Hearst Magazines President David Carey Pens Letter to Staff, Looking Ahead to 2018

[caption id="attachment_11428" align="alignright" width="299"] David Carey, President, Hearst Magazines[/caption] In the following letter to Hearst Magazine staff, president David Carey outlines the successes of 2017, such as the acquisition of Rodale, and shares the projects Hearst plans to launch in 2018. Dear Colleagues, 2017 is nearly over, and what a year it was—12 months marked by rolling waves of change across government, industry and, of course, the media business. Some companies were slow to react and found themselves frozen in place. But those that viewed disruption as opportunity will surely emerge as winners. It may be hard to imagine, but I do believe that, in a few years’ time, 2017 will be seen as a relatively tranquil period for the media business. The pace of change will only increase in the future, as transformation tests every sector of the economy. From automotive and retail to travel and beyond, each industry is evolving before our eyes. Through 2016, the Hearst Magazines Group enjoyed four straight years of earnings growth. In 2017, earnings were slightly off by low single digits, yet it was still one of our best years in the past decade, thanks to the broad diversification of our operating units—across audiences, geographies, print and digital, business-to-business and business-to-consumer. This gave us a strategic advantage over our competitors; the same is true for our increasingly diversified parent corporation. All told, our B2B and international media units represented nearly 45 percent of the division’s earnings in 2017, a big jump over prior years. We will further expand the perimeter of the Hearst Magazines Group in 2018, with the biggest move being our acquisition of Rodale, which is expected to close in early January. We have long admired the Rodale brands, some of which we have published in the U.K. and other international markets for many years, and we look forward to bringing them into our company in the first quarter. We are about to close on a transaction to acquire the Gruner + Jahr magazine business in the Netherlands, further strengthening our position in Western Europe. And we are in active discussions to make strategic investments in our KUBRA, CDS Global and iCrossing B2B units. In the U.S., 2017 saw the successful pilots of two new print brands, The Pioneer Woman Magazine and airbnbmag. The first issue of Pioneer Woman sold out almost immediately and required a second press run to fulfill demand; the second issue was an even bigger hit with consumers and marketers. airbnbmag broke the mold of how we create magazines, employing Airbnb user analytics to inform content. I’m happy to report that we will produce four issues of each magazine in 2018. And we are working through the details of several possible magazine tests in the U.S., in partnership with world-class media and technology companies. It’s already shaping up to be a busy year! We like to say that we’re “print proud and digitally smart,” reinforcing the critical role each plays in our earnings, and 2017 was a growth year for Hearst Magazines Digital Media. In the U.S., our brands averaged 1.4 billion monthly page views and had more than 15 billion annual video views, while attracting 146 million social followers, plus 81 million monthly unique visitors on Snapchat Discover. Our team launched five new brands on Snapchat Discover, making Hearst the largest publisher on the platform, with a total of seven titles. Seven shows were developed for Facebook Watch, and new content partnerships with Carine Roitfeld’s CR Fashion Book and Shonda Rhimes’ Shondaland.com were introduced. Our ecommerce push behind BestProducts.com and other brands matured, and, in November alone, our sites generated nearly $10 million in direct-commerce transactions for our retail partners. Also in November, we unveiled a new 26,000-square-foot video and multimedia production studio, home to over 100 editors, videographers and designers who keep the six studios humming constantly. I have been impressed by the bold, ambitious news-breaking content our digital brands are producing. HarpersBAZAAR.com’s coverage of sexual harassment in the modeling industry touched a nerve; MarieClaire.com locked in Canada’s Prime Minister Justin Trudeau to pen an essay on feminism for International Day of the Girl; and ELLE.com’s video about an 8-year old transgender child had 38 million views. And Delish continues its steep upward trajectory, with nearly 28 million unique visitors, a 46 percent increase over last year, and a social footprint that is growing like crazy, with 15 million followers on Facebook alone. And these are just a few of the year’s standouts. Our "Core 20" print titles in the U.S. make