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

Simone Foxman

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.

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 wants Time Inc. bad—real bad. Most likely, some 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’s on the deal; this suggests that a wealthy family or investor might be behind it. Trott is known for advising the likes of Warren Buffett, the Pritzker family, and many of Chicago’s elite. Trott built his career on contacts with large wealthy families, and made money as they sold or bought their assets. His firm, BDT Capital, most recently completed the purchase of a minority stake in retailer Tory Burch.

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.

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