Why a magazine giant wanted nothing to do with Time and Fortune

  • Business Premium
  • Friday, 24 May 2019

DES MOINES: At magazine publishing giant Meredith Corp., top brass believes business can be divided into “problems” and “situations.” Problems can’t be solved with any amount of time and money. Situations, on the other hand, can.

Managing the difference, they contend, is the key to surviving a declining industry at its darkest moment.

When Meredith acquired Time Inc. last year, it quickly spotted the problems: Time magazine, Fortune, Money and Sports Illustrated. The titles had the richest history and greatest prestige, but they depended on news content easily found elsewhere. Meredith didn’t see a way to change the downward trajectory, so it put them up for sale, with little nostalgia.

People magazine, on the other hand, was a situation. It was highly profitable, but reflected all the stresses on modern publishing, including substantial declines in print advertising and newsstand revenue, and insufficient online ad growth. Meredith saw a powerful brand that wasn’t fully capitalizing on its unparalleled access to celebrities. It had valuable exclusive material—from Hollywood stars to human-interest stories and true-crime tales—and there was room to bring in more money.

It’s a practical approach: Invest in assets with the promise of profit growth; don’t waste money trying to fix hopelessly weak ones, no matter how strong the romantic attachment.

“We aren’t media barons,” Meredith Chief Executive Tom Harty said in an interview.

The Des Moines, Iowa-based magazine publisher, known for women’s lifestyle titles like Better Homes & Gardens and Allrecipes, became the nation’s largest with the Time Inc. acquisition. The company embodies the philosophy of Chairman Steve Lacy. He believes in being direct and unemotional in business decisions, according to an interview last year. And he isn’t afraid to be the bearer of bad news when cuts need to be made.

Nearly two months after acquiring Time Inc. in January 2018, Meredith held dozens of meetings to make clear who would be losing their jobs. One batch would be out by March 31, another group would go later. “We felt it would be more fair,” said Dina Nathanson, senior vice president of human resources, about the plain speaking. In all, about 600 Time Inc. employees in New York were cut.

They aren’t sentimental,” said Lesley Jane Seymour, the former editor in chief of Meredith-owned More magazine who today is chief executive officer of CoveyClub.com, an independent online social platform. “There are moments when you wish the doctor wasn’t so frank.” The print edition of More, a women’s lifestyle title, closed in 2016.

Last year, total ad pages across the magazine industry fell 14%, according to data collected by the Publishers Information Bureau. Since 2014, they’re down 38%.

Earlier hopes that digital advertising revenue would compensate have faded, partly because marketers are spending their ad dollars with tech giants like Alphabet Inc.’s Google and Facebook Inc. instead of digital magazine sites. Print and digital magazine ad spending is forecast to fall nearly 20% in the next four years, according to eMarketer.

Executives at Meredith don’t see the picture as uniformly grim. While they believe there isn’t value in magazines providing news or sports coverage in an online world awash in real-time updates, they see big opportunities in the lifestyle arena, where food, fashion and home content isn’t time sensitive, and the styles of famous personalities have unique power.

They are banking on growing sources of revenue like licensing, live events and online retailing. And they see ways to limit the damage of print’s decline. High newsstand prices on more titles means you sell fewer copies, but each copy brings more revenue, and printing costs are lower. The thinking is a departure from the traditional model that depended on revenue from print ads targeting the large numbers generated through inexpensive subscriptions.

The company’s newest title is Happy Paws, which focuses on the emotional needs of animals and issues they face, including stress and anxiety. The debut issue in April, priced at $9.99, contained such stories as “Understanding the Canine Mind” and “What is Your Dog Saying?”

“Pet articles are among the best read, and Meredith knew that,” said Marty Becker, a celebrity veterinarian who partnered with the media company. “There’s an absolute demand for this magazine,” he said.

People are buying fewer magazines on the newsstand, said Doug Olson, president of Meredith Magazines. “The solution is give them magazines they want,” he said.

Meredith hit a home run with the Magnolia Journal, a lifestyle publication launched in 2016 with Chip and Joanna Gaines—a duo made famous by their home-renovation show “Fixer Upper” that ran for five seasons on the cable network HGTV. An annual subscription for the quarterly costs $20. The Magnolia Journal was the most profitable brand in its first year in operation in Meredith’s 116-year history.

Meredith also added Hungry Girl, a newsstand-only, recipe-focused publication priced at $9.99 that debuted last year in partnership with Lisa Lillien, a cookbook author and creator of the Hungry Girl food website.

Mr. Harty, the CEO, told an investor conference earlier this year that the company outperformed its key rivals in recent years, citing “our philosophy of focusing on women and not news-generated content.”

Meredith believes its print advertising, once it has fully turned around the Time Inc. titles, will beat the industry and return to mid-single digit annual revenue declines. It expects growth in digital advertising and e-commerce and other areas to produce increased revenue in three years. Print advertising in People, Mr. Harty said in an interview, will rise to the low-single digits for its April through June 2019 issues, compared with a nearly 20% decline in the prior-year period.

