Time Inc. Revises Expectations Downward, Citing Disruption of Its Reorganization

Realignment Brings $35 Million in Costs, Changes 500 Sales Employees' Roles

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'We basically distracted our sales force a little greater than we anticipated, but it was absolutely a necessary change,' Time Inc. CEO Joe Ripp said of this year's restructuring.
'We basically distracted our sales force a little greater than we anticipated, but it was absolutely a necessary change,' Time Inc. CEO Joe Ripp said of this year's restructuring. Credit: Buck Ennis/Crain's New York Business
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Time Inc. revenue slipped to $769 million in the second quarter, down 1% from the period a year earlier, the publisher said as it reported results on Thursday.

Ad revenue edged up 1% to $426 million as a 65% increase in digital advertising offset a 13% decline in print and other advertising, the company said.

The huge rise in digital ad revenue resulted primarily from Time Inc.'s acqusition of Viant, the parent company of MySpace. Viant offers a "people-based" advertising technology that Time Inc. is positioning as big lift to its digital capabilities. Without the impact of Viant, digital advertising would have increased 10% in the quarter, the company said.

But the bulk of an earnings calls to discuss the results was devoted to the ongoing reorganization of the editorial and sales structures at Time Inc., publisher of brands including Sports Illustrated, People, InStyle, Time and Fortune.

Time Inc. Chief Financial Officer Jeff Bairstow.
Time Inc. Chief Financial Officer Jeff Bairstow. Credit: Time Inc.

The company expects to incur $35 million in costs related to the realignment, Time Inc. Exec VP-Chief Financial Officer Jeff Bairstow said. Time Inc. said Wednesday that layoffs were coming as part of the changes, and it was widely reported that 110 employees would lose their jobs. Executives didn't refer specifically to staff cuts on the earnings call, but CEO Joe Ripp discussed the importance of achieving cost-savings and finding efficiencies.

"We are transforming Time Inc. to participate in larger global opportunities," Mr. Ripp said.

The company revised its guidance for the rest of the year downward, and Mr. Ripp said the sales reorganization was a big part of that. Time Inc. is moving to a more category-focused approach on selling advertising, putting less emphasis on individual brand offerings. Job responsibilities for some 500 sales people changed, which created some disruption, Mr. Ripp said.

"We basically distracted our sales force a little greater than we anticipated, but it was absolutely a necessary change," he said.

One analyst asked Mr. Ripp why, in previous calls, the impression had been given that the company had already restructured the sales operation, and was going to market with a new approach. The analyst wanted to know whether this, finally, was the definitive reorganization that had been talked about.

"It means the prior comments were a journey," Mr. Ripp responded. "And we were on that journey. Everything we said in the past was true. We just weren't finished with the journey."

Alan Murray, who was recently named chief content officer for Time Inc., spoke on the call about how the company is also streamlining the editorial side, and looking for greater opportunities for brands to collaborate and work more efficiently.

"We have been organized around magazine brands, and the way you organize to attack an audience on mobile phones is very different," he said.

Time Inc.'s finances were also impacted by happenings in the U.K., including the Brexit vote, which Mr. Bairstow said created unexpected volatility. Time Inc. U.K. contributes 12% of company revenues, he said. The strength of the dollar, compared to the British pound, "had a $6 million adverse impact on revenues," the company said in a release. Following the Brexit vote, Mr. Bairstow said Time Inc. has seen a "modest slowdown in advertising," but not a significant one.

Analyzing the state of the media and advertising industries, Mr. Ripp said Time Inc. is increasingly competing against Google and Facebook, two companies that are "sucking up" the lion's share of digital advertising revenue. "Facebook and Google have really come on fire," he said.