up our largest unit by far, and there were many highlights in a year that saw Hearst outperform its largest competitors, some of which are merging as this note comes out. We were proud to celebrate Harper’s BAZAAR’s 150th anniversary with a mind-blowing projection on the side of the Empire State Building, Woman’s Day’s 80th with an out-of-this-world conversation from space with astronaut Peggy Whitson and VERANDA’s 30th with its biggest issue in a decade and a series of historic preservation events around the country. Our teams produced engaging journalism that lit up the zeitgeist, from O, The Oprah Magazine’s thought-provoking series on race to Popular Mechanics’ deep dive into the collaborative fight to cure cancer and Esquire’s investigative report on the family and company behind the highly addictive opioid OxyContin. And, in the spirit of doing well by doing good, we launched Hearst for Humanity to support charities and social causes that resonate with our audience. Seventeen inspired teens with its second annual National Body Confidence Day in October, delivering an empowering interview with cover stars Fifth Harmony. Adweek and Advertising Age recognized our brands with best-in-class honors; on the newsstand, Hearst Magazines hold the top four best-seller spots for monthly magazines, with six titles ranking in the top 10. Our integrated, orthodoxy-breaking covers continued to dazzle readers, with breakthrough units on Country Living, HGTV Magazine, House Beautiful and Food Network Magazine, that re-redefined high-impact print. We executed creative partnerships that highlight our brands’ unique strengths. Good Housekeeping teamed up with Seal recipient Miele to build the Kitchen of the Future, a multi-purpose workspace and incubator in the Good Housekeeping Institute. Marie Claire partnered with MasterCard to launch The Next Big Thing, a retail pop-up experience that brought the newest innovations in fashion, beauty, technology and wellness to life in New York City. Town & Country brought the Philanthropy Summit back to Hearst Tower, with speakers including Michael Bloomberg, John Legend and Glenn Close, and introduced the Philanthropy Series in San Francisco. ELLE’s Women in Hollywood event was a timely forum for the movie industry’s biggest female stars and leaders to speak out about harassment and equality. 2017 was a key investment year for Hearst Autos, home of Car and Driver and Road & Track, which now houses the automotive sales and marketing functions for Hearst Magazines’ complete print and digital portfolio of brands. With offices in New York, San Francisco, Ann Arbor, Atlanta and Boca Raton, the unit is setting the stage for big growth in 2018. Our four B2B companies turned in strong performances, providing important balance for our business. iCrossing posted its best results since its 2010 acquisition, thanks to an acceleration of new business opportunities and organic client growth. In collaboration with its U.K. investment MediaBlaze, the agency won a Microsoft pitch, on top of wins from City National Bank and Prudential, building momentum and revenue going into 2018. KUBRA, which is focused on the utility industry, had an impressive year of growth, welcoming many new clients, including Nashville Electric, Eversource, San Antonio Water Services and the City of Philadelphia. The company embraced Natural Language Processing (NLP), machine learning that incorporates messaging bots into core applications. In 2016, KUBRA acquired iFactor, another business process outsourcing (BPO) company, which creates notification solutions for energy providers to keep customers informed during power outages—a product line that played an important role this year during the floods and hurricanes in Texas and Florida. Our other BPO unit, CDS Global, strengthened its push into serving nonprofits, adding more than $5 million of new revenue. The statistics around CDS Global are always impressive, and in 2017, it handled 81 million inbound mail pieces, nearly 8 million calls and 350 million outbound communications, processing $7.5 billion in payments from 175 million consumers worldwide. And PubWorX, our 50/50 joint venture with Condé Nast, exceeded every expectation and is an important new business serving not only its parent companies, but also an increasing number of independent publishers. The savings from PubWorX are now quite material and allow us to further invest in our transformation. Around the world, our international media operations posted strong earnings growth, the best performance in many years. 