Breakout

Time Warner to Spin Off Shriveling Publishing Unit

Jeff Macke
Breakout

Not even Kate Upton could convince Time Warner Inc. (TWX) to keep its magazine segment. The company announced Wednesday that it will be spinning off its Time Inc. division, creating a new public freestanding company. The announcement comes less than a year after News Corp. (NWSA) announced similar plans for its own publishing business.

Rich in history but light in profits TWX's publishing division has seen its business shrink dramatically, never recovering from the recession of 2008. Last year publishing saw revenues shrink 7% to $3.4 billion. Operating income declined a whopping 25% to $420 million, less than half of the $907 million in profits posted in 2007.

The spin-off will leave Time Warner focused on its growing cable television and film segments which include TNT, TBS, HBO and Warner Brothers film studio. The remaining assets accounted for nearly 90% of Time Warner's revenues and 92.5% of operating income in 2012.

The timing of the deal reflects both the failing economics of the print industry as well as optimism about the stock market's willingness to buy shares of a struggling company in a dying industry. The swimsuit edition of Sports Illustrated which this year featured Ms. Upton wearing nothing but dab of bodypaint is one of the few bright spots for the company. The annual edition regularly sells more than a million copies and accounts for 7% of all Sports Illustrated's advertising revenues.

Even if money managers, actors and world leaders were all willing to strike unnatural positions wearing wildly inappropriate clothing Time Inc. would be in trouble. Time, Fortune, Money and People may have less and less to offer other than prestige. According to the Wall Street Journal, People magazine which once accounted for half of the magazine division's profits is struggling to compete with the instant gratification found on TMZ and other celebrity gossip sites.

Whether or not institutional investors are willing to take positions in both Time Inc. and News Corp.'s newspaper division is an open question. Generating digital revenues are mostly ads, as users prove reluctant to pay for access to content behind so called pay-walls.

It's perhaps telling that the most dish-worthy financial article in recent memory, a Vanity Fair story about the feud between Bill Ackman and Dan Loeb was gleefully passed around the internet ,devoured and forgotten before the magazine was even for sale.

As an informal check on magazine usage I asked more than 13,000 followers on my Twitter account if they'd actually purchased the magazine Vanity Fair issue or were buying any magazines now as they were five years ago. Fewer than 1% of more than 200 respondents said yes to either question.

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