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Time Inc. + Meredith: Can Two Old-Guard Publishing Firms Find Digital Strength in Numbers?

Time Inc. earlier this year said it was going to fly solo, announcing that it was ending merger talks.

Just a few short months later, CEO Rich Battista and the company’s board changed their tune: Time Inc. has agreed to be acquired for $1.85 billion (excluding debt) by Meredith, a Des Moines, Iowa-based publisher of female-skewing publications and owner of 17 TV stations. The two traditional media companies — each fighting to get into digital leadership positions — have concluded they’re better off joining forces in trying to navigate the way forward to grow audience among younger consumers.

Analysts said the proposed combo of Meredith and Time Inc. should yield cost-savings and operating efficiencies as well as give them ammo to pitch a bigger online audience to Madison Avenue.

“It’s a fairly typical market-share kind of deal,” said Paul Verna, principal analyst at eMarketer. “Any company in this sector is going to do better in a strength-in-numbers alignment, which is what this is.” He added, “Media companies in general are in a very stressed position in terms of revenue pressure and difficulty with monetization overall.”

Steve Lacy, Meredith’s chairman and CEO, highlighted the combined companies’ digital business on a call Monday with analysts discussing the deal. Together, Time Inc. and Meredith had 174 million unique monthly visitors in September 2017 — making it No. 6 among the biggest digital-media properties in the U.S., per comScore. In 2016, the businesses generated about $700 million digital ad revenue combined.

“That’s a digital business much larger than many standalone activities that trade at very high multiples in the marketplace,” Lacy said. About 34% of the ad revenue for the two companies came from digital platforms for the 12 months ended Sept. 30, 2017.

Lacy appeared to be referencing digital upstarts that have stirred a whirlwind of hype like BuzzFeed, which has landed $400 million in investment from NBCUniversal but will reportedly miss its 2017 revenue target of $350 million.

Looking at the big picture, the companies are likely better off joining forces, Pivotal Research senior research analyst Brian Wieser said. But, he added, “The combination of the two is still relatively small in an industry that’s dominated by Google and Facebook, with Amazon still the sleeping giant.”

There’s the question of how deep and wide the cutbacks at Time Inc. and Meredith will run as they get mashed together, and what institutional knowledge they’ll lose in the process. The companies are projecting up to $500 million in cost savings in the first two years, including $240 million to $300 million in “public company and duplicative expenses.” That could mean the elimination of a few thousand jobs at Time Inc., the New York Post reported, citing industry speculation.

What’s also unclear is the extent to which the deal’s financing by the controversial Koch brothers, the conservative billionaire brothers who head Koch Industries, might discolor Time Inc.’s storied news-driven brands like Time, Fortune and Sports Illustrated (even as Meredith has vowed that the Kochs will have no control over business decisions).

According to Meredith execs, the deal presents significant upside potential in reaching millennial audiences particularly with video. Together, Time Inc. and Meredith properties generate north of 10 billion video views annually. Among recent video initiatives, Time Inc. has launched the PeopleTV ad-supported internet network and a subscription-VOD service for Sports IllustratedMeredith has announced a live-video series partnership with Rachael Ray to launch in 2018, along with original series from Parents, Martha Stewart Living and Better Homes & Gardens.

Increasingly, “marketers and agencies are consolidating budgets with partners who have the scale, trusted brands and ability to deliver improved return on ad spend,” Tom Harty, Meredith’s president and COO, told analysts on the call.

But according to eMarketer’s Verna, neither company has been “particularly groundbreaking in digital video or in their digital strategies overall.” While they will be able to pool resources, “if you’re taking two companies – neither of which is a clear leader in the digital space – what makes you think bringing them together gets them any closer to getting there?”

In other words, simply hitting critical mass in terms of aggregate audience doesn’t guarantee that the whole will be substantially greater than the sum of the parts. As proof of that, look no further than results posted by Univision Communications, which purchased six Gawker websites in a bankruptcy auction last year and combined those with other digital-media investments including its majority stake in the Onion. That’s given Univision’s Fusion Media Group an online reach of more than 110 million monthly unique users. But for the first nine month of 2017, the broadcast-focused company’s core digital ad sales were $95.6 million, up just 2.9% year over year on a pro-forma basis.

Lacy, who at age 63 is nearing retirement, doesn’t have a reputation as a big media tycoon — but he’s no stranger to M&A. Since joining Meredith in 1998, he’s led the acquisition of media brands including Allrecipes.com, Martha Stewart Living, Rachael Ray Every Day, FamilyFun, EatingWell and Shape, as well as TV stations in the Phoenix, St. Louis, Mobile, Ala., and Springfield, Mass., markets.

The proposed Time Inc. deal “automatically raises his profile,” said Verna. “There will definitely be more pressure on him going forward.”

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