How toxic have print assets become This toxic: Media companies have begun to quarantine them.
On Wednesday, Time Inc., the largest magazine publisher in the country, found itself at the wrong end of a 10-foot pole. Its corporate parent, Time Warner, which has a broad and lucrative array of entertainment assets, was making plans to spin off much of the tattered print unit in a shotgun marriage with Meredith, a Midwest-based company that was trying to do much the same thing.
Under the plan, which is far from final, the two companies would contribute magazines to create a new, publicly held company that would be left to make its own way.
In shearing off its print division, Time Warner is following a path laid down by News Corporation, which announced last year that its entertainment assets and print assets would be split into two divisios. Its stock hit a five-year high when the plan was floated last June, and sometime early this summer there will be two companies - Fox Group and News Corporation - that will allow the fast-growing film and television assets to grow unencumbered by legacy print businesses.
Print publishing may have lost significant currency with consumers and advertisers in a digital age, but investors have a far deeper animus. They see little possibility that the business as a whole will right itself, and they find its lack of growth wanting compared to the cable, television and film businesses that are now the epicenter of the media business.
Time Inc. may be baked into the name of Time Warner, but it long ago lost salience as a significant player in the company’s business. Time Inc. earnings dropped 5 percent last year, and the division now contributes less than 12 percent of overall sales at the company. The Time & Life building, a “Mad Men†era edifice standing tall in the middle of Midtown, wa! s long a revered totem of the publishing business. To people in the industry who came of age back when things were good, Time Inc. was legend, having grown up not just on the force of its journalism but on tales of editors’ offices the size of racquetball courts and liquor carts rumbling through the hall spreading cheer and an aura of privilege.
But the news of a possible sale of its magazine division came at a time when Time Inc. is laying off some 6 percent of its global work force, and many of those who remained wondered whether their jobs, if they continue to have them, might require them to move to Des Moines, the headquarters of Meredith.
It was a bit of a moment for the people at Time Inc. and for the publishing business as a whole. Even though Time Warner has said that it will hang on to Time, Fortune, Sports Illustrated and Money, the profits from those Olympian sounding titles are meager, less than 10 percent of the division. Time Warner is keeping them n part because they might bolt on to a reconceived CNN television network, and in part because, well, no one wanted them.
The new entity, meanwhile, will lean hard on People, as close as the magazine industry has had to a money machine, with sales of almost $1 billion last year. But even that juggernaut has slowed: Last year, People’s newsstand sales declined 12.2 percent in the second half of 2012 compared with the year before, according to the Alliance for Audited Media.
Once the crown jewel of Manhattan publishing, Time Inc. has been lurching of late, with three publishers in three years, steadily dropping earnings and a digital future that is much ballyhooed but never seems to arrive. The irony is that the division still make money, kicking out $460 million in earnings last year, but the trend lines have been down for the last five years as secular changes in the industry - particularly, declining advertising revenue â€" have clobbered the former earnings standout.
The other t! wo big Ma! nhattan magazine companies - Hearst and Condé Nast - are privately held and can afford to play for the long haul, hoping that trusted print brands find a new toehold through tablet apps and digital extensions. Not so at Time Inc., where the contrast between print and the rest of the company has only grown more stark.
Jeffrey Bewkes, the chief executive of Time Warner, has always said nice things about the magazine division, but his actions suggest that he is no longer interested in waiting for a turnaround. . Mr. Bewkes came up through HBO, a cable division that has managed to keep growing and throwing off profits in spite of changes in the media landscape, and he clearly would rather cheer on Time Inc. from a greater distance.
Mr. Bewkes did much the same thing for many of the same reasons when he engineered a split between the parent company and Time Warner Cable back in 2008. Then, as now, the company was trying to open up a space between the parent and so-called mature businesses. And in eah instance, the parent could obtain the benefit of a sale without suffering big capital gains taxes.
When the cable company was spun off, it paid a dividend to the parent of some $10.9 billion by taking on a great deal of debt; a similar gambit is expected to yield some $1.75 billion if the deal for a new joint venture with Meredith comes to pass. (And nothing, it should be pointed out, ages faster than the future gone amiss. AOL, which once swallowed Time Warner in a reverse merger, was spun back out in 2009.)
The deal to largely exit the magazine business could take weeks or months, and the specifics are far from worked out; in the end, Time Warner could explore other options. But the basic decision to unwind the magazine division has been years in the making. The difficulties have been widespread and dispersed in the industry as a whole - magazines as tiny as Cat Fancy and as giant as Reader’s Digest have been taken apart by fundamentally changed economics and consumer habits.
! There wer! e many other signs over the last few years. Gourmet is gone from Condé Nast, a company that had never tightened its Gucci belt in its history. Then Newsweek, a former primary player in American consciousness, sold for a dollar, and this year discontinued its print edition.
Disruption in various economic sectors takes place over years as insurgents rise and former titans crumble, but its effects often become most clear in a signature moment. The specter 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.
