the world. We’ve published the brands in the U.K. We believe that organization was early in identifying wellthy, W-E-L-L-T-H-Y as an important consumer trend, which is evident around the world. You see it around the world in the billion dollar evaluation of Peloton, the amount of spending your friends do on SoulCycle. In a world with ...

I’ve even gone to it.

You’ve even gone to it once or twice.

Free ... The one that’s less, what’s the word for it?

Less scary for people like you and me?

Less scary for people like me, at least. FreeWill, I think it’s called, or FreeCycle. One of those.

Yeah. I did Peloton one time with my daughters and at first ... I mean, SoulCycle, that was the first and last time I did that.

I don’t think it’s for us.

No.

It’s for many other people.

But in a world — especially, of course, digital becomes a bigger part of it — where these brands travel well. Men’s Health kind of means the same thing around the world. We launched Women’s Health digital-only in Japan in the last year. Our joint venture in China publishes Men’s Health. We publish the Men’s Health and Women’s Health brands in the Netherlands and the U.K. We know these businesses. We know their potential. For us, it’s a very attractive bolt-on to our existing business and strengthens our company, especially in some verticals where we perhaps don’t have as much advertising weight as we should. This was a very natural fit for us.

And to be clear, you’re still in the magazine business, right? Sometimes a title like — again, by the time this comes out, someone may have bought Rolling Stone — and when a title like that comes up, or Forbes, or maybe in the future Fortune, people say, “Oh, the brand has a lot of value. I could see taking this to other territories and we could do something with it online. Maybe there’s a Rolling Stone hotel we could do in Malaysia.” But you’re still in the business of first and foremost creating magazines, selling them, selling advertising, actual print.

Well, print in the U.S. Take our U.S. business, for example. Our profits are two-thirds print and one-third digital. We want to be good at both. We see digital as a very important driver of profits. I think we’re uniquely profitable in the digital space. If you look at what we’ve done in the last six months, we’ve announced new digital partnerships with Shonda Rhimes. She took all of her content and we’re gonna be building a new digital channel. We’ve launched a new print magazine with Ree Drummond called Pioneer Woman that was the best-selling magazine in the United States when it was on sale.

Some of our people who listen to this show won’t know who Ree Drummond is.

Yeah. So I bet if you can stand on the roof and see the ocean, you probably will not appreciate Ree, but certainly in Walmarts and other locations in the middle of the country, we sold over 350,000 copies of the second issue. For the first issue, we had to go back on press, the demand was so great.

She’s kind of a Martha Stewart but instead of being waspy and Connecticut, she’s middle America.

Well, she’s based in Oklahoma.

That’s the middle of America.

She’s got a huge fan base. She built her brand the old-fashioned way: Great content, blogger, TV show, books. By the time we came out with a magazine, there was such an established fan base. And we’ve seen numbers — in terms of not only single-copy sale but people who sent in subscription cards — that rival our launch of Oprah in the year 2000. Keep in mind, Bill Clinton was in the White House when we launched that magazine, we the royal we. I was not at Hearst at the time. This feels like just a great success. Again, we know that in order to succeed, we have to be extremely good at digital, running a profitable digital business, and be good at growing our print profits.

When does digital become a majority of your revenue?

A long time.

A long time?

A long time.

Like past a year or 10 years maybe?

Potentially, but you know, this two-thirds, one-third balance between print and digital ... Perhaps every year a few more points. That just speaks to the diversification which Hearst excels at. We’re in so many different types of businesses. You know, we reject this notion of digital first because we think that denigrates the core business. We think there’s a lot of money to be made in the print business.

I understand making a lot of money in a print business. I understand making a lot of money in an analog business that’s gonna decline over time, but usually at this point in a media industry, especially for magazines which have been under this threat for a long time, you see people saying, “Well, the print business is there, but it’s in decline.”

