Twenty-four years ago this week, I went to the Time & Life Building, at Rockefeller Center, and took the elevator to the wood-panelled thirty-fourth floor. There, I interviewed N. J. (Nick) Nicholas, Jr., who was Time Inc.’s president, and Gerald Levin, who was then Nicholas’s little-known sidekick. A few days earlier, the two of them had agreed to merge the publishing company, co-founded by Henry Luce and Briton Hadden, with Warner Communications, the Hollywood entertainment company that was controlled by Steve Ross, a street-smart New Yorker who made his first fortune operating funeral parlors and parking garages.
At the time, you may recall, Time and other media companies felt besieged. During the previous few years, Rupert Murdoch had bought Harper & Row, his great rival Robert Maxwell had nabbed Macmillan, Bertelsmann had purchased RCA Music, and Sony had acquired CBS Records. “We see Robert Maxwell, Rupert Murdoch, Bertelsmann, and Sony coming into our market and raising hell,” Richard Munro, Time’s chairman, said in announcing the merger. “We see this as an opportunity for an American company to get competitive.” Nicholas expanded upon the same theme. “There will emerge on a worldwide basis, six, seven, eight vertically integrated entertainment conglomerates,” he told me. “At least one will be Japanese, probably two. We think two will be European. There will be a couple of American-led enterprises, and we think Time is going to be one.” Levin backed up his boss: “This is not a transaction done for the purposes of 1989, or even the nineteen-nineties,” he said. “It is for us to be positioned for the next century.”
I wrote it all down and published it in an article for my newspaper, The Sunday Times of London, which ran under the headline “Massing the Media.” Within three years, Nicholas was gone—ousted in a power struggle with Ross, who by then was ailing with prostate cancer—and Levin had taken over as Time Warner’s president and chief executive. Levin continued the massing project with the enthusiastic support of Time’s investment bankers, purchasing Turner Broadcasting, the parent company of CNN, and, in early 2000, merging Time Warner with the Internet company AOL—one of the most disastrous deals in U.S. corporate history. As payment from AOL, Levin accepted AOL stock, which turned out to be fool’s gold. Two years later, stock in the combined company had fallen in value by two thirds.
Levin resigned in 2002, and Time Warner has spent the ensuing decade reshaping itself and slimming down. Over time, it has divested itself of the Time Warner Book Group, Warner Music Group, Time Warner Cable, and AOL. Now, having tried and failed to sell Time Inc.—home of iconic publications like Time, People, and Fortune (where I write a monthly economics column)—to Meredith Corporation on acceptable terms, it is spinning off the publisher as a separate company with its own stock. “After a thorough review of options, we believe that a separation will better position both Time Warner and Time Inc.,” Jeffrey Bewkes, Time Warner’s current boss, said Wednesday. “Time Inc. will also benefit from the flexibility and focus of being a stand-alone company.”
Things have come full circle. And what are the lessons of this history? One of them, obviously, has little to do with mergers and corporate deal-making. With the rise of the Internet, Time Inc.’s core business—selling magazine subscriptions and print advertising—has been hard hit. Whatever its corporate structure had been, the company and its employees would have had a tough go of it during the past decade. In recent years, there have been a series of budget cuts and layoffs, the latest of which came in January, when the firm said it would dispense with five hundred of its eight thousand remaining workers.
The Internet is a whirlwind that has wrought Schumpeterian “creative destruction” throughout the media industry. But even accounting for Time’s unenviable position as a legacy print publisher, it is surely fair to wonder whether it would have been any better off as an independent company. With the benefit of the flexibility and focus that Bewkes is now citing as a reason for the spin off, would it have better navigated the storm? Or did its status as a bit part in a huge media conglomerate provide it with safe harbor?
Obviously, there’s no definitive answer to these questions. When magazine advertising collapsed in the recession of 2008–2009, Time Warner’s vast resources helped cushion the blow to Time Inc. But the scale and synergy benefits touted by Munro, Nicholas, and Levin rarely materialized. The skeptics who warned that publishing magazines is a very different business from making films and television shows turned out to be right. To be sure, Warner Brothers and HBO may sometimes be interested in buying stories from Time’s journalists, say, and turning them into shows or movies—but the two sides can transact such deals just as well, or better, as independent entities.
