When Time Inc. declared it was putting the brakes on a potential sale, the announcement served — among other things — as a reminder that the public equity markets have not been kind to magazine media.
Time Inc. spun out from Time Warner in 2014, emerging as a standalone company with some of the most storied magazine brands in history, but also $1.3 billion in debt and a lengthening record of declining revenue. Last year was no exception, with revenue falling to just under $3.1 billion. In 2010, by contrast, the company’s revenue was $3.7 billion.
The company’s three-year experiment with public equity markets has, by almost any objective measure, not succeeded. Ironically, at least according to one observer, being part of a public company — Time Warner — is what led to this outcome.
“The capitalist investors who owned shares in Time Warner did what all capitalists should do,” says Reed Phillips, CEO of the M&A brokerage DeSilva + Phillips. “They tactically influenced the management team to redeploy the cash generated by Time Inc. into more promising and higher-growth businesses that Time Warner also owned or wanted to acquire. If Time Inc. had been independent, it presumably would have used its profits to invest in opportunities that would have further developed and supported the magazine brands over the long term.”
Another observer with direct experience managing a publicly traded magazine company, Northstar Travel Group CEO Tom Kemp, notes that Time Inc.’s low share price is really just an indication of a deeper issue. “The problem with their valuation is that the revenues and gross profits continue to decline each year, and the market does not know when they will hit bottom,” he says. Kemp was CEO of Penton Media in the late 1990s and early 2000s.
Time Inc. is almost certainly the most prominent magazine company in U.S. media history, and clearly its challenges are contemporary, but it represents just the latest in a line of magazine-media companies whose experiences as public companies ended badly. Among them:
• Martha Stewart Living Omnimedia. MSLO went public in 1999, and enjoyed a brief period as a hot stock, opening at $18 and increasing to near $40, but then CEO and majority owner Martha Stewart was forced to resign as part of an insider trading case. In 2002, a class-action suit accused the company of misleading investors. By 2015, the company was trading around $6.00. It was ultimately acquired and taken private by Sequential Brands. The brand is now published under a licensing agreement with Meredith.
• Reader’s Digest Association. The parent company of Reader’s Digest (now called Trusted Media Brands Inc.), went public in 1990, but was acquired by private equity in 2007. It has declared bankruptcy twice since then, in 2009 and 2012.
• Playboy Enterprises. The parent of the pioneering men’s magazine went public in 1971 and had a 39-year run as a publicly traded company. After a peak at $33.44 in 1999 (part of the dot-com mania), the stock lost nearly all of its value and was finally taken private in 2011 in a deal that valued shares at around $6.00. A Los Angeles Times blog in 2011 suggested that Playboy Enterprises proved the old adage: If you want to become a millionaire in the stock market, start with $2 million. “As a buy-and-hold idea, the bunny was a bomb,” the blog concluded.
• Penton Media. This B2B publisher was spun out from the security company Pittway Corp. in 1998, and had several good years, but by 2002 the value had collapsed to penny-stock status and it ultimately was delisted.
• Mecklermedia. The Westport, Connecticut-based niche internet publisher went public in 1994, and had a run of mostly low-volume trading. Ironically, it was sold to Penton Media in 1998 for a robust $274 million.
If public markets have not always treated magazine media well, the jury is still out for digital-native media companies. Will they be seen by public equity markets as akin to social-media companies like Facebook and Snapchat? So far, companies like Vice Media, BuzzFeed, Mashable, Vox, Axios and others have attracted massive amounts of venture backing—even as iconic magazine-media brands with long histories of consumer demand, top-notch leadership and actual profits have languished. Vice in particular has been a magnet for VC, with an incredible valuation north of $4 billion. “Remarkably, Vice Media’s value, which is more than $4 billion, is greater than all of Time Inc., which once was the mightiest magazine company in the world,” says DeSilva + Phillips’ Reed Phillips. (Time Inc.’s current market capitalization is about $1.4 billion.) “Even more astonishing, investors are swarming to put money into Vice, but Time Inc. is struggling to find a buyer. In the past ten years, as companies like Vice have diversified broadly into digital and video, their old-line counterparts, like Time Inc., have largely remained what they have always been: magazine companies.”
Kemp explains the old media/new media disparity: “It’s growth expectations. That’s where the money is going. Everyone is looking for the next Facebook.”
Of course, for the digital-only media companies, the more direct comparison to magazine companies will have to wait until one of them goes public. Rumors circulated at the end of March that BuzzFeed plans to go public in 2018. Last fall, BuzzFeed raised $200 million from NBCUniversal in an investment that doubled NBC’s stake and valued the company at a total of around $1.7 billion, according to Fortune.
That valuation is greater than Time Inc.’s current market cap, even through BuzzFeed is a much smaller company. That surely must rankle Time Inc.’s management, as well as its investors. “This is just at a time when investors are dubious about the future of print media and have been shifting their dollars to future-oriented companies like Vice,” says Phillips. “They’re showing impressive growth just as traditional magazines are in decline.”
Kemp makes a similar observation. “Print magazines are considered past their prime, as readers and advertisers redirect their spending and time consumption.”