For readers who still love print -- and there are a few of us left -- it’s a page right out of history.
Time Inc. (NYSE:TIME), the largest magazine publisher in the United States, will report second-quarter 2014 earnings on Tuesday, its first earnings report since it spun off from its former parent company, Time Warner Inc. (NYSE:TWX), earlier this year. Analysts polled by Thomson Reuters expect the New York-based publisher to report net income of $25.3 million, or 19 cents per share. The company is expected to report revenue of $827.6 million for the three-month period ended June 30.
Time’s portfolio of more than 90 brands comprises some of the most recognizable glossies in the world, including People, InStyle, Fortune, Sports Illustrated and its flagship Time magazine. It’s an impressive list, but the titles do not exactly scream “wave of the future.” Print magazines, though still profitable, are facing serious challenges from myriad market forces, most notably the continuing evaporation of single-copy retail sales that began with the rise of mobile devices at the start of the current decade.
Perhaps even more challenging is the perception, however exaggerated, that print magazines are facing inevitable obsolescence. It makes pitching Time as a forward-looking company an uphill climb, to say the least. “The magazine industry is in secular decline,” Toni Kaplan, an analyst with Morgan Stanley, said in a June research note.
Time Inc. shares debuted on the New York Stock Exchange in early June. Recent investments in digital products notwithstanding, the company is one of the few publicly traded media companies whose core business model is still rooted in ink and paper. So when Time’s chief executive, Joseph A. Ripp, discusses the company’s financial results in a conference call on Tuesday morning, his pitch to shareholders will be an interesting mix of optimistic spin and outright speculation. Analysts say Time Inc. can still have a bright future, but only if it is smart about its long-term goals. Whatever its future, it still has “lots of work ahead,” as Tim Nollen, an analyst with Macquarie, put it in a research note published Friday.
Here are five key questions Time Inc. needs to answer in its first quarterly report:
1. Is Print Still Paying the Bills?
Just over half of Time Inc.’s revenue comes from advertising. In 2013, when the company was still a unit of Time Warner, it reported $1.8 billion in advertising revenue. But exactly how much of that advertising revenue came from print versus digital ads was not readily disclosed in earnings reports. In fact, it’s still a bit of a mystery. Ripp and company can do better. As a leaner company, Time Inc. should aim to get more specific: How much is it still relying on printed ads? Granted, cross-platform ad deals may present challenges for separating the print and digital figures, but the more transparent Time can be, the better.
2. How Bad Was ‘Magocalypse’ 2014?
Amid a dispute over a rate hike in late May, Time Inc. dropped one of its key distributors, Source Interlink Distribution LLC. The decision devastated Source Interlink, which closed its operations a few weeks later, causing widespread disruption along the distribution chain. The effects of that disruption are still being felt. Some titles saw their circulation numbers cut in half, as stacks of magazines sat undelivered in warehouses and printing plants. Publishers and retailers were left scrambling to hash out deals with new distributors. Time should address this situation on Tuesday, and let shareholders know the extent to which its single-copy sales were affected and whether things have stabilized.
3. What’s Happening with Digital Investments?
This is something we can be sure to hear Time tout. As it attempts to position itself as an attractive option for shareholders, it has to show it’s looking forward -- and it is. In June, the company purchased Cozi, a Seattle-based tech startup whose calendar app helps families stay organized. It’s a natural fit for integration with Time-owned brands such as Cooking Light and Real Simple. So let’s hear more about how Time is getting cozy with Cozi. Time also recently launched 120 Sports, a sports-news mobile app, so expect an update on that.
Are More Layoffs Coming?
It’s no secret that Time Inc. has been downsizing over the last few years. Serious cuts began in 2008, when about 600 positions were eliminated. In January 2013, another 500 staffers -- then 6 percent of Time Inc.’s global workforce of 8,000 employees -- were pink-slipped. A year later, yet another round of 500 layoffs were reported. And a few months ago, reports surfaced of more layoffs at Sports Illustrated, Fortune and People. It’s important to be lean, but how lean is too lean? If more cuts are planned, we’d like to hear a good justification for it.
When Does It Get Better?
Finally, everyone knows Time’s core bread and butter is in decline. Let’s not candy-coat it. Be honest about how long the business is likely to struggle from the print-to-digital paradigm shift, and when it may finally emerge from the darkness. At Morgan Stanley, Kaplan said she expects Time’s gross sales to continue to decline in the short term, but predicts things will stabilize after 2017. “Initiatives focused on selling across the organization and monetizing content could drive upside,” Kaplan added. All things considered, it isn’t that long -- just a matter of time.