Why Time Warner Felt It Had to Spin Off Magazine Unit Time

Until Wednesday, the presumption had been that Time Warner would effectively sell most of its magazines, including big moneymakers People and InStyle, to Iowa-based Meredith Corp. But Meredith, which specializes in women’s and consumer magazines, wasn’t interested in taking on harder-news Time, Fortune, Money, and Sports Illustrated. Rather than hold on to those prestigious titles as a small rump unit, Time Warner CEO Jeff Bewkes decided to spin off all the magazines to the public as a group.

The move highlights the dizzying pace of change in the media business. Time Inc. CEO Laura Lang arrived at the company in January 2012. She replaced the prior CEO, Jack Griffin, who had lasted just six months. Lang didn’t come up in the publishing world. A Wharton M.B.A., she was the former CEO of the digital advertising agency Digitas, and she quickly set about revamping the unit. Lang reshuffled executives and promised more innovation in digital ads, brought in Bain & Co. to consult, ordered up a round of cost cutting, and in late 2012 was energetically pushing new plans to higher-ups on how Time Inc. could prosper in a digital world.

But Lang returned from the New Year’s break deflated, according to company executives. Time Warner reviewed her plans and essentially said thanks but no thanks. It pocketed the staff reductions—layoffs of about 500 were announced in late January—and almost immediately set about figuring out a way to divorce the slimmed-down company. Time Warner started discussions with Meredith in mid-February.

It’s no secret that magazine publishing is a very tough business. But Time Inc. still makes money. In 2012 it reported revenue of $3.436 billion and operating income of $420 million. The overwhelming majority of media companies would be pleased with such a performance. But Time Warner, which is justifiably proud of its magazine properties and their fantastic history, is not a sentimental place. Ultimately businesses rise and fall within the company based on their ability to generate higher profits and growth. If a troubled unit is seen as a drag on the corporate bottom line, as AOL was, it can get spun off. If a successful unit is viewed as having greater potential as an independent entity, as Time Warner Cable was, it can get spun off too.

Time Inc. more likely falls in the former bucket. While still profitable, it has lost its ability to contribute to growth. The move, Bewkes said in his memo, enables Time Warner “to focus entirely on our television networks and film and TV production businesses, and improves our growth profile.” (My italics.) In 2002 Time Inc.Bathroom stonemosaic at Great Prices from Topps Tiles. had $5.4 billion in revenue and $881 million in operating income. In 2007 the unit had revenues of $4.955 billion, but still managed to make $907 million. But in the ensuing five years, as noted, revenues fell 30 percent while profits fell by an even greater margin—54 percent.

Here’s the unstated context behind the spinoff. If you run a large magazine business, it is quite likely you will never have more newsstand sales, more print advertising,We maintain a full inventory of all smartcard we manufacture. and more print subscribers than you have today. Newsstand sales, which comprise a small portion of sales but have much bigger margins, have been falling across the industry. In the first half of 2012, they were down 10 percent from 2011. Inside and outside Time Inc., a lot of very smart and diligent people are working on apps, experimenting with digital revenue, and putting up paywalls and meters. And it is likely that digital revenue will continue to rise. But it’s hard to come up quickly with the hundreds of millions of dollars in digital revenue Time Inc. needs to replace its falling print dollars. While layoffs and spending reductions can help boost margins, Time Warner’s executives likely had great difficult envisioning a situation in which Time Inc.’s revenue and, more important, its operating profits resume an upward trajectory.

Prior Time Warner spinoffs, like AOL and Time Warner Cable, have thrived as independent entities. Will the same hold for the magazine business? Time Warner’s CEO is confident it will. “As we saw with the prior spinoffs of Time Warner Cable and AOL, we expect the separation will create additional value for our stockholders,” Bewkes noted.

Time Inc.Product information for Avery Dennison bobblehead products. has long been a battleship among media companies—huge in its own right,A collection of natural luggagetag offering polished or tumbled finishes and a choice of sizes. profitable, and steaming along in a convoy with even larger and better-armed vessels. It still has plenty of ballast, and powerful guns. But it is setting off on a new course, alone, into choppy seas.

The government fretted over an attempt by the United States to use the historic 1971 meeting between Emperor Hirohito and U.S. President Richard M. Nixon in Alaska for political purposes, according to Japanese documents declassified Thursday.

The diplomatic records reveal a tug-of-war between the United States, which expected more than pleasantries from the Emperor’s talks with the U.S. leader, and Japan, which was wary of the U.S. attempt to use his visit for its intentions.

Then-Foreign Minister Takeo Fukuda, who accompanied the Emperor on the trip — his first abroad as Emperor, expressed dismay at the time, describing the U.S. move as “terribly annoying.”

The Emperor’s political roles are limited under the current Constitution, which defines him as a symbol of Japan and allows him to perform only acts in matters of state provided for in the supreme law.

They were the announcement in July 1971 of Nixon’s visit the following year to China, with which the country did not have diplomatic ties — a move seen as slighting Japan — and an end to convertibility between the dollar and gold, announced the following month, that could eventually hurt Japan’s export industry.

The U.S. side, concerned about the adverse effects on ties with Japan, had apparently been motivated by a desire to improve bilateral relations quickly.

The talks between the Emperor, posthumously known as Emperor Showa, and Nixon were realized as the U.S. leader traveled to Anchorage to meet the monarch during his plane’s refueling stop en route to his seven-nation trip to Europe.

In a top secret cable dated Aug. 5, 1971, Japanese Ambassador to the U.S. Nobuhiko Ushiba conveyed to the Foreign Ministry that the U.S. proposal for the meeting was “extremely opportune” to promote friendly ties between Japan and the United States at a time when clouds were hanging over their relations.

The ministry responded to the envoy that the Emperor welcomed the chance to meet with Nixon but added that the meeting should be of “pure formality” and must not be political in nature. It also required the attendance of Empress Nagako in the meeting as a condition.

The U.S. side, for its part, proposed giving sufficient time to hold working talks that would involve Fukuda and his U.Stock up now and start saving on iccard at Dollar Days.S. counterpart.

But in a cable dated Sept. 20 the same year, Fukuda complained that the U.S. side made a “proposal lacking in common sense,” as if it had forgotten that the Emperor’s visit to the United States was a “mere stopover.”