Time has a version of this, Time Inc., up until they decided to sell to Meredith. They’re saying, “We’re gonna transform into a digital-first company.” The Time Inc. thing would be, “Well, we’ve already got $500 million in revenue. That’s as big as BuzzFeed. Thus, we should be valued ...” at whatever the number is. The point is that they spend a lot of time explaining how they’re moving out of print and I just asked you and you said, “No, no, we’re staying put and we’re gonna be there a long time.”

And do other things as well.

Right.

Yeah.

What do you get about print that they don’t?

Well, first of all, public companies... the multiples around digital businesses have been high, the perceived value. We’re a private company, so we get to run the business like you run your personal life. How much cash comes in the door and how much do you spend, right? The rest is left as earnings. We get the luxury of running the business in a way that is mindful of running a good profitable business and not trying to play to Wall Street. Time Inc., before this sale, had a series of kind of strange digital acquisitions. Hello Giggles and things like that. You felt there was a kind of a press release strategy in order to appease Wall Street. We don’t have to ...

Right, without actually spending significant amounts of money.

Right, we don’t have to waste our time on that. Obviously we have to grow digital at an ever faster rate, and we continue to evolve that business under Troy Young, who’s a fantastic leader. But we don’t have to contort ourselves to please Wall Street. We get to run a pretty straight-up business. What does that mean? That means we’ll launch new products as we did two in 2017, Airbnb and Pioneer Woman. Some businesses may close because they have served their life, and that’s okay. Other businesses will take on different forms.

But to be clear, digital isn’t a fad, right? It is harder, I would assume, to get someone to spend money for a print magazine than it ever was. I’m sure it’s harder to get someone to spend money on print advertising than it ever was. How do you make the case to both of those constituencies — your advertisers and the consumers who are gonna pay you for a copy of a magazine — that they should be spending time on print?

Well, the challenge within the business ... I think the magazine industry in the U.S. has had a greater problem with advertisers than with consumers. There’s all sorts of things that the technological world brings us. One thing it does bring us is the ability to target subscription activity finer than ever, because we have penned a lot of data. I think not only for Hearst but also for Time Inc., Meredith and Conde Nast, the subscription piece of the business has not been that difficult. Obviously the advertising piece ...

Because you’ve got people who already get the product. They keep buying the product.

You have ... Part of your business is people who are core subscribers and generally like any other subscription business, once you renew for a couple times, you tend to be tapped in for a period of time.

You’re in.

We publish magazines that align around people’s special interests. Are they travel, automotive, fashion? It’s not that difficult to find those individuals to subscribe or to give gift subscriptions in magazines. That’s actually a big part of our business and for others as well. I think that we’ve had to constantly convince advertisers that the medium plays a very important role as part of the media mix. I’m excited about 2018 because when you started seeing — whether it was the Mashable fire sale or the Shazam fire sale — you’re gonna find for a lot of these really shiny, pure-play digital companies that the wheels are gonna come off.

Before we go into the graveyard for digital ... I’m happy to engage in that discussion, but I want to talk a little bit more about who’s consuming a magazine, a print magazine bundle of information. I love the format. It’s why I moved to New York, to go work in magazines, but I’m old now. What’s the average age of a Hearst Magazine subscriber?

Well, it varies by brand. Obviously the fashion magazines will be younger and women’s and Good Housekeeping will be older.

What’s the range, do you think?

Obviously it would start for Cosmo in college.

There are people in college getting print subscriptions to Cosmo?

They buy more single copy and they subscribe once they have more of a permanent address, a permanent home. Young women love fashion magazines. Both the advertising and the editorial are aspirational.

Right.

These are magazines, and I think every medium has to identify what it does better than anything else. Television, with sight, sound and motion. You can watch a TV commercial and it can make you cry in 30 seconds. No one can do that better. Obviously the ability of the web to serve up-to-date information ... Where’s the store right around you? To be able to have identified where you’ve been looking online and serve you up an offer for something.

