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Iowa-based Meredith’s bread and butter is female-friendly monthly lifestyle titles such as Better Homes and Gardens and Rachael Ray Every Day. Taking on weekly magazines focused on news, sports and business held little appeal. Mr Lacy’s negotiations with Time Warner, the publisher’s then-owner, fell apart and Time Inc was spun out as standalone company.
Four years later, Mr Lacy has struck a deal valued at $2.8bn including debt to acquire all of Time Inc. It gives him the publications he has long coveted — particularly People, the cash cow celebrity weekly, which accounts for a significant portion of the publisher’s revenue and profit.
But while the Meredith acquisition will turn the page on Time Inc’s rocky years as an independent company struggling with declining revenues and a weighty debt burden, it also raises fresh questions about the future of its most iconic brands.
People briefed about Meredith’s plans said the publisher will explore the sale of some magazines, including Time and Sports Illustrated.
Meredith is also planning “significant job cuts” after the companies are combined as part of a cost-cutting plan agreed with Charles and David Koch, the conservative US billionaires who helped fund the Time Inc deal, these people said.
“With the acquisition announced, rumour season has officially opened on the once-foundational Time publications,” said Ken Doctor, media analyst at Newsonomics.
Time magazine has taken on heightened significance in the deal thanks to the involvement of the Kochs. Through their private equity unit, they are contributing $650m in exchange for preferred equity that gives them a 10 per cent stake in the company and pays an 8.5 per cent cash dividend.
The Kochs’ long history of promoting a free-market agenda by funding conservative politicians, think-tanks and academic programmes has fuelled speculation about their motives: will Time become another vehicle of influence?
Meredith and Koch Industries, the conglomerate owned by the brothers, describe the investment as “passive”. The Kochs are not taking seats on Meredith’s board and will have “no influence” on editorial or managerial operations, the company said.
The question remains whether Meredith will hold on to Time, Sports Illustrated and other titles that do not line up with its traditional strengths. The magazines have also been hit especially hard by the collapse of print publishing.
Since its 2014 spin-off, Time Inc has been a victim of industry-wide declines in print advertising and circulation, as well as the growing dominance of Google and Facebook, which together control 60 per cent of the US online ad market.
A strategic reorganisation this year aimed at increasing digital revenues and reaching a wider audience has shown some progress. But that has been overshadowed by the woes of its traditional magazine business, where revenues have dropped 14 per cent from a year ago.
“Meredith presented us with an opportunity to combine companies to create even greater scale and financial flexibility,” Rich Battista, Time Inc’s chief executive wrote in a memo to staff. “Scale matters and will enable this enterprise to compete more effectively in this dynamic media landscape, enhancing the enormous, exciting potential of our brands.”
The greatest appeal for Meredith is People. While advertising sales have dropped 3 per cent in the past 12 months, that was “much better than the industry taken as a whole or better than Meredith’s performance”, Mr Lacy told analysts on Monday. “It has the largest audience. It has the largest ad revenue of any business, and it has performed very, very well. So that’s first and foremost in the math.”
By contrast, he said, “some of the other businesses have different issues tied to them . . . From a profitability perspective, they don’t move the needle a whole lot one way or the other.”
Meredith blamed Time Inc’s broader underperformance in advertising on “management turmoil”. Tom Harty, Meredith’s president and chief operating officer, said the decline in the company’s print advertising revenue has been twice as steep as Meredith’s in the last three years. “We think we can reverse that trend by going to market the way that we’ve been going to market forever,” he said.
Time Inc staff have already weathered a management overhaul and aggressive cost cuts. The company has eliminated or given buyouts to 300 employees this year and plans to cut back the circulation and frequency of Sports Illustrated, Entertainment Weekly, Fortune and other magazines.
The company had previously announced its intention to sell a number of publications, including its UK magazine business, Golf and Sunset magazines and a majority stake in Essence. Those sales are expected to be completed by the end of this year.
For Time Inc staff, the pain is unlikely to lessen under Meredith, which has said it will conduct a further review of its holdings and signalled that more titles could be sold.
“We’re going to take a very holistic look at that from the perspective of the combined portfolio of all the properties that we will own together,” Mr Lacy told analysts on Monday.
Meredith’s reshaping is unlikely to end with its absorption of Time’s titles. Mr Lacy has long wanted to follow in the footsteps of other media companies that have unshackled their high-growth television businesses from more lacklustre publishing holdings. A split could be more likely with a more robust publishing portfolio.
Asked by analysts about the prospects of spinning off its 17 local television stations, Joe Ceryanec, Meredith’s chief financial officer, said: “There will be opportunities going forward.”