Analysis: Once-proud Time Inc seen struggling as independent firm

Thu Mar 7, 2013 10:07pm EST
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By Jennifer Saba

(Reuters) - In giving up on its magazine business, Time Warner Inc is set to hand its shareholders an operation that has shrinking sales and profits - and will be looking for a new chief executive.

While the details of the spinoff of Time Inc are still to be announced, the media conglomerate has indicated that it will be structured as a tax-free transaction for its shareholders. It has already previously spun off other businesses to investors, including AOL and Time Warner Cable.

Time Inc faces the same challenges as print publishers everywhere, mainly that people are choosing to read on smartphones and tablets and advertisers are spending the bulk of their budgets elsewhere. As a separate public company, it won't be able to hide behind its media conglomerate parent, and will face scrutiny from investors expecting it to generate free cash flow and stem revenue declines.

"This once proud and profitable division is being punted as its business prospects look structurally challenged," wrote Nomura Equity Research analyst Michael Nathanson in a note about the spin-off on Thursday. Time Inc publishes more than 100 magazines worldwide, including the eponymous newsweekly Time, Sports Illustrated, and People.

Over the past decade, Time Inc's revenue dropped almost 40 percent to $3.4 billion while its operating profit fell in half to $420 million.

Advertising revenue for the entire U.S. magazine industry fell 3 percent in 2012 to $21.07 billion while ad pages declined 8 percent compared to 2011, according to the Publishers Information Bureau.

"You don't have revenue that is stable," said Nathanson in an interview.

For now, Time Warner offers few details about it publishing assets in its results since they represent such a small part of operations - roughly 8 percent of 2012 earnings before interest, taxes, depreciation, and amortization.   Continued...

A purse containing the latest issue of Time magazine, with Republican presidential candidate Mitt Romney on the cover, is seen during the second day of the Republican National Convention in Tampa, Florida August 28, 2012. REUTERS/Eric Thayer