Magazines appeal to the natural aspirational nature of people all around the world. No matter how much money you have, you’re interested in living better, looking better, traveling better. If you love your home, people read the pages of Veranda and Elle Décor and Architectural Digest published by others. Some of these people have the money to actually decorate like that, and everyone else kind of dreams of it.

Right.

That’s a good thing. That’s a very natural part of that business.

Right, and that part works better than looking at it on a screen in most cases.

You know, it does. You think of Houzz, perhaps maybe the highest-valuation company. It’s a very different message. When you’re looking through the Beautiful Homes published and getting those ideas and getting all that information, it’s different than focused on a very small screen of a recommendation of a lamp or a sofa or something. They fit together. It’s one not to the exclusion of the other.

Yeah, it seems like it’s part of a continuum, right, like Houzz and Pinterest where you say, “Oh, I like that and maybe I’ll come back to it.” There’s not an analog for that in analog magazines.

There’s not, and because the magazines are very curated from an editor’s point of view, I think Houzz is a great product, but if you want to look at white Victorian kitchens in the northeast, they’ll give you 7,000 versions of that. It does what it’s supposed to do, but if you want to look for a more curated, beautiful home from one of the top designers, that’s what these home design magazines do. The consumer demand for the home design titles is great.

We talked recently. You told me something I want to try to get you to say on the record about some of the things you’re asking your editorial staff to do to adapt to the new reality in terms of cost cutting. We talked about photo shoots. Can you talk about that?

Well, I think that the nature of the business benefits from a greater scale, making each piece of contact work harder. Let’s look at the lessons from other media forms, okay? If you have a friend who works in the movie business, they’ll tell you if you met him or her at the premiere, they’ll tell you where that content will be in one year and two years, in what form and how they’re monetized. Right? Because it works for that long sale.

Because they can sell it in four or five or seven different forms. It’s all the same thing.

All the same thing, and changes range from the back of your seat in JetBlue to your hotel room to on it goes. Right? All following a very predictable path. In fact, the friction comes when people want to break the window.

Right.

But for the most part, their money is made over a long period of time, so they amortise the cost of creation over years. I think that this was a year or two ago, but I read the article that the most watched film on Netflix at the time was “Shawshank Redemption,” okay? People watch it.

It still runs on Turner every day.

Every day. What we’ve done in the magazine business is we haven’t always taken those lessons to heart where, as we think about the creation of the content and we think about it over time. It’s almost like the film producer who figures, “Well, we’ll debut it on the big screen and we’ll see what happens after that.”

Serendipity will take us in a different direction. We’re imposing much more discipline in how we create our content and to certainly borrow parts of the strategies from other media forms. What does that mean? We have to think about where it travels, not only across brand and across geography. We had, a year or so ago, as an example, we had Drew Barrymore on the cover of Harper’s Bazaar in March. We had Drew Barrymore on the cover of Marie Claire in April and Drew Barrymore on the cover of Good Housekeeping in May.

Is that all the same photo shoot with different outfits?

Three separate photo shoots, three separate teams going to California.

Oh, that’s the old way. That’s what you used to do.

That’s the old way. You know, that’s just shame on us when we can clearly find a photographer with different styles who could’ve produced all three.

Is that happening now? Are you saying you are now gonna produce three different versions of this photo shoot? “We’re gonna run it on three different magazines with the same person.”

Or an example, if not so much the cover but we’ll shoot Drew Barrymore for the cover of Marie Claire and maybe we’ll shoot Drew Barrymore in her kitchen for Elle Décor. An example of what we had done about ...

She knows this, by the way, right? Her team knows this.

She knows it and she likes it. We have to ... Obviously they have to fully consent, and they like it as well because it’s more efficient for their time. We about a year ago shot Alec Baldwin’s home in East Hampton and we shot his home for Elle Décor. We did Delish, which is one of our great ... Delish.com, one of our great stars in our portfolio. We shot cooking videos with Hilaria, his wife. Hilaria, right? Then we shot her closet for Harper’s Bazaar. One day, three different types of content produced. That becomes a skill for the modern editor, that they can imagine different uses of that content across multiple brands and ultimately multiple geographies.

