Vice CEO on old media: ‘They can go to hell quite frankly.’
FORTUNE — Born as an indie magazine, Vice Media has morphed into an irreverent digital media powerhouse, in large part, through the force of personality of its iconoclastic CEO-cum-on-air-personality, Shane Smith. Its approach to the news has been described as “More ‘Jackass’ than journalism.” Yet, Vice’s raw, in-your-face voice is resonating with an ever-growing global audience of young people hungry for something new. Like it or not, Vice has emerged as one of the savviest players in the burgeoning new media world that is finding success around YouTube (a trend that was the subject of a recent Fortune cover story, How YouTube changes everything).
In a wide-ranging conversation with Fortune, Smith discussed the keys to Vice’s success, offered advice to traditional media, and defended the North Korea stunt. This is an edited transcript of that conversation.
You’ve called Vice the “Time Warner of the street.” What do you mean?
It simply means that Time Warner [Fortune’s parent company] (TWX) is a media conglomerate that does magazines, TV, movies, music, books. And so are we. We are the changing of the guard. We have magazines and records and books and online video and TV shows and movies that are more for Gen Y than for baby boomers.
So the “street” refers to the younger generation?
Vice describes itself as an all-digital network, yet as you have just said, you have all these other channels, including a show on HBO. What’s the interplay between TV and online for Vice?
We are all digital in the sense that that’s our focus. We create things first for online. If they go to TV, if they go to film, fine. That’s just another exploitation of that content, but we are online first.
A lot of the other YouTube or online channels aspire to “graduate” to television because the ad dollars are still much bigger there. You’re saying that’s not the case for Vice?
People want to migrate off of digital platforms because it is theoretically more lucrative, and there’s also [a sense] that TV is the gold standard.
I’ve said I want to be next ESPN, the next CNN and the next MTV rolled up into one. Well everybody says, “He’s a megalomaniac lunatic.” If you look at the numbers you can do on YouTube, if you look, for example at Machinima (an online video network for gamers) with 3.5 billion views a month, you wouldn’t be the next CNN. You would be the next CNN 10x. That’s what’s exciting for us.
If you want to use TV as a marketing tool for your brand, or it’s a margin builder because you have already paid for it digitally, fine. We do terrestrial TV in 23 countries, but it’s not core to our business. What’s core to our business is increasing our scale, increasing our reach and monetizing that in a meaningful way. The opportunities online are 10x what cable offered 20 years ago.
Yet, while a lot of people are successfully building audiences on YouTube, many complain that monetization is still pretty challenging – that it’s digital pennies, compared with analog dollars. Machinima, which you mentioned, recently laid off 10% of its staff. Is the same not true for Vice?
For us, we’re lucky in that we work with some of the world’s biggest brands, and our capacity to sell outstrips our capacity to scale. We do things differently. YouTube’s monetization issues are no secret. But what you can do is start making innovative deals at the brand level. A lot of online content companies fail because they don’t go directly to the brand, they don’t make unique or creative monetization deals.
What’s an example of this?
Look at the Creators Project [a channel focused on the intersection of art and technology]. We made a deal at the brand level (with Intel). We’re going to make content that young people are going to enjoy, and it is going to help your brand. Then we make that content. We exploit that content. We have a TV show in China, we have mobile in India, we license it to TV in 23 countries in the world, we create a YouTube (GOOG) channel. It drives subscriptions, and it drives millions of video views. Intel (INTC) is happy because they are getting more ads at more scale globally. We get paid for the content before we ever put it on YouTube. Those are the types of deals that you have to make. Brands want scale. They want engagement. If you just wait for somebody else to make money for you, I don’t believe that’s going to happen.
And you are able to keep the editorial independence?
Absolutely. We don’t do branded content. We do content that is sponsored by brands. And that’s no different than TV or radio or magazines.
Is Vice profitable?
Very. We have a rule that everything that we do has to make money.
We are growing at 100% a year without our big windfall deals that we are going to be announcing in Q4 or early Q1. We’re getting quite big, for us at least, in the dollars sense.
YouTube and online in general is typically short form. You’ve had success with longer content. Why?
Long form, I believe, is (viable) for the first time ever, because of bandwidth, because of young people consuming TV-length content online or through mobile or tablets. Gen Y people now consume whole movies online, so 20 minutes, 30 minutes, 40 minutes isn’t too long. We’re in the right place at the right time.
Not everyone is a fan of your approach to the news. You’ve been roundly criticized for filming Dennis Rodman in North Korea. Around that time, your site proclaimed that “North Korea has a friend in Dennis Rodman and Vice.” What’s your response to the criticism?
First of all, any dialogue is good with any country especially if there’s aggression. Look, I’m not allowed to go to North Korea because I did two documentaries in North Korea and one outside North Korea on the slave labor camps in Siberia that were harshly critical of the regime. Vice has made no secret of our criticism of the North Korean regime.
Every time mainstream media says we are not doing it correctly, we say “Sure. We are doing it our own way.” We are also not saying we are the best in the world. We are out there, we are making content, and doing stories that young people resonate with. If that doesn’t satisfy the old guard, they can go to hell quite frankly.
What are you doing for an encore?
What we learned with the Rodman trip is let your content speak for yourself.
We have a big one that I can’t talk about. Look, Kim Jong-un is an absurdist character, from an absurdist country, and we went in for an absurd story. We know that. This is sort of similar, but I think it has much more geopolitical resonance.
More broadly, what’s next for Vice?
Look, it’s a great time to be a content provider. We are extremely happy and extremely lucky to be in the right pace at the right time. What I try to preach is that online is a better medium than TV. You can do a lot more with it. But the content that we make, in a lot of cases, doesn’t stack up against it. We have to challenge ourselves to be better. The content creators for the digital world have to be better than TV.
What’s your advice for traditional media execs who are trying to migrate online?
You can’t retrofit it. If there’s a bunch of old dudes in a boardroom that go, “OK. Let’s start making video,” what they try to do is hire pedigreed people. What you get is a shittier version of TV. You really have to rip out the pipes. You have to make things in a different way, hire people who have never worked in TV or commercials or film, get people straight out of schools, get people who don’t know what they’re doing, form your own school and train these kids. The reason I’m telling you all this, the reason I’m giving away my secrets, is that’s it’s nearly impossible to do.
If you think you’re going to raise $50 million or $100 million and go out and hire people who’ve done it before to do TV online, you’re going to fail.