Vultures Are Circling as Time Inc. Gasps
Walter Isaacson, the former managing editor of Time magazine, 1 proudly noted in 2013 that Time Inc. was early to the internet. He pointed out that even before the Netscape browser became available in the fall of 1994, back when Time Inc. was the country's most profitable magazine publisher, it was cutting deals with AOL and other "portals" to get its magazines' content online.
Twenty-three years later, Time Inc. is in deep trouble. A public company since 2014, when it was spun off by its longtime parent, Time Warner Inc., Time's market cap is a puny $1.3 billion, half the value of what President Donald Trump loves to call the "failing" New York Times. Its anemic stock price recently dropped $5, to below $13 a share, after it made clear that it would not be putting itself up for sale.
Its first quarter earnings, released last week, were dismal: Advertising revenue was down 8 percent and subscription revenue sank 13 percent to a paltry $140 million. (Remember, this was a company long known for circulation prowess.) It reported a quarterly operating loss of $26 million, compared to a $3 million loss in 2016.
In an earnings call, and in a subsequent interview with me, Time's new chief executive, Rich Battista, talked optimistically about the company's prospects. But it's hard to see what justifies that optimism. Notwithstanding Battista’s desire to keep Time Inc. independent, I think it's more likely that the final chapter in the company's storied history will turn out to be a fire sale, with healthier titles sold and weaker ones shuttered. Vulture investors like Leon Cooperman, chairman of Omega Advisors Inc., are circling.
There's no question why Time Inc. is in such trouble: Though Isaacson and other Time executives may have spotted the internet early on, the company never adapted the way it needed to. True, lots of companies have been wounded by the internet, but few have been as thoroughly decimated as Time.
The first reason for this collapse is that Time Inc. was seduced by its own success in print. This hurt it in lots of different ways. Unwilling to let go of the hundreds of millions of dollars it generated from print circulation, its executives protected that revenue even when that meant sacrificing the future. Many Time Inc. editors viewed their core job as putting out a print publication, and saw everything else as a nuisance, including their own magazines’ websites. Think, for instance, about Sports Illustrated, which was once the biggest name in sports journalism but essentially handed the Internet to ESPN.
Indeed, the company didn't even seem to understand the value of its own brands. One of its earliest Internet forays was called Pathfinder, a website that contained all of Time Inc.'s content. After Pathfinder was abandoned, Time entered into a series of joint ventures with Turner Broadcasting, which Time Warner also owned. For instance, CNN Money combined CNN's business desk with journalism from Fortune and Money magazines. Because CNN was such a force on the internet, this approach generated a lot of traffic for the Time Inc. magazines. But because Fortune and Money were linked to the more powerful CNN brand, they largely lost their identity.
There's another important factor in Time Inc.'s decline: Jeff Bewkes. The chief executive of Time Warner since 2008, Bewkes had made his mark at HBO. Not surprisingly, television and films was where he focused his attention. He regularly plundered Time Inc. for its cash, which helped fatten the parent company's profits, while depriving Time of the financial resources that could help it move forcefully into digital publishing. He also saddled it with forgettable chief executives who came and went every few years. As time went on and print revenue decreased, the only way Time Inc. could continue feeding the Time Warner beast was by cutting costs. Which it did, relentlessly.
The final blow came with the spinoff in 2014. Wanting to be rid of Time Inc. but unable to make a deal, Bewkes had Time Inc. borrow $1.4 billion, some of which was used to buy the British publishing business from another Time Warner unit and the rest of which was used to pay a dividend to -- wouldn't you know it? -- Time Warner. His uninspired choice for CEO was Joe Ripp, a former Time Inc. chief financial officer in his 60s who largely lacked digital chops. The spinoff also meant the end of those internet joint ventures with Turner. Thus Time Inc. began its new life as a public company needing an entirely new internet strategy, with a CEO who didn't have one, all the while saddled with so much debt that cost-cutting, rather than expansion, would continue to be the cornerstone of its strategy.
Is it any wonder that Time Inc. is having such a difficult time? The debt prevents the company from making a transformational acquisition. And because there is really no more fat at the company, magazine editors have been reduced to laying off some of their most talented writers because those are the ones with the biggest salaries. As for its digital strategy, it's as if Time Inc. seems intent on making up for lost time by making the same mistakes other companies made years earlier. Time and Fortune both slap short, generic stories on the web, and then tease those stories on Twitter with headlines that are pure clickbait.
When I spoke to Battista, he emphasized all the things you'd expect him to. "These are powerful brands," he said, referring to the marquee Time Inc. titles like Time, People and Sports Illustrated. He felt that these brands could draw eyeballs -- and advertisers. The company was putting a major emphasis on online video, which was getting an enormous response, he said. (A billion monthly views in April.)
It had also begun to branch out into related businesses; Coastal Living magazine, for instance, would soon be launching a line of furniture and bedding at Bed, Bath and Beyond. Digital revenue, most of it advertising, was over $500 million in 2016. Although Battista told Wall Street on the earnings call that the company would still be cutting costs -- and might even close some less important properties -- he downplayed that when he spoke to me.
If a Time Inc. CEO had laid all this out a decade or so ago, it would be much easier to buy. A decade ago, most media companies were still slapping ideas against the wall, trying to see what would stick. A decade ago, it wasn't so clear that Google and Facebook were going to rule the internet ad business, leaving everyone else to beg for scraps. That's why the New York Times Co., Conde Nast Inc., Hearst Corp. and News Corp., among others, have all figured out that they can't rely on advertising alone, but need to be able to extract circulation revenue from their internet viewers. Time Inc. has no internet circulation strategy.
A decade ago, Time hadn't been cut to the bone. It hadn't been saddled with excessive debt. If it had embraced the internet then with the fervor it is showing now, it would have a fighting chance. As a Time Inc. veteran myself, I hope Battista can pull it off. But the realist in me says something else: If you're still developing your basic internet strategy in 2017, it's all over but the shouting.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Isaacson has had many other roles in his notable career, including Steve Jobs’ biographer and, since 2003, the president and chief executive of the Aspen Institute. He recently announced that he would be resigning that position to join the history department at Tulane University.
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