The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
NEW YORK, United States — "Everyone's saying they want to be the next Condé Nast — we're going to be the next Condé Nast," asserts chief executive Bob Sauerberg at the company's headquarters at One World Trade Center. "My strategy is about the biggest premium network with the most influential people — reclaiming influence. It used to be [that] bloggers tried to take it from us, but we've always had it, before there was even a name for it."
For almost a decade, since the rise of the internet and the fallout from the Great Recession forced the publisher of glossy titles like Vogue, Vanity Fair and GQ to reconsider its print-centric business model, the family-owned media giant has lagged behind its competitors in defining a compelling strategy for success in the digital age. Now, Condé Nast is finally on the digital offensive.
“The big digital buyers are going to spend a lot of time with the big social networks, with Facebook at the top of the list,” says Sauerberg. “They’re going to spend a lot of time and money with Google for the search piece. When they come to premium digital inventory, I want them to think of us first.”
But is it too little, too late?
In 2010, Condé Nast’s most powerful fashion brand, Vogue, finally launched its own website and Charles Townsend, then the company’s chief executive, first gave publishers responsibility for digital advertising. The same year, the iPad was released and the internet surpassed newspapers and radio as the most popular source of news, according to Pew Research.
Condé Nast spent the following years focused heavily on iPad magazines — what the company called digital editions — that were often digital regurgitations of print issues. It jumped between different content management systems and underwent several rounds of organisational restructuring that reflected tensions between the company's traditional emphasis on print and a growing need to focus on digital content and advertising spend. Recent headlines have been dominated by news of layoffs and shutterings at Condé Nast — Lucky, Details and others — as it cut costs, doubled down on its most valuable brands and shifted resources to digital.
In February, chief digital officer Fred Santarpia said the company was moving from a "fixing" phase to a "building" phase, as he described the shift in an internal memo. He gathered together the many teams under his purview, including product design, data science and business development — known inside the company as "Fred's team" — under the new banner of Condé Nast Co/Lab. Before Santarpia took up the company's lead digital role in 2014, no one at Condé Nast had been charged with developing a comprehensive digital strategy. He replaced a chief technology officer who was focused on traditional IT rather than product.
If anybody is not leaning forward and trying to change with the marketplace, they're going to get crushed.
Playing catch up is an uncomfortable position for Condé Nast. The magazine division of Advance Publications, the Newhouse family media holding company, is going through a major transformation that accelerated when American Vogue editor Anna Wintour was named artistic director in 2013 and Sauerberg assumed his role in January 2016. Sauerberg had led the company's consumer marketing prior to becoming president in 2010, the same year that David Carey departed Condé Nast to run the magazines division at Hearst, which has distinguished itself by rethinking its approach to digital content and monetisation, and partnering early with Snapchat.
Large and successful companies rarely survive the kind of technological disruption currently facing Condé Nast. It’s not because they don’t see change coming, but they often fail to adopt new technologies or business models that can give them an edge in the future because they have too much to gain from the way things have been done in the past, argues Harvard Business School professor Clayton Christensen in his seminal book “Innovator’s Dilemma.”
Print advertising is still the dominant revenue stream for Condé Nast, accounting for about 70 percent of the company’s revenue, which industry sources estimate at just over $1 billion in 2016.
What’s more, a large slice of digital advertising revenue is going to technology platforms, where consumers are spending more and more time. “Eighty percent of new digital revenue goes to Facebook and Google and probably a higher percentage when talking about mobile and smartphone,” says Rick Edmonds, media business analyst for The Poynter Institute. Plus, Condé Nast is facing new digitally savvy competitors like Vice.
What makes the company think it can catch up now? The short answer is its powerful and beloved brands. The long answer is the company might finally be getting out of its own way, shifting its company culture — characterised by an obsessive focus on excellence and quality, but also a sense of elitism and arrogance — that has been cited by those inside the organisation as a barrier to change.
