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‘Transformation’ On The March (Or, The Urge to Purge)

Stunning as Time Warner’s spinoff of Time Inc is, it’s inadvisable to hold your breath waiting for print to disappear, writes Karlene Lukovitz.

By Karlene Lukovitz

Time Warner’s recently announced decision to spin Time Inc off as an independent, publicly-traded company, after a deal to create a new company combining most of Time Inc’s brands with Meredith’s publishing group fell through, is raising a whole new slew of questions about the fate of those brands.

Of course, the handwriting had been on the wall for some time. Time Inc’s performance has been declining: While it pulled in $4.3 billion in revenues last year, those were down 7%, and accounted for less than 12% of total TW revenues. Adjusted operating revenue declined 20%, and earnings were down 5%. Talk of TW chairman / CEO Jeffrey L Bewkes’s impatience with Time Inc was ongoing. And in retrospect, the January layoffs of nearly 500 employees look like preparation for a deal / spinoff, as well as — in Time Inc CEO Laura Lang’s description — part of a “transformation process” to “create room for critical investments and new initiatives.” Well, no one said that the “transformation” would proceed under TW’s ownership, and a sale or spinoff is certainly a “new initiative”.

TW’s decision to largely divest itself of Time Inc one way or another was no doubt long in the making, but News Corp’s decision to spin off its own publishing business — widely hailed by investors itching to eliminate the publishing properties’ “drag” on the entertainment properties’ growth and profits — must’ve been encouraging.

Still, all of that, plus other recent media-world merge / purge bombshells (notably, the merger of the Random House and Penguin Group book businesses) did little to cushion the psychological impact of the Time Inc news. As the New York Times’s David Carr observed: “The spectre of Time Inc, which lent its name to one of the largest media companies in the world, being pushed out the door like a party guest who has overstayed his welcome is a stark reminder of how fundamentally the game has changed.” Meredith’s disinterest in acquiring some of Time Inc’s most iconic brands (Time, Sports Illustrated and Fortune) — said to have been a key factor in making a spinoff more attractive than a sale for TW — rubbed salt in the wounds.

Reader’s Digest Association’s recent filing for its second bankruptcy in under four years, while almost shrug-worthy at this point, exacerbated the general air of doom and gloom. All in all, a tasty feast of Schadenfreude for the Madame Defarge-like “print is dead” contingent.

Well, technology and business realities march on and yes, consumer demand for print will continue to decline in the decades ahead. But here’s a secret almost never mentioned in press reports: Print magazines are still a huge, profitable business.

Bringing home the bacon

Even on the newsstand front, where total (audited and unaudited) units sold annually plummeted 34% in the past decade, including a 9% decline in 2012, they still totalled more than 724 million and yielded $3.46 billion last year, per the New Single Copy. Average total per-issue circulations (paid and verified) among US ABC magazines — not counting the many unaudited magazines — declined by 36 million, to 325 million, between 2001 and 2010, which translates to a (relatively) unstartling 10%. And 64% of that decline (23 million) was newsstand. Total ABC circ levels have been stable since, despite newsstand declines. In second-half 2012, total paid / verified subs declined 0.3%, but paid subs were up 0.7%. Digital copies were just 2.4% of total circ (albeit up from 1% year-earlier).

Time Inc’s circulation and advertising revenues were each down 5% last year, but it still realised $460 million in earnings — and it wasn’t digital that brought home the lion’s share of that bacon. Hearst is still kicking butt with (heavily newsstand) print launches.

Obviously, many print magazines have become less profitable, and publishers’ ability to expand brands’ digital and other revenue streams profitably will determine the ultimate survivors. Many assume that Time Inc’s core mistake was not being aggressive enough about digital. Could be — although most of the other publishers touting their digital sub and advertising growth aren’t revealing how much this has improved profitability to date (if at all).

With the now-departing Lang having failed to transform the company in 15 months (surprise), Time Inc’s senior managers are hopeful about new leadership. And since Lang’s predecessor Jack Griffin, who hailed from Meredith, was ousted after six months because Time Inc-ers didn’t cotton on to his leadership style, they’re relieved to be spun off rather than merged with Meredith.

However, being independent will bring challenges, as well as potential benefits. Unlike the News Corp publishing spinoff, which will start out with $2.6 billion in cash and no debt, analysts think Time Inc 2.0 (my coinage — I expect royalties from this!) will be thrown into the public marketplace with $1 billion in debt. TW is likely to retain some stake, but making this venture attractive to today’s print-averse shareholders will take a lot more cost-cutting (more staff and the Time-Life building are likely to go). On the other hand, the spinoff won’t have TW’s overhead, and should certainly be more nimble, as well as more nurturing of the magazines’ true potential as multiplatform brands. Let’s hope they manage to find a CEO with both publishing and digital experience this time.