Time Inc. spin-off details: declining revenue and debt a hurdle to future success
Time Warner filed its IPO statement early last week, a rather bland filing with few surprises. Yes, revenue and income are falling, but the operation looks sound, were it not for the trend lines.
As Dan Primack from Fortune points out in his column, the $36 million in debt is worrisome, but many publishing companies have to deal with debt as a condition for continued funding of the operation (the PEs must be fed!).
The P&L looks like many magazine companies, with a giant dive occurring around the time of the financial crisis, a glimpse of recovery, and then continued declines.
“We have been adversely affected by weak domestic and global economic conditions in the recent past and have experienced declines in our advertising and circulation revenues,” the statement warns. “If these conditions persist, our business, financial condition and results of operations may continue to be adversely affected. Factors that affect economic conditions include the rate of unemployment, the level of consumer confidence and changes in consumer spending habits. Because magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to general economic conditions and economic cycles.”
These statements are supposed to outline the risks to investors – they are, essentially, a “don’t say we didn’t warn you” device so that investors can not come back and claim fraud. As a result, there are lots of negative statements about the risks of the economy and debt and technology.
But the biggest risk factor in a spin-off of this nature is simply that the reason to spin-off the business is to dump the segments of the business that do not have the most growth potential. A spin-off of a growing venture is done to maximize shareholder value; a spin-off as conceived by Time Warner of The Tribune Company, is designed to protect shareholder value.
As for what the new Time Inc. will look like, well, look at the old Time Inc. The executive suite promises to remain very comfortable, with not only the new CEO enjoying his position, but the old one remaining very well compensated. (One can see why Laura Lang’s departure was so quiet – what was there to complain about. Lang is mentioned over 200 times in the statement, as it explains her salary and bonus program and reveals the company’s continued payouts to her (her 2013 bonus will be $2.339 million, for instance. She will also still be on payroll through November 2015).
Operating like this means that Time Inc. will most likely do what other traditional media companies do in the same situation: cut staff and look for divestitures to ease their debt burden. The recent talk of expanding “native advertising” seems like a band aid to me. If consumer magazines think the native ad business is a long term solution they should sneak a peek at the B2B side of things.