Thursday, November 15, 2007

What a Time Inc. Spin-Off Might Look Like

What a Time Inc. Spin-Off Might Look Like
By Bill Mickey

Time Warner's third quarter numbers were released recently, and while overall revenues rose nine percent over same period 2006-despite revenue declines from AOL-Time Inc.'s revenues were flat. Any gains in earnings were largely attributed to "non-magazine businesses, particularly Synapse," a customer acquisition and management service subsidiary of Time Inc., according to company financials. The numbers form the backdrop of a pending change at the top as COO Jeffrey Bewkes is set to succeed Dick Parsons as Time Warner CEO on January 1 and ongoing speculation about whether the company will spin off one or more of its divisions-namely Time Inc.

In the third quarter, a $25 million gain in advertising revenues came mostly from digital growth from and, which was offset by an actual loss from print magazine revenues. Included in that loss was the closures of LIFE and Teen People, an $8 million loss from subscription revenues and a $1 million loss in "Content" revenue. So, not much top-line success.

Even before it was announced that Bewkes would succeed Parsons, speculation about Time Inc.'s future ran rampant. Now, however, Bewkes' new role with the company is raising new questions.

"Bewkes is not a magazine guy, which I think is very important," says one magazine industry observer. "He's a TV guy. And I think that when you get right down to it, the core properties that Bewkes knows about and cares about are the video and movies, not print. Because even if they invest heavily in developing new digital versions of their magazines, it's going to cost money. Meanwhile the revenue is going to continue to be flat to declining."

Reed Phillips, managing partner at DeSilva + Phillips, stresses that while commenting on Time Inc.'s future is purely conjecture at this point, Bewkes' succession will trigger a top-down examination of the corporate structure. "I do believe that everything is going to be evaluated in Time Warner by Bewkes coming in," says Phillips. "In January the clock will start ticking and there's going to be more scrutiny and more willingness to sell assets that they don't think will be helping the company increase its stock price."

While a looser divestment attitude might come into play, an industry source speculates a spin-off makes the most sense. "If you're looking at it from his point of view, you want to detach Time Inc. from the company so the chance of a spin-off is probably very high. I don't think there's a chance of a sale because I don't think anyone would buy it."

A spin-off could benefit both entities. Time Warner gets to move Time Inc. off the books as an operating unit and Time Inc. becomes a free-standing, public company. "It's an IPO, in effect," says the source.

A public Time Inc. would also be free to make more aggressive moves in the digital arena. "It would have more flexibility to do that kind of thing and also have a chance to raise its own money rather than having to fight the rest of the divisions of Time Warner for the assets," says a source. "A lot of money is being used elsewhere because people within Time Warner look at the magazine group and don't think they should invest money there, it's not worth it."

The source also speculates that a spun-off Time Inc. would likely mean the end of the Ann Moore regime. Her replacement? "I think Bewkes would put in somebody that has free-standing, public company experience. My candidate would be Susan Lyne. She's been in television, she knows Bewkes, and she's been successful with Martha Stewart Omnimedia. She's CEO of a public company. She's got the credentials."


CIRCULATOR: AMI and Source Interlink Close to a Deal?
By Kristina Joukhadar

In an October 25 story in the New York Post, Keith Kelly reported that merger talks were underway between American Media Inc. CEO David Pecker and Ron Burkle of Source Interlink Cos. At the time, the two sides were thought to be close to inking a deal, but neither party would confirm or deny the report.

The Post is reporting today that a price of $1.2 billion has been agreed upon, the only stumbling block being that the banks want Source to put more equity into the deal. David Pecker and Evercore Partners bought American Media in 1999 for $850 million. In 2003 American Media bought health and fitness magazine publisher Weider Publications for $350 million. AMI titles include The National Enquirer, Star Magazine, Globe Magazine, Country Weekly, Shape, Men's Fitness, Muscle & Fitness and others.

Last May, Source acquired Enthusiast Media, which included Primedia's 70 special interest magazines and 90 associated Web sites, for $1.2 billion in cash, sparking concern among circulators about the company owning magazines and controlling the newsstand supply chain simultaneously.

But the Primedia acquisition did not include a distribution source. Now, if the AMI merger goes through, AMI's distribution arm, Distribution Services, Inc., which specializes in in-store magazine merchandising, will be a large part of the deal. Current DSI publishing clients include Bauer, Newsweek, Meredith, Rodale, and Hachette Filipacchi.

No comments: