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Why the big winner in the Reddit IPO is ... a magazine publisher

Peter Kafka   

Why the big winner in the Reddit IPO is ... a magazine publisher

It's easy to write gloomy stories about the state of the media business. The media business is often pretty gloomy!

So let's try to break the mold with an upbeat take. This one is about a very Old World Media Company that has struck gold in digital media — one of the very few times that has ever happened.

Here goes: When Reddit goes public this week, it will ask investors to value it at $6.4 billion. And if that happens, one of the chief beneficiaries will be Advance, the privately held company that owns magazine giant Condé Nast — the people who bring you titles like Vogue and The New Yorker. Advance, which isn't selling any shares in the offering, will end up owning 26.5% of Reddit after the IPO.

So if the pricing pans out the way Reddit and its bankers are hoping, Advance's stake will be worth $1.7 billion — and even more if the stock "pops," as Wall Street still expects out of public offerings.

Even better for Advance: That $1.7 billion was generated by an initial investment of around $10 million, which is what it paid to buy Reddit back in 2006.

That's an amazing return! And one that's very welcome at Advance — which, like many other traditional media companies, has been dealing with long-term systemic challenges. And even more impressive when you compare it to the track record of other Big Media companies who have bought or invested in digital properties, and almost always live to regret it.

A very incomplete list of those: News Corp.'s purchase of MySpace; Disney's acquisitions of gaming company Club Penguin and YouTube network Maker Studios; the hundreds of millions that Disney, Fox, Time Warner, and Comcast/NBC put into digital media startups like BuzzFeed, Vice, Vox Media, and others during the Facebook boom of the last decade. Almost all of those deals ended up as write-offs and shut-downs. (Vox Media, my previous employer, is still motoring along — but at half the valuation it was at its peak.)

(While we're in disclosure mode, I should note that Business Insider itself is a digital media company acquired by German media conglomerate Axel Springer in 2015. And we're still around.)

Reddit's success has been anything but an up-and-to-the-right line, and if you want to know more about the ups and downs of the company there are plenty of places to learn more.

And while we're at it, it's worth noting that Advance's success comes with some caveats as well: In 2021, for instance, it invested an additional $26 million in Reddit in a funding round that valued the company at a reported $10 billion. So for the moment, those shares are underwater.

But it appears that the most important thing Advance's managers did at Reddit, other than buying it, was spinning it out as a stand-alone company in 2011.

That did at least two things: It meant that when Reddit was undergoing one of its many controversies and challenges, very few people wondered about the connection between the site and the publisher behind publications like Vogue and The New Yorker. And it meant that Reddit could succeed, or stumble, without much meddling from its owners.

Maybe a worthwhile playbook the next time — and there will be a next time — a big media company opens its wallet for a digital upstart again.

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