Time Inc. begins this week trading as an independent company. The performance of the stock will be an indication of what investors think of the publishing business.
The New York Times said in a story by David Carr and Ravi Somaiya called the future of the company “uncertain” due to its debt load and questionable profitability:
On Monday, the nation’s largest magazine publisher will begin trading as an independent company — stock symbol: TIME — with an uncertain future.
What was once a jewel in terms of profit and stature is now a drag on the share price of Time Warner, its parent company, and is being spun off with little ceremony and a load of debt. Absent the diversified portfolio of Time Warner, Time Inc. will be going it alone with more than 90 magazines and 45 websites in a market that views print as a thing of the past.
The new entity will start off with $1.3 billion in debt, including $600 million that will go toward a one-time cash dividend to Time Warner shareholders. That stands in stark contrast to Rupert Murdoch’s News Corporation, which was given a $2 billion cash cushion when it was spun off into a separate company last year. At approximately three times earnings, Time Inc.’s debt is high-risk, and Moody’s has rated it at less than investment grade.
Edmund Lee wrote for Bloomberg that there might be some advantages for Time in this new structure:
The company will therefore have to innovate faster than its competitors, a tough prospect for an almost century-old publisher with about 7,700 employees. Chief Executive Officer Joe Ripp, known more for his financial acumen than his Web savvy, has cut staff and is investing in digital talent to build online businesses around Time Inc.’s well-known magazine brands.
Going solo does have some advantages. New York-based Time Inc. will be able to invest profits in its own business rather than kicking them up to Time Warner. The publisher had free cash flow of $384 million last year, and could use similar funds this year for possible acquisitions or other investments.
Time Inc. is also looking for areas in which it could further cut costs, including staffing, according to people familiar with its plans. They asked not to be named because the strategy is confidential. Last year, the company slashed 500 jobs, or about 6 percent of its workforce, and more could come.
Katerina Eva Matsa wrote for the Pew Research Center that the entire magazine industry is struggling:
Time Inc.’s troubles are emblematic of the economic challenges facing the consumer magazine industry. While the digital side of the business has been making some gains, overall magazine print circulation (including single-copy sales, subscriptions and even digital replicas) has been down each of the past six years, while the number of print ad pages fell for the eighth year in a row in 2013.
The most recent data show that total magazine circulation dropped 1.4% in the second half of 2013 compared with the second half of 2012, according to the Alliance for Audited Media, which tracks 417 consumer magazines.
Paid subscriptions, which make up 90% of total circulation, were essentially flat in the second half of 2013 (down 0.3%) at 158 million copies. Meanwhile single-copy sales dropped around 10% for the second half of 2013 — to 18 million — after an 8% and 9% decline in 2012 and 2011 respectively.
On the advertising front, the numbers are also discouraging. Based on the most reliable measure – the number of print ad pages sold — the industry’s multi-year slide continues. Total ad pages for the 207 magazines tracked by the Publishers Information Bureau, fell 4.1 % to 145,713 pages for 2013, following a sharp decline of 8% seen in 2012. Ad pages dropped another 4% in the first quarter of 2014.
Christopher Zara wrote for the International Business Times that some people did see value in Time as a standalone company:
Not everyone thinks Time’s prospects are so grim. As Barron’s reported last month, analysts at Morgan Stanley said Time Inc. shares “look appealing” at about $21, or 10 times projected 2014 operating profit. In further good news, magazine publishing as a whole is expected to resume modest growth in 2015 after years of decline — a development driven by increases in digital revenue, according to PwC’s global entertainment and media outlook for 2014 – 2018.
In the past few months, Time Inc. has done what it can to make itself a more attractive property to shareholders, including trimming its operations with layoffs at Sports Illustrated, Fortune, and, more recently, People (according to a report in AdAge). Some of its titles have begun selling ad space on their covers for the first time. Time is also branching out into the digital realm; just this week it purchased the Seattle-based tech startup Cozi Inc.
Analysts say Time could also increase its prospects by diversifying, following in the footsteps of its closest publicly traded competitor, Meredith Corporation (NYSE:MDP). While known as the owner of such magazines as Fitness and Ladies’ Home Journal, Meredith generates more than half of its profit from television stations, and it continues to build that segment of its business, purchasing two local stations late last year. Meredith, in fact, could be more friend than rival. Last year, the company was in serious talks to purchase some of Time Inc.’s signature titles. Those talks fell through, but some analysts now think the two companies could merge after Time goes public, as such a move would clearly make strategic sense.
Time’s prospects are mixed. While the traditional magazine model might be declining, Time is a venerable brand. The company does generate cash, and its plans to diversify could help bring in more. Investors will be the ultimate judges of the company’s prospects.
