A Q&A With Hearst’s Ken Bronfin
Behind the investment strategies of the company's interactive media division.
Hearst recently purchased UGO.com, an online entertainment site that caters to the 18-34-year-old male demographic; a market that Hearst will be moving toward aggressively via non-traditional media. The operation will be placed under the Hearst Interactive Media division, a group within Hearst’s vast corporate structure that for the last 13 years has been responsible for investing in early-stage Internet companies, even acting as an incubator for small, entrepreneurial start-ups.
It’s a unique arrangement that gives Hearst an inside track on cutting-edge technology and puts them in a position to learn from, and sometimes acquire, an operation that could have a meaningful strategic impact on the company. It’s a division tangentially related to Hearst Magazines Digital Media, which oversees the development of Web properties tied to the company’s traditional media products.
Ken Bronfin, president of Hearst Interactive Media, spoke with Folio: about the company’s attraction to UGO.com and offered some insight into the purpose and investment strategies of his division.
Give us a little background on Hearst Interactive Media.
We were formed 13 years ago. I’ve been here about 11 years. We started off developing a number of our own Web businesses. One that emerged to be important through all of this was HomeArts.com. It was a women’s portal, and slowly but surely turned into a deal with Women.com, where we ended up owning that. That slowly morphed into a merger between Women.com and iVillage.com whereby we owned 1/3 of iVillage. Ultimately, we sold iVillage to NBC. That’s a big part of our history over the years.
A second part of what we’ve done is we’ve made strategic venture investments in a wide variety of companies;about 49 companies. And the purpose of that activity is of course to generate a financial return, but just as importantly to generate a strategic return, which is to get to know emerging Internet and early-stage businesses that we believe are changing the media landscape.
What kind of stake do you typically buy?
We’ve owned as little as one percent and as much as 40 percent of some of them. We’re typically on the board of directors of these companies and this gives us insight into what’s going on in the world of shaping interactive technology and media. And we are able to influence some of these industries and we’re able to learn from them. We take that learning and bring it across our company to help influence what the other interactive groups are doing. So it’s been an important and lucrative pursuit for us.
Would you say there’s more learning or more influencing going on?
Well, you always learn, but you don’t always influence. Sitting on the board of these companies has just been extraordinary for us. We’re an investor in a company called E Ink, which is creating electronic paper. You can decide whether you think that’s going to be important or not, but we certainly do from a newspaper and, ultimately, a magazine perspective. We’re a major investor and I happen to be chairman of the board. So, I think there’s a case where we’re not only learning but we’re influencing and we’re inspiring other parts of our company to think about what the future looks like in the world of mobile devices.
What are some other key areas in the market that you’re watching closely? Should publishers be interested in content or technology?
I think it’s both, and it’s the intersection of those. A key area of investment for us has been video. We’re an investor in a company called MobiTV, which delivers video content to phones. We’re an investor in Brightcove. The world is transitioning quickly to delivery of video through the Web so that’s a big area for us.
We’re an investor in companies around community and we care a lot about that. There’s a wide variety of things that are influencing the way that people watch and participate with content and that’s where we focus.
We also have a couple interesting ideas that we are growing internally as well, so it’s not just investing. We know a lot about getting companies started because we’ve watched it in the last 50 companies we’ve invested in. We actually have a start-up company living here in the building;I can’t tell you what they’re doing;but we have the ability to start up businesses and bring entrepreneurs in and do things. I’m not talking about in a highly structured corporate way, but it feels a little bit more like a start-up business that’s living within Hearst and is wholly owned by Hearst.
Are you investing in these companies with an eye toward buying them outright?
That is a part of the strategy. That’s not consistent across all businesses that we invest in. I don’t want to be an owner of E Ink, for example. That’s a pure technology company. But there are companies that are closer to home and there are content companies in our portfolio that would possibly make a lot of sense for us to own one day. So this is an opportunity for us to own a stake and watch the company grow.
Of course buying a company in the very early stages and taking it over is always a challenge. I think it can be done, but sometimes these companies are more ready for acquisition three or four years out, where these little entrepreneurial teams may not always do great within larger corporations. So we’re sensitive to that. It doesn’t always make sense for large companies to buy these little five and ten-person startups and try to bring them in.
Are there any patterns in how these companies are valued, either for acquisition or investment?
Acquisitions of good-sized companies, like the size of iVillage, are clearly marketed at certain multiples. So whether it’s About.com, Marketwatch or Shopzilla, these are all valued at multiples of EBITDA in the 20-something range. We go shopping and look for a variety of businesses that we think we can get a good price on. And so you haven’t seen us buy a major property like that, although UGO.com is a good sized property.
Is your group unique among companies such as yours?
In order to do what we’re doing, to invest, which is very cyclical, you have to have a lot of patience. You have to be in it for a long time. Our first investment was Netscape, that’s what got us started on all of this. You have to be the type of company that’s going to be able to live with these start-up companies and what goes on with them, the ups and downs. You can’t try to suffocate them. It takes some learning and I don’t know if all companies have the patience to do that, and as a private company we also have a privilege to invest meaningful amounts of money. Sometimes public companies don’t always have that privilege. Hearst has a very long-term view on developing its business.