“If anybody is not leaning forward and trying to change with the marketplace, they’re going to get crushed,” says Sauerberg. “We're doing a lot of business development, partnership and outreach deals that we've never done in the past… we didn't do those things before. It used to be: ‘We own this thing and we do the magazines.’ We never said we're out looking for growth or thinking differently about how we operate our business.”
"We missed the boat digitally, and the company paid the price for that long term," agrees Santarpia, sitting at the Co/Lab offices at 222 Broadway. (By the time the company moved into its new headquarters at One World Trade Center in 2014, there wasn't enough room there to accommodate what was a fast-growing digital department.) Santarpia took the lead digital role after several years at Condé Nast Entertainment, a digital video network and studio whose content garnered almost 3 billion video views in 2016, and previously co-founding Vevo, a premium online hub for music videos. "We've been kind of like a sleeping giant, just look at the growth in the last two years."
Since 2014 — the year Condé Nast migrated its first website onto its custom content management system CoPilot — the digital audience has grown 64 percent to a record-breaking 100 million uniques per month, and digital revenue has doubled. The remaining websites, Wired, Pitchfork and The New Yorker, will be on CoPilot by the end of June.
More recently, the company has also benefitted from rising interest in political coverage from trusted brands, providing a particular boon to several of its digital properties. According to ComScore, Vanity Fair logged 19 million unique visitors in February and is up 101 percent year-over year; GQ logged 12 million and is up 62 percent; Vogue’s traffic grew to 6 million unique visitors in February, up 22 percent; The New Yorker logged 15 million and is up 15 percent; and Teen Vogue logged 9 million and is up a whopping 234 percent.
(Hearst Magazines Digital Media reported record-breaking traffic of 176 million monthly unique visitors across its portfolio in 2016, up 25 percent year-over-year, leading to 31 percent revenue growth.)
We missed the boat digitally, and the company paid the price for that long term.
In order to achieve these results, Santarpia was forced to reconsider every facet of the company’s digital operation, from platform to monetisation, to “achieve the right blend of unique vertical voices and a common set of foundational platforms, tools, functionality and skill sets.” First, he brought in new talent, many of whom had worked with him at Vevo or CNE. “Frankly, I put my relationships to work,” he says. “They all knew what my expectations were… Let’s run the playbook simpler, faster, cheaper and drive to the results very quickly.” Only one current senior member of Santarpia’s team predates his arrival.
Even though he was pressured to decide between a digital strategy that was brand-centric or one that was centralised, Santarpia sees this as a false choice: some things are best left to the brands, like audience and marketing strategies, while some things are best absorbed by corporate, like business development.
“Fred’s team” began setting traffic goals in relation to competitor performance. Audience development and data analysts were embedded inside brand editorial teams and reported daily to each digital editor while meeting monthly with Stephanie Fried, senior vice president of research and analytics. Santarpia credits the audience growth over the last two years to this structure. “They were fully part of the brand team, a fully trusted member, not some weird corporate plant.”
Sharing best practices was challenging before Condé Nast’s sites began migrating to CoPilot. The custom CMS is the “basis for our expansion in business development,” says Santarpia. Matt Starker, general manager for digital, negotiates the strategic relationship with Facebook with the full value of the portfolio and determines “what [an agreement] might look like from a revenue share perspective and a content delivery perspective.” But each brand decides for itself how to use Instant Articles, for example, says Santarpia, referring to a service which hosts news stories directly on Facebook, allowing users to see an entire article without leaving the platform.
"One of the things that differentiates us is that we’re not creating a piece of content one time and trying to scale it across fifteen web sites,” says Santarpia, in reference to Hearst, which syndicates content across its portfolio of sites. Yet Santarpia has found opportunities for sharing editorial resources. A new centralised “social news desk,” run by former Glamour digital director Anne Sachs with a staff of seven, pushes breaking news stories to the different sites — though it’s up to the brands to publish them.
CoPilot is also a foundation for developing new products the company hopes readers will pay for. “Condé Nast has been a dual revenue stream company for 100 years, consumer and advertising, and we are committed to maintaining that in digital,” says Santarpia, citing The New Yorker’s paywall as an example. “We’re not just going to be a company that's running [free] editorial websites.” Several new revenue-generating products are coming down the pipeline in 2017.
