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Time and NYTimes Shed Some Leaves

September 2006

Niche magazines and TV stations are going on the block, as both companies refocus on core offerings

Leaders of print media are racing to adapt to the Internet, which has created perhaps the greatest opportunity—and certainly the greatest risk—that they have faced in their 100–year history (see, 7/13/06, "The Dilemma Vexing Big Media"). The latest signs of change appeared on Sept. 13, when The New York Times Co. (NYT) announced it intends to sell its broadcast TV business, and Time Warner (TWX) announced that its Time magazine unit would sell off 18 smaller titles.

Investment bankers said both companies would find buyers. "At the right price, they will find a lot of people who are interested," says Ken Marlin, managing partner of investment bank Marlin & Assoc. in New York. He points out that even if the assets don’t fit that well within the current owners’ structures, there are plenty of other potential buyers that might be able to find value in them. And those potential buyers in the world of private equity and in media have a lot of cash.

Both The New York Times Co. and Time Warner said they want to concentrate on developing their major brands across a variety of platforms, online and off (see, 1/17/05, "The Future of The New York Times"). "We believe a divestiture would allow us to sharpen our focus on developing our newspaper and rapidly growing digital businesses, and the synergies between them, thereby increasing the value of our company for our shareholders," New York Times Co. CEO Janet Robinson said in a statement.

"AN INCREMENTAL POSITIVE." Time Inc. CEO Ann Moore issued a memo on Sept. 12 telling employees that the company was going to focus on its largest and most profitable brands, in print and digital form. "Our recent acquisition of and greater investment in,,,,, and Time Inc. Interactive are evidence of this focused strategy," she wrote in the memo, which was posted at the Romenesko media blog (click here to read the memo).

While The Times’s announcement was well received by analysts, they remain cautious about the company. "We think the sale represents an incremental positive for NYT? However, the results from their core print businesses have been weak in recent quarters, and we do not see this improving in the near term," UBS (UBS) analyst Brian Shipman said in a note. He maintained his neutral rating on the company. NYT shares rose 87 cents, or 3.9%, to $23.15, on Sept. 13. But they’re worth less than half what they were four years ago, when the stock broke the $50 level.

The Time Inc. announcement didn’t have much impact on the company, with shares falling just 6 cents, to $16.98, on Sept. 13. And Time Warner shares have declined so much in recent years it would take a huge event to shift their momentum. Still, the sale of the niche magazines could have a strong impact of Time Inc.’s magazine unit, which is part of a larger empire that includes cable, movie, and TV assets.

TARGET PRACTICE. According to Shipman, nine Times–owned TV stations, which are in midsize markets such asOklahoma, should command a total price of 11 to 12 times earnings before income taxes, depreciation, and amortization (EBITDA). With the stations expected to produce an estimated $43 million in EBITDA this year, they would go for between $480 million to $520 million, Shipman said. Merrill Lynch (MER) media analyst Lauren Fine, who has a neutral rating on NYT, said potential buyers included Hearst–Argyle Television (HTV), Paxson, Sinclair (SGBI), and Nexstar.

The sale of the TV stations makes sense because media is now being valued based on its ability to target an audience. That’s easily done with the Internet, and it can be done with print, too. "But broadcasting doesn’t target specific audiences," points out media analyst Miles Groves of MG Strategic Research. "Broadcast has more limited potential going forward."

Marlin says the outlook for broadcasters isn’t that gloomy. Many of them are learning to use the Web as an alternative distribution channel, giving them the ability to target audiences, too. "It’s true that there was a slowdown in buying TV stations for the past few years, from 2004 to 2006. But this followed on the heels of a feeding frenzy from 1996 to 2003. We believe that we’re now going to see buying pick up again," Marlin says.

TO THE CORE. He believes potential acquirers could include networks such as CBS (CBS), media companies such as Hearst, and private equity firms, which could also be looking to Time’s magazines. Richard Fetyko, senior vice–president at investment bank Merriman Curhan Ford & Co., says Primedia (PRM) also could be a buyer of the Time magazines.

The cash raised from such sales can be plowed back into the core businesses such as NYT’s flagship newspaper and Time’s flagship magazine. Neither sale will make an enormous difference from a financial point of view, but every incremental boost in focus and resources is worth the effort at a time when markets are changing so fast.

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