The long decline of once-mighty Time Inc., the magazine division of behemoth Time Warner (NYSE: TWX), has now taken a sort of tragicomic turn.
Fortune reported last month that Time Warner was poised to sell the magazine division, which included a slew of publications targeted to women to heartland magazine publisher Meredith Corporation (NYSE: MDP). Time, Fortune, Money and Sports Illustrated were not included. But the deal with Des Moines-based Meredith fell through last week, and the company is finally ridding itself of this albatross by moving to a far riskier ”Plan B.“ They’re selling Time Inc. to the public, creating what will be the largest magazine business on the market, with more than $3.4 billion in annual revenue as of last year.
Whether investors will want to gobble up shares in a company that so reflects "old media" remains to be seen, but many in the media community remain skeptical of Time Inc.'s investment prospects as a standalone company. Wall Street questions whether it can deliver growth in such core areas as advertising, circulation and digital businesses.
Securities analysts have other questions as well. Analysts prefer black and white investment situations. They have anything but that here. For instance, they are having a tough time concluding what the publishing business' equity value is right now because the cash/debt balance of the spun off business is not clear yet. By comparison, Rupert Murdoch’s News Corp., which is also spinning off its publishing division, plans to start the new company with $2.6 billion in cash and no debt.
At the same time, counter-balancing some of the negative talk, the supporters of Time Inc. believe that its ace in the hole with investors – at the outset, at least – could potentially prove to be its size and its stellar reputation for creating high-quality journalism.
Janney media analyst Tony Wible captured the perils and possibilities of the new spin-off when he said in a report to clients that Time Inc.'s stock might ultimately "trade at a premium to its peers, given its market-leading position." He said the spin-off could potentially "save money, increase revenue per ad, improve measurement and increase distribution – but it also competes with a growing number of free online publications and there may be few ad slots in the new medium."
Meanwhile, Richard Morgan, writing in The Deal Pipeline, noted that the spin-off could eventually enhance the prospects of Time Inc. and Meredith making some sort of deal. He says "Clue No. 1" exists in the press release issued by Meredith, in which its chairman and CEO Stephen Lacy said his company remains "open to continuing a dialogue on how our companies might work together."
A combination of Time Inc.’s titles such as People and InStyle with Meredith’s roster of magazines, including Family Circle, Ladies' Home Journal and Every Day with Rachael Ray, would have created a publishing giant focused on the women’s market. Legendary brands like Time, Fortune and Sports Illustrated didn’t fit, though, and it seems pretty apparent that Meredith, like every other company that Time Warner has talked with, wanted no part of those financially troubled, no-longer-majestic magazines. Oh, each continues to produce high-quality journalism, but the question is relevance and digital clout at a time when the American public increasingly looks to the Internet for news and information.
Plus, the advertising spending that fell off a cliff in the wake of the 2008-09 U.S. recession hasn't yet returned to a point where Time Inc. can be easily rescued. It's a perfect storm, really, of financial, cultural and institutional changes.
The "institutional" component there refers to the unsentimental strategy implemented by Time Warner Chief Executive Jeff Bewkes, who is looking to focus the company around its core entertainment businesses. Bewkes came up through the ranks of HBO, not the magazine group, and has no inherent hand-over-heart loyalty to the glory days of Time Inc. He feels closer to the interests of Time Warner's stockholders, who see the value of their shares being dragged down by the lumbering publishing division.
What should be disturbing to the U.S. media industry is that this financial disintegration has taken place at one of the best journalism shops. If it could bedevil Time Inc., the paragon of magazine journalism since two young ambitious fellows named Henry Luce and Briton Hadden audaciously launched Time magazine 90 years ago – and all but created the model for the magazine industry to follow – what hope will there be for the scores of small and medium-sized publishers to survive in the 21st century?
They say "Content Is King." So how could Time Inc. fall so far from grace that its parent company tried hard to sell it and effectively wash its hands of not only a financial migraine but also generations of proud history and tradition?
I contend that Time Inc. has itself to blame for much of its deterioration over the last decade. As a columnist on the web, who was feeling increasingly impressed with the strides that were being made by electronic journalism, I watched, amazed, as the Time Inc. managers failed to quickly recognize and adapt to the coming power of the Internet.
While Time Inc. struggled with “synergistic” corporate experiments to tie their brands to CNN and then AOL, many of its journalists seemed to be satisfied simply to stay in their Ivory Tower, oblivious to what was ahead. It was as if the web was somehow beneath them. Either they were smug and complacent or ill-informed and simply out to lunch. Neither is exactly an attractive conclusion.
I recall interviewing Time Inc. editors and executives a decade ago about the company’s Internet strategy when they disclosed to me how much trouble it was to get many of their charges to write for the magazine's web sites. Of course, Time Inc.’s old guard can bleat, in their defense, "We weren't the only ones who made this mistake, you know." True enough. But Time is suffering for its early sins of neglect just the same. The company has tried in recent years to build up sites like SI.com, Time.com and People.com into online powerhouses, but none of those sites dominated the Web world the way their print counterparts once did.
Media-industry wags suggested that Time Warner would never have the chutzpah to sell Time Inc. If it did, the prevailing logic went, the parent company would presumably have to change its name. When I put that question to a former official of Time Warner, he laughed at my journalistic naiveté, shrugged and said, "They can get the paint detail over there and scrape 'Time' off the building in an hour. How does 'HBO Warner’ grab you?"
So much for sentiment.