Still, Meredith’s stock has underperformed the S&P 500 year to date. “When they bought Time Inc. it was a very big bet that they could transform the business,” said Reed Phillips III, chief executive of investment banking firm Oaklins DeSilva + Phillips. “The jury is still out.”

Mr. Phillips said Meredith will be able to lift profitability at the former Time Inc. titles because of its low cost structure. “They probably have two to three years to prove that they have a strategy that makes the business much less dependent on print,” he said.

Meredith was founded by Edwin T. Meredith, who in 1902 launched Successful Farming, a monthly devoted to agriculture, poultry and the home that cost 50 cents annually. Mr. Meredith later served as U.S. secretary of agriculture under President Woodrow Wilson. A framed photo signed by the president and his cabinet is on display near the executive suite in Meredith’s headquarters, on a 14-acre campus on the western fringe of Des Moines and within sight of the Raccoon River. Mr. Meredith’s descendants still control a majority of the voting stock.

Mr. Lacy, who previously served as CEO, stepped down as executive chairman in March but kept the chairman title.

While employees at rival Condé Nast say they work at Vanity Fair or the New Yorker, most in Des Moines would consider themselves Meredith employees, said Ms. Nathanson, the human resources executive, who earlier worked at Condé Nast. “We don’t have a glamour quotient,” she said.

The lower costs of Des Moines helped ease the high labor cost situation of Time Inc. Employees added in Des Moines have average salaries about half the New York rate. “It’s a competitive advantage,” said Mr. Harty.

Personnel costs account for nearly half of the estimated $550 million in savings Meredith believes will come in the first three years after closing the deal. Other revisions include restructured advertising-sales operations, and trims on expense spending—$1 million was saved on sporting-event tickets.

Meredith’s problems-versus-situations approach has long guided its assessment of which titles in its portfolio should survive. Five years ago the company closed Ladies’ Home Journal, a popular publication with a paid circulation of 3.2 million.

Mr. Lacy said its title was off-putting to young female ad buyers and it was heading toward unprofitability—making it a problem.

The Time Inc. that Meredith bought was a far cry from the once-dominant publisher whose magazines had helped shape the political, cultural and business discourse for decades. Its newsstand revenue was declining rapidly, and its print advertising revenue was falling at a far faster pace than Meredith’s.

Meredith weighed the amount of time and capital it would take to turn around several of the flagship titles and concluded the income from a sale was more valuable and would help pay down debt, Mr. Harty said.

Time magazine was sold for $190 million to billionaire Marc Benioff, co-chief executive of Salesforce.com, and his wife Lynne Benioff. Fortune was sold to Thai businessman Chatchaval Jiaravanon for $150 million.

In April, Meredith ended the sales process for Money magazine and said the June/July print edition will be its last. Money.com will continue as a digital property.

A deal for Sports Illustrated appeared close last December, but funding became an issue for potential buyers. The Wall Street Journal reported in April that licensing company Authentic Brands Group LLC is now in talks to purchase the title for about $110 million.

“There have been some twists and turns,” said Mr. Harty, referring to the portfolio sales. “The net proceeds are actually better than what we expected.”

Other Time Inc. titles fell into the problem bin after falling out of favor with advertisers and have been sharply cut back. Coastal Living has been reduced to a quarterly sold only on the newsstand. One of Meredith’s own titles, Martha Stewart Weddings, once a quarterly, now publishes once a year and is also sold only on the newsstand.

The reduced-frequency, newsstand-only sales depend on fans continuing to pay for copies. It is a “last resort” when “the advertisers have given up on your brand, but consumers have not,” said Mr. Olson, the Meredith Magazines president.

People magazine, a supermarket fixture and the country’s most popular weekly, had been Time Inc.’s profit engine, but ad pages were declining rapidly. Newsstand sales had eroded, to an average of 354,000 per issue for the six-month period ended Dec. 31, from an average of 1.5 million for the six-month period a decade earlier, according to the Alliance for Audited Media.

Meredith executives saw a situation: People wasn’t harnessing the power of what it reports on celebrities for venues beyond the magazine—especially television. The company, which owns 17 TV stations across the U.S., including CBS affiliates in Atlanta and Phoenix, launched “People Now Weekend” to wring more revenue out of the content.

A high-profile test was the wedding of actress Priyanka Chopra and singer Nick Jonas. The event got People magazine’s typical in-depth coverage for a celebrity tie-up, including a splashy cover piece. This time, exclusive video of the couple also aired on “People Now Weekend,” reaching some 12.1 million households. Meredith described the broadcast as “very successful.”

Next year, Meredith will expand with a half-hour daily celebrity TV show, competing with such mainstays as “Entertainment Tonight” and “TMZ,” with a goal of syndication deals with stations across the country.

Other moneymaking tie-ins include an expansion of People’s e-commerce efforts on People.com, where fans of the magazine can buy everything from shorts to home furnishings. Meredith said the shop is now its second-largest e-commerce site behind that operated by Better Homes & Gardens.

“We took our existing infrastructure, built a show, put it on the weekend, proved the model and then created a daily show,” said Bruce Gersh, a former TV executive who heads up the People group, which includes the magazine Entertainment Weekly. “That’s something we’d have never had pre-Meredith.” - WSJ

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