The mood is "lighter" at Time Inc. since parent company Time Warner's deal to spin off all 21 titles in its magazine division collapsed this week, even though the new plan — spinning off the loss-leading publishing branch into a stand-alone, publicly traded company valued at just $2.50 per share — should have nobody calming down.
"I think the whole senior management team sees this as a good thing for the company," Time Inc. Editor-in-Chief Martha Nelson tells the New York Post's Keith Kelly today. The magazine division is playing up a renewed focus, even as analysts tell the Wall Street Journal's Keach Hagey that profits and revenues will continue to fall along with the industry at Time Inc., which is also facing leadership changes. Compounding that, as analysts tell Reuters's Jennifer Saba, is the not-so-sunny reality that, all focus aside, Time, People, and their less successful brethren "won't be able to hide behind its media conglomerate parent, and will face scrutiny from investors expecting it to generate free cash flow and stem revenue declines."
Even with a new CEO at Time. Inc. — newly hired Laura Lang couldn't have announced her departure any quicker this week — the refocused path looks doomed when it comes to dollars. "In this case, freedom is just another word for nothing left to lose," Nomura Securities analyst Michael Nathanson, who used to work for Time Inc. (and apparently enjoys Janis Joplin), wrote in a note. "This once proud and profitable division is being punted as its business prospects look structurally challenged." Basically, this thing that already was losing a lot of money, has to turn itself around without a big, rich parent corporation within which to bury its losses.
If anything, the bedrock of Time Inc. itself — Time and other bleeding (if big name) titles — have more structural challenges than even People can help fend off. The possible buyout by Meredith Corporation, itself a publicly traded magazine publisher, fell through on Wednesday, because, after an initial offer of many women-focused titles including People, Time Inc. wanted to unload Time, Sports Illustrated, Fortune, and Money — except nobody wanted them. These big-name titles have struggled more than some of the lifestyle magazines: Time experienced a decline in advertising pages of 12.2 percent in 2012, according to the Publishers Information Bureau, and The Wall Street Journal has a pretty perfect chart showing the magazine's relative doom.
So now the mothership and the rest of the shrinking magazine titles are off to the big bad world of public trading, and things don't look good. Because the publishing business hasn't made money in years, in order to "stabilize" Time Inc. will have to rely on cutting costs, which could mean more layoffs, or perhaps the shuttering of some publications altogether — physical distribution costs Time Inc. a lot of money. And Time Inc. will likely continue losing money over the next couple of years, "people familiar with Time Inc.'s thinking" told the Journal. Which make sense, because unlike AOL or Time Warner Cable, which Time Warner spun off with relative success already, the magazine division's main source of revenue — ad pages — has been in decline for decades. Time Warner CEO Jeff Bewkes pointed to those spin-offs as an example that TimeWarner and Time Inc. could "create additional value for our stockholders," but as Reuters reports, even though Time Inc. should go public with enterprise assets of approximately $2.3 billion, it remains "unclear what investors will be willing to ultimately pay for it."
Meanwhile, each of the magazines will have to make a shift in editorial emphasis from print to digital — and too many years too late. Not only does Time Inc. no longer have Time Warner's financial cushion, but it will also have to answer to those trepidacious investors. Time Warner will likely give money to Time Inc. to continue developing the non-print side of things, an analyst told Reuters — presumably based on the success of SI on tablets and People's dominant presence online. But even in the best-case scenario, the whole situation sounds like a setup for failure, as AllThingsD's Peter Kafka unravels:
And that’s what Time Inc,. stripped of Time Warner’s corporate shield, will need to turn around. It has the classic analog/digital channel conflict, where the latter is the only way out, but the former generates all the cash. And that’s hard enough to deal with at the most nimble and most flexible companies. This one, shoved out of the nest and into the market without any kind of cushion, seems set up to fail.
It's understandable that the people at Time Inc. are happy to shed the corporate weight, to welcome some new bosses, and to double down on magazines without the pressure of the rest of a mega-company weighing it down. But Time Inc. could actually languish without leadership for some time, and everything else isn't playing out quite so sunny.