Time Inc. downtown move to ‘transform the cost base,’ but layoffs also likely
As an independent company since its spin-off from parent company Time Warner on June 6, Time Inc. has been thinking hard about cost-cutting measures and digital advertising.
The publisher reported a net income loss of $32 million in the second quarter of 2014, according to the earnings report out this morning. Time Inc. took an especially hard hit when its second largest newsstand wholesaler, Source Interlink Distribution, which shipped magazines from warehouses to retail outlets, defaulted on its payment to the company. The transition to competing wholesalers set the company back $19 million in revenue, the report said. Restructuring and severance payments cost the company $55 million this quarter, partly due to personnel cuts.
The company's move in late 2015 to downtown headquarters at 225 Liberty Street is seen as a means of "transform[ing] the cost base," chief executive Joe Ripp told Wall Street investors in an earnings call this morning. "We expect the new lease to result in approximately $50 million of annual savings beginning in 2016 .... Our new headquarters will also allow us to accelerate the cultural transformation."
The building's open floor plan will encourage more collaboration between the business and creative staffs at Time Inc., and between brands, Ripp said.
To cut costs and increase efficiency, Time's titles will be sharing content and photography resources, and "eliminating layers of management structure," Ripp said. While Time is hiring talent that "understand[s] how to operate in a more efficient manner," according to Ripp, there may be more layoffs in addition to the 500 earlier this winter, said Craig Huber, an independent media analyst for Huber Research Partners.
Print advertising revenues this quarter—without factoring in gains from the acquisition of American Express Publishing—declined 6 percent to $387 million compared to same period last year, but digital advertising revenues increased 15 percent to $74 million, excluding the acquisition and Time's exit from its partnership with CNNMoney.com.
Already at Time, there are examples of "digital or adjacent revenue streams [that] are partially offsetting print declines and in several cases some brands are 'crossing over,' reaching the place where digital and adjacent revenue growth surpasses print declines in 2014," chief financial officer Jeff Bairstow said.
Time Inc. recently created an eight-person unit focused on selling and creating online native advertising across the company's portfolio, AdAge's Max Willens reported.
But gains in digital advertising aren't yet substantial enough to make a huge difference in Time Inc.'s bottom line, Huber said.
What could give Time's revenues a leg up is variable newsstand pricing, Ripp said: "We price on a national basis, which makes no sense to me .... It seems like we're leaving a lot of dollars on the table by not effectively pricing in markets based on what [their] affordability is."
Time is also contemplating its digital paywall strategy, Ripp said. "Some of our magazines do [have paywalls,] some don't. We'll come to some conclusions on that within the third quarter."
As for future acquisitions, "we're not going to be investing in silly things," Ripp said. "We have to invest in things that we think have real value-generating capability."