Digital Media Companies Are Headed For A Crash

By: Eric Johnson

Carey says advertising-dependent web publishers remind him of Buzz Lightyear in “Toy Story” — and that’s not a compliment.

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Two-thirds of the profits at Hearst Magazines are still coming from print. And unlike other magazine publishers, David Carey says he’s in no rush to change that.

“We reject this notion of ‘digital first,’ because we think that denigrates the core business,” said Carey, the president of Hearst Magazines, on the latest episode of Recode Media with Peter Kafka. “We think there’s a lot of money to be made in the print business.”

Media businesses need a “moat” to protect themselves, Carey explained — Hearst’s is its collection of influential and credible brands, such as Cosmopolitan. And it’s becoming clear that some cash-burning web publishers don’t have much protecting them from failure, he said.

“I think you guys have got a great company here, and real expertise,” he said. “My son and three of his friends can start a competitor tomorrow. 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 $5,000 and they’re in business.”

Carey’s no Luddite — he led Hearst’s flirtation with iPad magazines, and when that fizzled out, struck a partnership with Snap to get Cosmo and other magazines featured on Snapchat Discover, which he says now was an easy decision.

But on the new podcast, he questioned the durability of digital media companies that have historically been reliant on advertising. To last, these companies would need at least 25 percent of their revenue to come from non-advertising sources such as live events, data or e-commerce.

“These businesses that have been, early on, gaming the ad system to show 20 to 30 percent growth on small numbers — that’s kind of easy,” Carey said. “The degree of difficulty of running a money-losing digital business is like zero.”

“I’m reminded of one of the great scenes from ‘Toy Story,’” he added. “Buzz says he’s going to fly and Woody says, ‘No Buzz, that’s not flying, that’s falling with style.’ 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.”


Author: Eric Johnson

Source: recode.net URL: https://goo.gl/tLXakJ