A song to read by: “Red Moon,” by Big Thief

What I’m reading: “Barbarian Days,” by William Finnegan 

Programming note: No Medialyte next week in observance of Christmas. Happy holidays!

Published this week

— Exclusive: How Affiliate Platform Howl Fell Months—and Millions—Behind on Publisher Payments

— Morning Brew Publisher Steps Down to Focus On New Media Venture

— theSkimm Cuts 10% of Staff, Its Third Round of Layoffs This Year

— Jezebel Relaunches Under New Ownership, Eyeing Direct Advertising

On my mind

In light of the somber news that Condé Nast brass plans to lay off 5% of its workforce this month, I have found myself thinking a lot lately about one of the most intriguing investments the company ever made.

Back in 2005, before the balance of power had shifted from legacy media to Silicon Valley, the suits at 4 Times Square realized they needed to get a toehold in the burgeoning technology industry and, in doing so, managed to pull off the steal of a lifetime. 

That year, for the paltry price of $10 million, Condé Nast acquired the social platform Reddit. The founders of the website, Steve Huffman and Alexis Ohanian, have since gone on the record to bemoan the sale, blaming a lack of guidance from the nascent start-up community as to the process of raising funds in exchange for equity. Ohanian, in particular, has made a Halloween tradition out of rueing the robbery. 

Nonetheless, for the next six years, Condé Nast found itself the unwitting owner of what would eventually become one of the most influential digital media properties in history. Crucially, the ownership structure soon grew considerably more complex. 

In 2011, Condé Nast, which itself is owned by a company called Advance Publications, spun out Reddit so that it could operate as an independent subsidiary of Advance. At that point, the two media companies became siblings in the Advance family — an important detail. 

Over the ensuing decade, Reddit raised a series of fundraising rounds to fuel its expansion: $1 million in Series A funding in 2012; $50 million in Series B funding in 2014; $200 million in Series C funding in 2017; $300 million in Series D funding in 2019; $367 million in Series E funding in February 2021, and $700 million in Series F funding in August 2021.

Before these fundraising rounds, Advance owned 100% of the company. But with each of these successive capital raises, its ownership stake shrunk.

According to some back-of-the-napkin equity math (calculated — where else? — on Reddit), Advance still owned 70% of the company after its Series D in 2019. Its two subsequent raises — a Series E and F that cumulatively totaled over $1 billion — were its largest injections of capital yet, meaning Advance would have seen its ownership diluted further. Still, late-stage investors typically put up more money but receive less equity than their early-stage counterparts. 

At the moment though, the exact configuration of the Reddit cap table remains a mystery to all but the investors involved. According to Wikipedia, Advance currently owns 30% of Reddit, although the article it cites for that information does not include that number. On its website, Advance calls itself “among the largest shareholders” of Reddit — not a majority shareholder, and not even the largest minority shareholder. 

Nonetheless, barring some “Social Network” type dilution scenario, it is a safe assumption that Advance still owns a significant percentage of the company.

Why is this relevant? Reddit, after years of hemming and hawing, has finally declared its intention to IPO in the coming year, potentially as early as the first quarter. When that happens, all of its existing investors will finally be able to cash out on their investments, Advance included.

At its last valuation, in 2021, Reddit was valued at around $15 billion. Since then, however, tech companies across the board have seen their valuations tumble as the market began fixating on profitability — an achievement that has long eluded Reddit. (In the last year as the company has prepared to go public, it has stoked outrage among its user base for imposing a series of draconian measures designed to squeeze more money out of the platform.) 

Fidelity, which led Reddit’s Series F, has since slashed the estimated worth of its equity stake by 41%, so it is fair to assume that a $15 billion valuation might now be optimistic. 

Still, assuming the platform IPOs somewhere in the neighborhood of $15 billion, Advance stands to inherit a chunk of change in the next few months — potentially up to $5 billion, if it does indeed own 30% of the company. 

Even if you round $2 billion in either direction — as low as $3 billion or as high as $7 billion — Advance stands to make a pretty good return on investment on the $10 million Condé Nast first paid for the property back in 2006.

The question then becomes: Does Condé Nast see any of this money? The cynic in me assumes no — or at least it sees very little. For one, when a parent company comes into money, it has no obligation to share it with a subsidiary.

Also, Condé Nast is far from the only subsidiary that Advance owns. Outside of its magazine portfolio, Advance owns a series of other media conglomerates, including Advance Local — a collection of more than 20 local newspapers with outposts everywhere from Alabama to Pennsylvania — as well as the American City Business Journals portfolio.