So this is a commonsense idea to anyone who hasn’t spent time in magazines, or at least didn’t spend time in magazines until recently, right? But if you spent time in magazines decades previous, especially at a place like Hearst, also Conde, magazine editors run their own fiefdoms. The idea of saying to the editor of any one of your titles that you were gonna share resources with somebody else. Make it happen. It would be a nonstarter. So how do you convince them otherwise?

Well, hopefully they will have read the newspaper or Recode and they realized the world is changing and that we have to evolve what we do and how we do it. You know, we have 10,000 people as part of the magazine group around the world. You have those who kind of get it and who are volunteering ideas of what they can do, and those who resist. Those who resist will probably have less career options in the future than those who help the organization and help the industry evolve. You always ... People always confuse Darwinism as the strong survive, and it’s actually incorrect. It’s those who can best adapt and evolve.

You’re the second podcast guest this year to talk about that.

Well, I think it’s mindful for us because we ...

The first one was a comedian, by the way.

Oh, really?

It’s good.

We work for a big, strong company, the largest private employer in New York City. We have to constantly change what we do. I think our company’s done a great job. I think we stand head and shoulders above most of our peers.

I want to ask you about evolution, but first we have to pay our bills. Our business model involves advertising, so we’re gonna hear from a fine sponsor right now.

[ad]

I’m back here with David Carey who is still running Hearst Magazines. There was a real natural segue for me, but I cut it off so we could have an ad from our fine sponsor. I wanted to ask you about the second half of 2017. We saw a bunch of departures of people who used to run big, fancy magazines. Graydon Carter, but also the editor of Time, editor of Elle as well. Do we have a ... Three is officially a trend , right? Because there’s three.

I think there were five in total.

A bunch.

Yeah.

You only need three. Is there a connection to all of them leaving in that same time frame? They all have different stories theoretically, but is there a connection there between those folks leaving and contraction of the magazine business?

Well, it’s hard to know within all of those five which were 100 percent voluntary and which might have been 100 percent involuntary, but these are individuals who had great runs as leaders of these businesses. They don’t have to last forever. I think that speaks to one of the great benefits of the magazine business is these brands punch way above their weight. These are the world’s most famous medium-size businesses in terms of their stature.

I was taking a taxi in from Grand Central to the office and I saw a clip from Jimmy Kimmel. Whoever the star was, before they came out, what do they do? They hold up a copy of the magazine — this was Entertainment Weekly, it might have been some of the cast from “Star Wars” — because of the imprimatur of the cover.

Right, it still counts for something.

It counts for a lot, in every way. People want to be on magazine covers. When we make that call, that’s what they expect. In fact, when I was the publisher of the New Yorker, one of the funny things that David Remnick used to tell me is people would call and say, “Well, they’ll participate in an interview but they want to be on the cover of the New Yorker,” clearly never hanging seen the New Yorker. Along with that kind of outsize brand weight and fame of magazine brands comes the focus on the personnel who create them.

Which again, I think if you are new to paying attention to the media business is sort of hard to understand how big a deal a big-deal magazine editor used to be.

Yeah, and I think all the discussion ... Is this the end of celebrity editors? I think the focus comes back on the brand. I think that fits with the evolution of the business and that they become a bit less personality-based and more based on the business itself. It all felt like a natural evolution. Hats off to these individuals for having great runs. Some of them said, “I want to do something else,” and there’s nothing wrong with that.

I think it’s telling, right, that Graydon Carter — who was a big deal, who even people who don’t pay attention to magazines may have heard of — is replaced by someone who many people in the magazine business had never heard of, Radhika Jones, who may do a very good job. I think I wrote a headline saying she may be the new editor, and then the subtitle was, “Who?” I got some grief for it, but I think that was the point was she was not well known.