E-commerce is also a major opportunity. "I think commerce is one that we've got to take a look at very, very seriously in the US, through Style.com and beyond," says Santarpia, calling the connection between content and commerce a "hard thread to needle." (Franck Zayan, president of Style.com told BoF last week that Condé Nast is committed to launching in the US and working to do that this year, but did not provide a specific launch date).
Advance Publications’ independent investment group — led by Andrew Siegel, who announced his departure in February — has invested in several e-commerce companies, including Farfetch, Moda Operandi and Rent the Runway. But for now affiliate marketing partnerships still seem to be the priority, though both Santarpia and Sauerberg say no one retail partner is significantly more valuable than others.
Condé Nast has long differentiated itself by its prestige positioning, but maintaining a specific voice while driving traffic growth can be a tricky balance. In covering the Kardashians closely, for example, Vogue.com risks diluting its DNA. Has the publisher sacrificed its premium identity at times for traffic? “I do think that there’s a difference between what the National Enquirer is saying about Kendall [Jenner] and what Vogue is saying about Kendall,” says Sauerberg. “There are brands here that went too far in one direction and I think there are brands that stayed the course,” adds Santarpia, who also acknowledges that at some point traffic is going to plateau.
Our future is about being far more bottom up.
“For Condé Nast to continue to grow and to continue to reach valuable audiences, we're going to not just distribute content in more places, but we’re going to work with more people to create new and interesting things. You’ll see a consistent thread of partnership announcements as we go through 2017,” says Santarpia.
In March, the company announced a new agreement to join NBC Universal and Vox Media’s digital advertising platform — and contribute its proprietary behavioural data-tracking platform, Spire. With data from 1010data, acquired by Advance in 2015, and CitizenNet, acquired in February, Spire connects user activity to offline purchase activity through credit cards and social media profiles. “The return on investment for our marketing partners, by being able to target on that kind of level, is way higher than anything that we've ever been able to do just on contextual relevance,” says Santarpia.
Talk of new partnerships — like the formation of a company co-owned by Condé Nast and Hearst called PubWorx to manage production for both companies— has not quieted consistent speculation that Condé Nast may sell to Hearst, particularly as the former continues to consolidate its print business. Sauerberg declined to comment on the subject.
In the meantime, Condé Nast has followed industry-wide trends and reorganised its advertising teams around thematic groups of brand titles and client industries, including fashion and luxury. The reorganisation, spearheaded by new chief business officer Jim Norton, will begin on April 3. “We're not going to go to market as 18 brands that somewhat compete, we’re going to go to market as one company selling the most premium brands in the world,” says Sauerberg.
Where does this all leave Condé Nast’s challenged print business? Newsstand sales have been declining industry-wide for the last decade: for example, Vogue’s best newsstand issue in 2016 sold 238,000 copies, versus 571,000 in 2006, according to the Alliance for Audited Media. “Our model has been focused on advertising, so we have to address that change,” says Sauerberg, describing advertisers as fickle and the business in consumers as strong. He says frequency of print issues has become less important to marketers and Teen Vogue, for one, switched to a quarterly schedule earlier this year.
Fewer issues means less need for large print editorial teams — and more opportunities to share resources as the company has already done by creating a unified art department under Raúl Martinez, Condé Nast’s corporate creative director. “The creative part is our first step in that, and I would say I'm open to it,” he says, adding that there are no current plans to further consolidate edit teams.
“When you change the structures... and you make it okay for people to change, make it okay for people to work on different projects, change the reward system, everything — that’s how our culture will evolve,” says Sauerberg. “Our future is about being far more bottom up.”
But can a company so defined by a top-down culture — exemplified by the charismatic editors and publishers with large expense accounts who filled New York media gossip columns in the '90s and early aughts — really leave that mindset behind?
“There is no shortage of opportunity,” adds Santarpia. “We’ve got a long way to go.”
Disclosure: Chantal Fernandez worked at Vanity Fair and Lucky from 2012 to 2014.