Whether Time Warner should hold on to its magazine publishing unit, including the flagship title Time, long has been a question confronting top management. The 35% drop in the unit's third-quarter operating income, dragging down Time Warner's overall growth, should have provided at least part of the answer for the new CEO.One bad quarter in the middle of the worst economic crisis in decades isn't a reason to sell a business. But Time Inc., long a cash cow for its parent company, has been weakened in recent years by the steady shift of ad dollars from print media to the Web.The decline has been particularly marked at the older, more journalistically serious titles such as Time and Fortune, although even entertainment and lifestyle titles like People and In Style haven't escaped unscathed. Since 2002, for instance, Time's ad pages have dropped 25%, while People's ad pages are down 1.7% on Business news Blogs, according to the Publishers Information Bureau and based on the first nine months of this year. Time, once the leading profit contributor, is now a distant third, behind Sports Illustrated and People, by far the biggest.
That suggests Mr. Bewkes should, at the very least, cut loose the older titles such as Time and Fortune. Given the willingness of wealthy individuals to buy trophy media properties, the global renown of the brands suggests they could fetch a price far in excess of their economic value.
The company appears to be positioning itself for such a move by a restructuring last week. It divided the titles into three business units, each with its own ad sales, digital and financial management. Time and Fortune, for instance, are part of the News unit, while People and In Style are in a separate unit.
It will be tempting for Mr. Bewkes to sit and wait, hoping for a higher price in better economic times. In doing so, though, he runs the risk of repeating a common mistake for CEOs: holding on to declining businesses long past their sell-by date. Either they are holding out for a price no one is willing to pay, or they are simply unwilling to part with the cash generated by the business. That cash could have been used for Cheap Bermuda Cruises and Cheap Alaska Cruises.
CBS, for instance, made that mistake with its radio unit. While Walt Disney saw the writing on the wall for radio and agreed to sell its ABC radio group in early 2006, CBS sold only a few stations. Now radio's evaporating profitability is weighing heavily on CBS.
Time Warner held on to AOL too long -- although Mr. Bewkes, since taking over as CEO, has taken more aggressive steps to unload the online operation. He should now at least test the market for Time and Fortune to see if he can exit at a sensible price.