She’ll earn her way based on the quality of the product and not who she has for dinner. I saw this first-hand when I was at the New Yorker when David Remnick replaced Tina Brown. Tina was then the most famous editor in the world, and David — who now of course has grown a great deal in his stature and his respect — was unknown on Day One. I think the New York Times said the difficulty of David following the thousand-watt light bulb that was Tina. Of course David, what he produced, who he is, his expertise became much admired through the quality of his work and not through anything but.

You mentioned working at Conde Nast, the New Yorker. You were a big-deal executive there. You left and went to Hearst. What got you to move? At the time, Conde Nast was sort of the more glamorous place to be, I think.

Well, I worked at Hearst coming out of college. I worked there for 10 years and then I worked at Conde Nast. I had such a very positive experience with the Newhouse family and at Conde Nast, but the chance for me to come back and to run the magazine division was really a dream come true. Hearst at its core is a company that is built on taking risks.

Going back to our founder, William Randolph Hearst, going back to the ultimate risk in 1963 when Helen Gurley Brown walked through our doors with an idea for a magazine based on her book “Sex and the Single Girl.” She had never run a magazine before, and they gave her ... They didn’t start a new magazine. They gave her one of the existing franchises, kind of the right product, the right time. Cosmopolitan in 1965 became this explosive success, spun off a lot of cash. Frank Bennack, our longtime CEO, used that cash to initially fun the losses of A&E created with Cap Cities, which lost money for a number of years. The profits from Cosmo helped fund the purchase of a 20 percent stake at ESPN when people were not lining up outside our door for that or their door for that. Those businesses of course became quite significant.

And you still have big chunks of those businesses, right?

We do.

In particular ESPN, even though it has declined in terms of both revenue and profit, throws off an enormous amount of money. You guys get to keep 20 percent of those profits, which are significant. How much does that investment alone sort of give you cover to worry less about the economics of the business quarter to quarter, year to year?

Well, the company, again, because of our private status, has constantly taken the cash flow and invested in a broad range of businesses. One of the big areas we’ve been investing in at the parent-company level has been in companies that are business information and data companies. We’ve invested a great deal in health care. We own 80 percent of Fitch Ratings. A year ago we purchased a company called CAMP Systems that monitors the health and well-being of private ...

All profoundly un-sexy businesses.

That have incredibly reliable cash flows, become very sticky in terms of their customers, high switching costs. Frank is really a genius of diversification. In some ways, he’s a private man, but what he built at Hearst and that understanding he had across magazines, newspapers, business information, our venture business and so on is quite remarkable. That gives us a very unique position in a changing media world.

I used to talk to you a lot about what was gonna happen to the tablet magazine. IPad launches in 2010. For a bunch of different reasons, there’s a lot of initial interest in what the magazine business is gonna do with the iPad. You and all your competitors are spending a bunch of time and money trying to figure out how to build digital versions of your magazines. I would have you onstage and you would say, “We’re gonna hit this projection.” Obviously that didn’t work out. What did the experience of trying to build iPad and other tablet magazines do for you? What did you learn from that?

Yeah. I remember I did sit in a red chair in Laguna Beach after we had hit the first million of tablet circulation news without breaking a sweat and projected that we’d get to three million.

How’d that work out?

It didn’t work out so well. There’s a video record of that someplace, I bet.

Probably on a funky player, hard to access.

Yeah. What did we learn from that? Obviously the early sales of iPads themselves skyrocketed, and then Apple created larger-screen phones, as others did. People shifted out, and now you have a seven-inch phone.

Right. The big picture was that we all thought the iPad was gonna be this dominant device and it turns out the iPhone was.

The iPhone, the large-screen iPhone replaced ... The things you thought you would do on a tablet in terms of reading newspapers. The iPhone at the time was tiny. You look at those early screens and the thought was we needed that big canvas. Obviously consumer attention shifted in many ways. We found that ... It’s interesting that the first million of circulation came super easy and then every unit after that became incredibly difficult.

So I guess what I think about when I ask you what did you learn, I think about when the next device, when the next platform comes up and says, “We’d like to work with you.” How do you think about gauging how much energy you’re gonna invest in that? There’s a second question as well.

Our answer to these things is yes. What did we learn? We spent a fair amount of time and a modest amount of money. It didn’t quite play out. In the world of having to constantly interrupt what you do and to innovate, it was a success. You know what? It didn’t quite achieve all that we hoped, but life went on. It wasn’t shortly long thereafter that Evan Spiegel came to our offices when Snapchat was just Snapchat and said he’s gonna create a media product that will become the most important place for our audience to interact with our content.

To our platform, which to this day it is best known for sending disappearing genitalia pictures.

We’ll say disappearing pictures. Okay, that’s all it was. Our answer was, “Great. Where do we sign?” We signed on. Cosmopolitan is the biggest brand on the Discover platform. We have seven brands in total.

But having gone through the iPad experience, did you go, “Well we’re gonna do it, but we’re gonna pull back a little more than we would have had we not burnt all that energy.”

Seems like a no-brainer. First of all, you lean in. Now let’s keep in mind, you have energy and you have financial investment. Even the iPad was a modest financial investment. We had nothing to write down. We had no embarrassment. Guess what? We spent some time and it did not work out. You don’t want to be scared about doing those things. That’s why almost anyone who knocks on our door — within reason — we say yes to.

So the other thing I think about when I think about — and I think about how I covered the tablet stuff — was that you guys all collectively, all the publishers, said, “What we love about the iPad business is that we’ve been giving our stuff away for free on the internet. People have gotten used to that. What we’re gonna do now is we’re gonna charge the same price for these tablet magazines as we do for print. We’re gonna reset the economics of the magazine business.”

It seems like what’s happened now is actually that aggregation free-content model is as strong as it’s ever been. People are still used to getting their stuff for free, except instead of getting it on the internet they’re getting it from Facebook, basically. Facebook has become ... The rise of Facebook has sort of screwed up the business that you guys have, which is aggregating content and packaging it. How do you deal with Facebook specifically?

Yeah, I would say that the content we mostly put out that gets the best traction on digital is not the same exact content from the magazine. We create different content, of course, that is native for digital. I had done the math that if tablets had gotten to 25 percent of circulation, our profits would have tripled. Well, that would have been nice, but it didn’t happen, you know? We took the subway here and maybe if it tripled, we would have taken not the subway.

We’ll get you an Uber.

Exactly. But I think you bring up a good point about Facebook’s role across all medias. We’re 10 years into the arrival of the iPhone and I think what you’re now seeing is the drumbeat of a lot of press around, “Is big tech the equivalent of big tobacco from the ’50s and ’60s?” The arrival of the Facebook Messenger product for kids, I thought, was a very scary concept. The article that the Atlantic wrote a few months ago that really took the tech companies to task for building products that take advantage of human vulnerabilities around addiction I thought was quite profound.

Whether it’s the New York Times’ piece about teenage anxiety ... I just saw a headline that in Georgia, automotive fatalities have gone up 35 percent attributed to distracted driving. I forget which city now gives people tickets if they cross the street on their phones because of the number of people getting hit by cars and bicycles. I think there’s a larger issue, which is the massive addiction which has yet to be fully identified in terms of what the solutions are. I think disrupted everything.

The press loves the Facebook ... Facebook, Google, whomever. The tables have turned. Things are not looking up for you anymore. I’m not sure how that’s actually gonna pan out as a business, but you think there is a there there. It’s not just journalists and schadenfreude.

You had Roger McNamee, who made a ton of money in the early Facebook [days], that I believe introduced Sheryl to Mark, right? His brother was a partner at Elevation who basically was the first to call Facebook the equivalent of cigarettes.

No, now there’s a well-established trend of people who have made a lot of money on Facebook, Chamath, Sean Parker saying, “Oh, Facebook’s a terrible mistake. I wish I’d never done it. I’m happy to be rich, by the way, from the Facebook money I’ve made.”

