Why does Time Warner want to get rid of its most profitable magazine?

Time Warner’s magazine no more?
Time Warner’s magazine no more?
Image: AP Photo/Mark Lennihan
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An update at 4:05 PM EDT reflects reports that Meredith Corporation is courting Time Inc.

The report in Fortune magazine that Time Warner is considering selling off pieces of Time Inc. is a head-scratcher. Although the plan is in very early stages and may—according to the report—not happen at all, the proposal would focus on the divestment of People magazine, which is probably Time Inc.’s biggest money-maker. In that plan, it would also get rid of titles like In Style and Real Simple, among other unnamed titles. The media conglomerate would hang onto Fortune, Sports Illustrated, and the flagship, Time.

The Wall Street Journal later reported that Meredith Corporation, which owns 14 magazines and 100 specialty publications, is the interested party. In Style and Real Simple could fit well with its current roster, which includes Fitness, Lady’s Home Journal, and Baby magazine. But People’s wide readership could outstrip any of Meredith’s other publications.

This more or less fits with the media giant’s overall strategy. Time Warner CEO Jeff Bewkes pinpointed TV and film as the company’s most valuable assets in an interview with CNBC this month and raised questions about the advertising-driven model of magazines. However, unlike Rupert Murdoch’s News Corporation, which has plans to bundle the Wall Street Journal, the New York Post, Harper Collins, and other struggling print businesses and spin them off into a separate print company, Time Warner’s proposal would see it hang on to its less-profitable publications while selling its crown jewel. Although few details of any plan are currently known, we think there are two reasons Time Warner could even consider this deal:

Scenario 1: Someone (probably Meredith) wants Time Inc. bad—real bad. Most likely, the buyer has big plans for Time Inc.’s titles (most probably People), and is offering big money to take them off Time Warner’s hands. But with News Corp ridding itself of its own ill-performing assets, the interested buyer is still unclear. Fortune’s report indicated that the buyer could be working with former Goldman Sachs banker Byron D. Trott on the deal. Trott’s involvement also makes sense; his firm, BDT Capital, advised the company on its purchase of AllRecipes.com.

Scenario 2: Time Warner could be taking the long, long-term view. People is a valuable property right now, but Time Inc. is not. In 2012, the unit’s revenues fell 6.6% and operating earnings dropped 25.4%, and the broader picture for media is no more reassuring. Thomson Reuters announced today that it would cut 2,500 jobs. Newsweek recently joined US News & World Report in moving all its operations online. The New York Times isn’t in the best of shape, and everyone keeps wondering if (or, some say, when) the Financial Times will be sold.

Although People has an online presence as well as a magazine, its parent may have decided that the magazine’s preeminence is not lasting. Competition from a variety of online entertainment blogs—most prominently Perez Hilton and even Gawker—may have convinced the company that keeping the magazine on top will take copious investment in digital, money it isn’t interested in spending. Perhaps Time Warner has decided to unload the golden goose before it turns into base metal.