Beyond media, Advance also owns the anti-plagiarism tool Turnitin.com, the Ironman franchise, a marketing firm called Pop and two things called Stage Entertainment and Leaders Group.

In short, Advance has a lot of mouths to feed. Even if it did decide to invest its coming windfall into its subsidiary companies, it would have dozens, if not nearly a hundred companies to spread it between.

On the other hand, Condé Nast was the company that initially made the Reddit acquisition, so perhaps it has some privilege in the pecking order. Maybe — and this would be a real feather in the cap of the then-leadership — Condé Nast struck some sort of agreement with Advance guaranteeing it some chunk of future payouts. (This is fanciful thinking, but who knows.)

More subjectively, Advance is run by the Newhouse family, and Condé Nast has long been the jewel of their empire. Dating back to 1959, when Samuel Newhouse bought Condé Nast as a gift for his wife, Mitzi, the cultural prestige of the media company has often made it an object of preferential treatment within the Advance kingdom.

Ultimately, there is no telling how the funds will shake down, but there is no question that they are, after nearly two decades, finally imminent. Will Advance funnel its cut of the Reddit IPO into its subsidiary companies, invest it elsewhere or use it to expand its ranks through further acquisition? Who knows. 

But as Condé Nast — the company whose $10 million investment almost 20 years ago made this whole thing possible — prepares to once again resort to layoffs to cut costs, I bet its staff is holding out for a little Christmas miracle.

The week that was

Another week in Seattle with precious little to do outside of crossword puzzles and walks in the woods. 

I was finally able to publish this story, the result of several months of work to corroborate documents, conduct interviews and get to the bottom of why a company called Howl had fallen behind millions of dollars in payments to half a dozen blue-chip media companies.

Additionally, I received a series of juicy tips midway through the week, so hopefully you will see those borne out in reporting in the coming weeks. 

One good rumor

With all the layoffs going around, it can be easy to forget that there are alternative ways of reducing salary costs in the face of budgetary shortfalls. 

Case in point: Executives at Cityside, the nonprofit parent company that houses the nonprofit newsrooms Berkeleyside and Oaklandside (and soon Richmondside), opted to take a 20% pay cut for the next six months to make up for a budgetary shortfall, according to a person familiar with the matter.

President and chief executive Lance Knobel, editor in chief Tanzeem Paghdiwala and editorial director Tracey Taylor all volunteered to reduce their salaries to stave off personnel cuts. Additionally, seven other members of the Cityside leadership also volunteered to take the same pay reduction. 

Cityside is a nonprofit, so its executive salaries are public information; ProPublica has an incredibly helpful tool for searching these things. I will not list their salaries here, but you can take my word for it: These folks were making a reasonable, if below-average wage for their work before the cuts.

Nobody expects senior leadership to work for pennies, and I expect that if these budgetary issues are not resolved within six months’ time, that management could reasonably return to their original salaries and look for other solutions. 

But to me, at least trying this is what leadership looks like. For all the layoffs I have written about in recent months, I wonder how many times management even considered the possibility of temporarily reducing their own salaries. And I wonder how much bigger their salaries are to begin with. 

Older folks have often criticized my generation for moving from job to job with impunity and demonstrating a perceived lack of loyalty to their employers.

But I have heard — trust me — too many stories of founders and executives laying off staff to preserve their astronomical salaries for me to feel any sense of workplace camaraderie. Just a few weeks ago I heard about a group of founders who, despite conducting multiple rounds of layoffs across the year, made sure they each kept on their executive assistants. Another media executive I heard is being paid $1.5 million in exchange for quietly hollowing out their company.

I know every profitable company is alike and every unprofitable company is unprofitable in its own way, but kudos to the leadership at Cityside for doing what good leaders should at least try to do. (Also, to be clear, they did not share this with me.) This is the kind of thing that inspires staff to stick around, work harder and feel like they are investing in a company that cares about them.

Some good readin’

— As my editor put it, “Nandini gets the Taylor Lorenz treatment.” Few people are better than Nandini at demonstrating how the convolution of the ad-tech world has massive negative impact on real life. (The Washington Post)

— I was optimistic about Lina Khan, but her tenure has been a disappointment! Also: A missed opportunity to title this story “Lina Khan’t.” (Intelligencer)

— The best new restaurants in New York! I’ve only eaten at one of these, but in my defense I wanted to eat at three of these. (New York Times)

Cover image: "Street in Asgardstrand,” by Edward Munch