Well I’ve made no money on Facebook, so I can speak from a different position. That said, I think that these issues of addiction are quite real. If you ask young people, you can’t read a book for a month. You can’t watch TV for a month. You can’t be on your phone for a day. This is the center of all the disruption. You can’t imagine that any current ...

Do you think that wave recedes, though, you suddenly — the Facebook threat to your business, the digital threat to your business, goes away because some combination of socially it’s less acceptable to play on phones and the government regulates it?

Well, this is addiction. People can’t help themselves. Let’s be clear, okay? It’s not just leaving your phone at home. It’s hard to imagine that the government would actually get involved, but if you read “The Four” by Scott Galloway, someone I’ve known for a long time, there is a case building that suggests that these companies need closer scrutiny. Where that goes, exactly what happens ... Obviously it’s happening in Europe, less happening in the United States, but it all fits I think into the next chapter of digital, the big companies and the small companies.

So let’s talk about that. You were eager to predict doom for many companies in the digital space. By the way, you guys have made a lot of investments in some of the bigger players.

We have, absolutely.

You’ve got Refinery, you’ve got money in BuzzFeed.

Vice.

Vice.

Yeah, yeah.

These are all some of the companies people are looking at saying, “I don’t know what 2018 is gonna look like for them.” You’re on them saying ... To be clear, you didn’t specifically forecast doom for your portfolio companies?

Yeah, that wouldn’t be so good.

It would be less politic than you normally are, but you’re saying there’s gonna be a lot of ... We’ve had hints of it in 2017. You think more to come 2018.

Well, the nature of the business ... Obviously we’ve all seen I don’t know how many iterations of the digital world in the last 20, 25 years. Businesses with no barriers to entry always have curious paths, right? I think you guys got a great company here, real expertise. You know, my son and three of his friends can start a competitor tomorrow.

[Vox Media CEO] Jim Bankoff sometimes listen to this, so I doubt it.

You don’t worry about it. You don’t worry about my son and his friends. You worry about the 5,000 versions of my son and his friends because it only costs them like $5,000 and they’re in business. Some sort of moat around the business — which you know, Warren Buffet has always said it doesn’t need to be a big moat, but a little bit of moat.

Yeah.

These businesses have no moats. This doesn’t mean that ...

What’s the Hearst moat?

The Hearst moat?

Yeah.

The Hearst moat is the diversification, the private status, the ability to invest for the future.

Right, but the product ... Someone can make a competitive product to anything you sell, right? It goes on a screen. You have that same problem that we have.

Oh, I’m sorry. Yeah. Ultimately the Hearst moat at the end has to be the credibility of the brand, that what you read on it, because it comes from Elle or Harper’s Bazaar, that it means more. Ultimately for advertisers who are looking for trusted environments that they will value it more highly over some long-tail ad buy.

Right. At Vox Media, my employer’s trying to do that at speed, right? Relatively quickly build up the authority of Recode.

And they’re doing a version of what we’re doing, because you’re doing it through a collection of trusted brands and trusted voices. That’ll be different from the guy in the garage someplace.

We hope.

Yeah.

But broadly?

Broadly, these businesses that have been early on just kind of gaming the ads system to show 20 and 30 percent growth off small numbers, that’s kind of easy. The degree of difficulty of running a money-losing digital business is like zero. I’m reminded by one of the great scenes from “Toy Story.” You have the skeptical Woody and Buzz, and Buzz is gonna fly, and Woody says, “No Buzz, that’s not flying. That’s falling with style.” Okay? I think for some of these companies that have lost a huge amount of money by going back to their investors have been falling with style.

In 2018, the rubber meets the road. Which ones are gonna turn into durable businesses with reasonable profit margins, and which ones have been just kind of a little bit of a game? I’m not sure who’s gonna come out good or bad, and we’ll learn from the winners and learn from the losers. Obviously the role of digital in everyone’s lives becomes only more important, but you have people that have been gaming the system and then in ’18, a lot of them will go away. Their Aeron chairs will be sold at auction and there will be another chapter that will emerge.