The benefits of the merger of Time and Warner were oversold in the first place. Even back in 1989, there were those who suspected that the deal was driven not by the search for scale and synergies but by the fear of being taken over by the likes of Murdoch or Maxwell, or an American predator. (Martin Davis, the head of Paramount Communications, had his eye on the company.) “Two scared rabbits have decided to get together.… This is management entrenchment pure and simple,” an investment banker who had represented some of the overseas raiders told me when I was writing about the deal.
As the Internet revolution progressed, the interests of individual magazines were sometimes subjugated to the broader goals of the parent company—or so it seemed from the outside. During the formative years of the nineteen-nineties, the major publications were lumped together inside Pathfinder, the ill-fated Time Warner portal—a decision that meant they were slow to develop independent online brands. Even after Levin left, this sort of thing continued. The online arms of Money and Fortune were subsumed within CNNMoney.com. Viewed from Time Warner’s executive suite, such a strategy made sense: CNNMoney turned into a big success—it now bills itself as the world’s largest financial-news Web site, and, presumably, it makes quite a bit of money. But how much of that revenue has been turned around and invested in the individual magazines and their own online brands? For quite a while now, Bewkes and his colleagues on Time Warner’s board have appeared to be primarily interested in cutting costs at Time Inc., so its lagging performance wouldn’t drag down the parent company’s stock price. And it certainly hasn’t. Since early 2010, Time Warner’s shares have doubled.
As chairman of Time Warner, Bewkes, who took over in 2009, has been a big success so far. However, even he would probably admit that investing in Time Inc. and turning it around wasn’t his top priority. Nor should it have been. Compared to the film and television businesses that come under his purview, publishing is a sideshow. In 2012, Time Warner generated revenues of close to twenty-nine billion dollars and more than six billion dollars in operating income. Time Inc. generated less than a tenth of those revenues and about a thirteenth of those profits.
Had Time Inc. stayed independent, it would surely have struggled to put together a viable online strategy. The declining fortunes of other newspaper and magazine publishers, Condé Nast included, demonstrate some of the problems it would have faced. But with immensely popular titles like People, InStyle, and Sports Illustrated as part of its product line-up, Time Inc. would have been better placed than most of its competitors to make the transition to digital. Even its more venerable titles, such as Time and Fortune, are market leaders. Although Time’s circulation has declined substantially, the drop off isn’t as big as some people think. Ten years ago, the paid circulation was 4.1 million. In 2011, it was 3.3 million. That’s still a lot of readers.
Although small compared to its parent company, Time Inc. remains a behemoth in the publishing world, sucking up more than one advertising dollar of every five spent on magazines. In terms of revenue, three of its titles—People, Sports Illustrated, and Time—are in the top five nationally, according to a recent study. And for all its recent problems, the business still produces a lot of cash. In 2012, it generated an adjusted operating income of four hundred and sixty-three million dollars, on revenues of 3.4 billion dollars. To be sure, that was much less than the operating profit of about nine hundred million dollars that the firm made at its peak, but it ain’t chump change.
When Time Inc. regains its independence, it will be able to set its own budgets and issue bonds to finance investment and acquisitions. (That’s assuming Time Warner doesn’t weigh down its balance sheet with tons of debt, which would be counterproductive. There has been speculation that they that they might do just that, burdening the company with as much as a billion dollars in debt, which would be more than its yearly revenue.) It will have a leadership team with but one priority, owners (stockholders) with realistic expectations, and it will also have precedent on its side. The spin offs of Time Warner Cable and AOL have worked out pretty well. Will it ever return to the days of Luce, or even those of Dick Munro and Nick Nicholas? Almost certainly not. But it should have a fighting chance of success, and it will control its own destiny, something that hasn’t been true since the merger with Warner.
About the only ones who consistently benefitted from Time Inc.’s transformation into part of a multimedia conglomerate were the bankers and lawyers who put the deals together. Doubtless, they’ll make a bit more money organizing the firm’s I.P.O., which is expected to take place later this year or early next year. No surprise there. Investment banking has long been a more lucrative business than publishing. But at least Luce and Hadden’s heirs will be getting back to what they know best.
Photograph by Damon Winter/The New York Times/Redux.
