Print woes, Time Warner bottom line

There's an interesting story about Time Warner today in Slate.com, the online magazine launched by Microsoft Corp. and now part of the same group of media properties as The Washington Post, Newsweek and MSNBC. They're competitors of Time Warner's, so reading a Slate story about the competition is kind of like hearing what a Cardinals fan has to say about the Cubs. But it's still a good look at some of the bottom-line considerations of a media conglomerate.

As Slate's financial writer Daniel Gross explains it, Time Warner shows signs of being ready to sell off Time Inc. He says:

... Home to such powerhouses as Time, Sports Illustrated, People, Fortune, and InStyle, Time Inc. has always been regarded as a corporate crown jewel and probably America's greatest magazine publisher. But, while I can't claim inside knowledge, there are signs that the empire founded by Henry Luce—which began in 1923 as just a single magazine, Time—isn't exactly pinning its future on the periodicals business.

Time Warner is composed of five broad units, in descending order of size: cable, networks, filmed entertainment, AOL, and publishing. In a few of these units, the company has recently made bold long-term investments. The cable unit recently spent several billion dollars to acquire the assets and subscribers of bankrupt Adelphia. In early August, AOL announced it would offer free subscriptions to broadband users, sacrificing short-term cash flow from the dwindling core of dial-up customers in favor of potentially larger advertising revenues. Meanwhile, the networks business (TNT, HBO, etc.) in May spent $735 million to buy the half of CourtTV it didn't already own.

But publishing? That's another story. As the most recent earnings release shows, the magazine business accounts for less than 13 percent of revenues and operating income. In the first half of 2006, magazine revenues fell about 1.3 percent, while operating income fell 9.6 percent. Time Inc. is a monster business with truly impressive numbers. Its Web site notes that last year it had three of the top four grossing magazines, and seven of the top 25. Time Inc.'s properties (at least 145 magazines) alone account for about 23 percent of U.S. magazine advertising. Which is precisely the problem. The economy is slowing: Advertising for mass-market print publications is not going to soar in the coming year.