2017 was the first full year of the One Hearst approach to our digital business, and we benefited from increased content sharing, dramatically stronger programmatic ad revenue and lower costs, thanks to the harmonization of technology and platform. More than 80 sites are currently on MediaOS2, with more to come. And we have 73 teams in over 50 countries now regularly interacting to plan and execute multi-market deals for advertisers, led by our new London-based Global Digital Commercial Team. Our fastest growing international unit was in Spain, where we recently reacquired the Cosmopolitan and Esquire licenses and integrated them into the portfolio without missing a beat, driving a threefold increase in earnings. Hearst Spain also has the most advanced “hubbing” of any unit and provides important learnings for the rest of the network. For Hearst U.K., our largest international unit, 2017 was an important reset year, with a bold new organizational structure, vision and business strategy. In 2018, the team will move into new, modern offices overlooking Leicester Square, helping to drive its cultural transformation. Hearst U.K., which has upped its digital game significantly, was recently named Digital Publisher of the Year by the Professional Publishers Association, and will end the year toasting a 26 percent increase in digital audience. Hearst Netherlands will more than double in size in 2018, driven by the G+J acquisition, with a resulting collection of media brands that will be the most attractive of any publisher in that market. On the digital side, revenue growth exceeded 30 percent, and programmatic sales increased dramatically. Italy had its fourth straight year of profit growth, due in part to a 77 percent increase in international digital advertising. The team launched a digital-only edition of Esquire, attracted more than 100,000 visitors to the ELLE Deco design conference and staged a memorable evening at La Scala with Plácido Domingo to celebrate the 30th anniversary of Italian ELLE, Marie Claire, Gente and Gioia. Our joint venture in Russia, Hearst Shkulev, celebrated 20 years of Marie Claire in the region with revenue and circulation growth, and experimented with AI technology to create an innovative digital edition of ELLE. The venture’s fast-growing digital classified business was reorganized into three strategic verticals: jobs, real estate and media, with revenue growing by double digits. While navigating the world’s most complex media market, our teams in China rolled out a redesigned ELLE, now a dual-cover monthly in two sizes, which holds the No. 1 ad position in the market with the top share in fashion, beauty, watches and jewelry. The team also introduced “SuperELLE” magazine, embedded with AR technology powering 40 videos per issue and reaching a younger generation of readers. Hearst Taiwan has been growing for four consecutive years and achieved a record high in 2017. ELLE Taiwan advertising revenue has increased 30 percent since 2014, with digital accounting for more than 55 percent of total advertising revenue. The recent relaunch of ELLE.com.tw on MediaOS2 will further increase the rate of growth. Hearst Japan posted another year of earnings growth, despite fundamental changes in that market. Digital advertising grew 30 percent, page views doubled and Women's Health, launched as a digital product in June, was profitable after six months. In print, an impressive 20 percent of all editorial pages are sourced from the global Hearst network, an example of the vast reach and flexibility of our content. As you can see, so much is happening across our Division, and I’m proud of the impressive dexterity of our teams as we acquire, launch, manage and restage businesses across a broad spectrum. Recently, while watching the amazing Ken Burns’ 10-part documentary on the Vietnam War, I was struck by the profound similarities between 2017 and 1968. Then, as now, the nation was dealing with layer after layer of change—protests in the streets, political upheaval, the turbulence of social transformation. I know that working through this constant disruption can be challenging at times and that your own "personal ecosystem"—your partners, your family, your friends, your children, your parents, your mentors—played an outsize role in 2017. As always, I thank them for inspiring you as you help our company move confidently into the future. I’m looking forward to 2018 and to watching our teams develop new initiatives and ways of working together as we navigate a future that will surely be filled with twists and turns, gratifying achievements and complex problem-solving. I hope you get the same soul satisfaction that I do from being part of a company that is leading our industry through the most dynamic period in its history. With all best wishes for the year ahead, David Carey

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Hearst Magazines President David Carey Pens Letter to Staff, Looking Ahead to 2018

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