I’ve always thought in terms of the companies who come to us — and something is for sale almost every day — that you need at least 25 percent of your revenue to come from non-advertising sources. Conferences, data sold to your clients, e-commerce, whatever it happens to be. But if you are an advertising-dependent digital business, then I think you have a lot of problems in the future.

You think digital advertising is more at risk than the advertising that helps the two-thirds of your print business?

Well, for us or for the ...

Just broadly. Like would you be ... I understand the skepticism about advertising, right? But I would assume that that is as big a problem for Hearst as it is for any of these digital advertisers, just you’ve got more money.

Yeah, so we’ll ignore the size of market share that Facebook and Google have combined.

Uh-huh.

The market is still big enough that individual brands, individual companies can still succeed, absolutely. We’ve had examples of brands that have had huge growth because they’re doing something that is very distinct. Can we build them into $5 billion businesses? Perhaps not. Maybe we’ll hit the Facebook and Google wall, but we have a lot of room to run in our digital business, absolutely.

Are you guys buyers of ... But you said you wanted to buy the Aeron chairs or you’re interested in buying the Aeron chairs. Do you want to buy the business as well?

I think we’ll be buying. Our challenge with these businesses in terms of outright buyers has been the valuations make no sense. At Hearst, you got to see your way that you can buy a profitable business and to get paid back in a relatively short period of time, otherwise why are you buying a business? I think the valuations to date have been problematic, which does not mean that if there’s a reset coming that businesses that kind of fit our area of expertise could come into range for us. I think that would be great. I think that’s gonna be a natural thing that these companies, not just the Mashable acquisition by Ziff Davis, but you’ll see others that’ll tuck into larger entities. Your company is a good example as well. It had been kind of ... It had a chapter following Dow Jones and now a different chapter as part of a consolidated organization.

We were a solo business for a year and a half.

Yeah.

I think Walt Mossberg wanted to sell the business about two months into it.

Solo businesses, any business is difficult today. I don’t care who you are. I think that there’s gonna be opportunities for us and for Conde Nast and for others. I think that’ll be a good thing for the business.

So consolidation all around.

Absolutely.

From Time Warner to magazine business, digital business. If you weren’t working at Hearst, who do you think is sort of best positioned to survive 2018 in style, not the failing in style, but actually succeeding?

I’m sorry, in terms of ...

Which media business are you most bullish on for 2018?

Non-Hearst. Well, like everyone else, I’m a big fan of Disney and what they do, the great content that they purchase, the great talent, and now they’re buying greater pipes and certainly potentially buying more pipes around the world.

So back to where we started, if Rupert Murdoch wants to get out of business, you say if Disney is the buyer, then Disney knows what they’re doing.

I think they’re great operators in every way and I think they do a great job of both serving marketers and serving advertisers. They are at the high, but I think there’s lots of interesting opportunities. I think that the business will bifurcate even more. It’ll either be one at scale, as we’ve been discussing, or you’re gonna super serve individual passions. One of the main executives I admire most is Marvin Shanken. Marvin at Shanken Communications has three media brands: Wine Spectator, Cigar Aficionado and Whiskey Advocate. Guess what Marvin’s three great passions in life are? Okay.

I have a hunch.

He built his business around verticals that he has an inherent love for. Wine Spectator is a great example. It’s got a premium magazine. It really has great authority because of the depth of its ratings. It does live events, both intimate as well as large-scale, and it charges for digital. I think there’s lots of lessons for media, is you can kind of be some things to all people, big-scale business, or you can be all things to some people, super serving in this. I think those that are in the middle will have a hard time.

I agree. We should leave at that point since we’re all in “agreeance,” as Fred Durst would say. That’s an old-time rock reference. David, thank you for your time.

Thank you for having me, Peter.

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This article originally appeared on Recode.net.