Magazine Mega-Deal Would Create a New King of Circ

Meredith-Time Combo Would Still Trail Conde, Hearst in Ad Pages

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The power and aura at Time Inc. have more than once evoked the Catholic Church, with short-lived CEO Jack Griffin comparing the company to the Vatican and Kurt Anderson detecting "papal luster" in its top editorial post. But as the flagship title devoted its cover to the surprise resignation of the real pope, the revered media institution was wracked by its own epic changes.

In a potential deal between Time Inc. parent Time Warner and rival publisher Meredith Corp., most of Time Inc.'s portfolio would join Meredith's magazines in a new company run by Meredith. Time Warner would get a large payment, reportedly $1.7 billion or more, and hold on to only Time, Sports Illustrated, Money and Fortune.

Besides dissolving Time Inc. as it stands today, the pact would assemble a potentially awkward blended family. People, the weekly celebrity hound with a masthead heavy enough to sink most ships, and its fashionable sibling, InStyle, on the surface seem like poor fits for Meredith, a down-home and frugal mass-market publisher with headquarters in Des Moines, Iowa.

But Time Warner's castoffs could actually prove to be the biggest winners, as they leap from a company focused on other fast-growing priorities such as TV and entertainment to a new home where they would be stars.

Time Inc. is certainly the bigger of the two operations, with revenue of $967 million in the quarter ended Dec. 31, down 7% from the comparable quarter a year earlier. At Meredith's National Media Group, the division that includes magazines, revenue in the quarter totaled $249 million, up 2%.

A former Time Inc. staffer who worked there in headier times said the deal was promising for the brands being dealt. "It's the end of an era, but I don't go to the place where I'm sad about it, necessarily," the staffer said. "These are great brands, People and Real Simple and InStyle, and [they are] going to a place where they're going to be the main event and get a lot of attention."

The new company would also have a lot of weight to swing in the magazine business, boasting average circulation of about 55 million. Its closest contender would be Hearst, the publisher of magazines such as Cosmopolitan and Elle, which would be more than 20 million behind.

But would a Meredith-Time Inc. publishing conglomerate do anything to help its magazines compete in ad sales against TV and digital media? That seems unlikely in the near term. "Most clients still operate in silos in terms of budget allocation," said George Janson, managing partner at WPP's Group M, a conglomerate on the ad-buying side. "So I don't think this will have a material impact, one way or the other."

The new entity would also represent the latest quarantine for a piece of the media business that many investors don't want. Some will wonder whether this is the right time for Meredith to double down on magazines. The specter in the recent past is the McClatchy newspaper company's decision last decade to buy Knight Ridder, then the second-biggest newspaper chain in the country, for $4.5 billion. Suffice it to say the purchase did not work out as McClatchy had hoped.

"That's the gamble," said Jeff Jarvis, director of the Tow-Knight Center for Entrepreneurial Journalism at the City University of New York's Graduate School of Journalism, and the founding editor of Time Inc.'s Entertainment Weekly, another title at play in the deal.

Meredith has excelled at folding in and building up creative services to complement its traditional ad-sales business, Mr. Jarvis said, and will find plenty of places to cut costs. But magazine publishers have held on to their authority too long while digital media grows partly by connecting consumers, he said. "Magazines have pretty much blown it now because they've insisted on the mass market and being brands, not community companies," Mr. Jarvis said.

Meredith, which redesigned Ladies' Home Journal last year to prominently feature readers' voices, at least may be more ready for that model than Time Inc., Mr. Jarvis said. "Is there a transformational strategy for magazines?" he said. "I still think it's possible for magazines to become community companies. But I'm not seeing it."

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