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Time Inc. Seeks to Go Where No Legacy Print Company Has Ever Gone Before

NEW YORK (TheStreet) -- Time Inc. (TIME) is trying its hardest to look clean and well-dressed as it moves out of the house, but it's parent, Time Warner (TWX - Get Report), has made it very difficult.

And if investor to response to the publisher's first day of trading is any indication, the future looks worrisome. Time shares were dropping 3.6% to $22.64 on Monday.

The publisher of Time magazine, People, Fortune, Sports Illustrated and a bevy of other titles, was spun-off by Time Warner making it the world's largest publicly-traded magazine publisher. While its brands are globally-recognized, sales are declining, and the new company will carry $1.4 billion in debt, a combination that has won it "junk" status from Moody's Investor Service, the credit rating agency.

Time Inc. remains a formidable presence in publishing. Its titles capture nearly one-quarter of all magazine advertising. Yet in the modern era, Time's popularity is under pressure from countless newfangled online newcomers.

The publisher's inevitable split from Time Warner had been expected at least since 2008 when Jeff Bewkes took over as CEO and quickly moved to carve out AOL  (AOL) and Time Warner Cable (TWC). Time Inc. required a more delicate hand. For one, the publisher's position within the company, specifically Time magazine, extends back to its founding in 1923. That's a lot history, not easily jettisoned. (Time Inc. and Warner Communications merged in 1990).

Secondly, Time's revenue has declined in five of the past seven years. Clearly, this is a business with some issues.

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But the future may not be so bleak. Time's roughly 90 titles worldwide generated revenue in 2013 of $3.4 billion. This isn't a company without cash flow.

Take News Corp. (NWSA). The owner of The Wall Street Journal, has gained 10% since controlling shareholder Rupert Murdoch a year ago separated his legacy print business from his faster-growing television and film units held by 21st Century Fox (FOXA). While News Corp does own some Austrailian television assets, it remains largely a print legacy business.

As a separately-traded company, News Corp was able to use $415 million of its own cash flow to purchase Harlequin, the romance novel publisher last month. That's money that in years past would have gone to its corporate parent.

As for Time Inc., Bewkes hired Joe Ripp as CEO in July, tasking him with finding ways to reverse a decline in sales that extends over 22 of the last 24 quarterly reporting periods. Complicating matters, Ripp also must tend to servicing a debt of $1.4 billion while holding around $100 million in cash and a junk-level credit rating. The debt is expected to total about three times the new company's annual operating income.

But debt may not be such a bad thing, says Carl Salas, a senior credit officer at Moody's Investor Service. If Time Inc. were to go public without any debt, it would be a too-easy target for a hostile acquisition. Unlike News Corp, time Inc isn't protected from some advances by a dual-stock structure. That's one reason Murdoch gave New Corp. a going-away present of a debt-free balance sheet and $2.6 billion in cash.

Ripp, who previously worked at Time, hired a former colleague, Jeff Bairstow, from his days running the underperforming regional newspaper Journal Register, to be his chief financial officer. They'll both be under considerable pressure from the outset. Bairstow comes to Time from Digital First Media, which shut down its ambitious but money-losing Thunderdome project, a New York-based effort created to funnel news stories to Journal Register and MediaNews Group newspapers.

Needless to say, both men have insights into the difficulties faced by legacy print publications long accustomed to higher print ads. 

Like all legacy print publications, Time's path to profitability in the "Age of Twitter" will be found by creating social and search tools that build communities eager to share and interact with the publisher's reporters and editors. There are certainly examples of older publications -- The Atlantic, The Hollywood Reporter, chief among them -- that have been remade for
the modern era.

Time, like most magazine publishers, are trying to appeal to younger consumers and by extension, their advertisers. And Time is spending lot of money to build platforms that do that. Time, though, did acquire Food & Wine, Travel & Leisure and Departures magazines from American Express' publishing group in the fall, an acquisition that speaks to Ripp's aim to also appeal to higher-income demographics and related advertisers.

For the moment, Time will have to calm investor concerns that a legacy print publisher can't go it alone.

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Leon Lazaroff is TheStreet's deputy managing editor.

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