Why Time Inc. Is Teaming With Apple on News App

NEW YORK (TheStreet) -- Time (TIME) is betting that Apple (AAPL) can make it cool, and boost its digital revenue in the process.

The New York-based publisher of Time magazine, People, Sports Illustrated and Fortune, joined Disney's (DIS) ESPN, privately-held Conde Nast, The New York Times (NYT) and Hearst as the first content companies to partner with Apple for its News app, introduced on Monday at Apple's developer conference in San Francisco.

The app will deliver content, news and feature stories tailored to individual users' tastes. Much of the curation will be in the hands of Apple rather than the publishers. But for a company such as Time, the opportunity to expand its readership among Apple's hundreds of millions of users, and a 70% share of advertising sales, represented an enticing opportunity. 

"We see it a great opportunity for two premium brands to come together to provide a fantastic experience for people to consume content on their device, and bring Time Inc.'s brands to bear to do that," said Scott McAllister, senior vice president, digital marketing and revenue, at Time Inc.

Besides providing another source of ad revenue, McAllister said the huge installed base of Apple device owners offers the chance to broaden its subscriber base, especially among gadget-loving millennials. "I think it presents potentially new audiences for us we're potentially not reaching today," said McAllister.

Spun off from Time Warner  (TWX) just over a year ago, Time has succeeded in increasing its online traffic. Underscoring the audience shift, comScore figures showed that Time properties across mobile (smartphones and tablets) and desktop in April drew 106.6 million U.S. visitors, compared to 43 million for the desktop only.

The company says its total audience is now split about evenly between the print and digital sides, with each at more than 120 million monthly. Print, however, still accounts for the majority of ad revenue. In the first quarter, only $73 million of Time's $353 million in ad sales came from digital media. The partnership can also be seen as a signal to investors that Time is taking aggressive steps to increase the amount and proportion of its revenue that comes from digital sources. As consumers increasingly favor mobile screens and social media sites for news over print magazines and newspapers, old media icons like Time are racing to adapt.

"This broader move toward distribution being placed in the hands of platforms is a big deal," said Jesse Holcomb, a senior researcher at the Pew Research Center. "Taken as a whole, it does mark what seems to be a shift in distributed content."

As readers migrate to mobile devices, they're also turning more often to third-party platforms such as Facebook (FB), Twitter (TWTR), Snapchat and Google (GOOGL) News to get news rather than going directly to the properties of individual news brands. That's putting publishers under more pressure to team up with the likes of Facebook and Apple.

Time is still struggling to catch up with the digital transition. In May, it reported a 9% drop in first-quarter revenue to $680 million as circulation declined further and print ad dollars continued to dry up. That was its lowest total in at least the last nine quarters.

A modest gain in digital ad sales failed to offset the 12% tumble in advertising revenue on the print side. The company also saw newsstand sales fall 10% and subscription revenue drop 8% in the quarter. It posted a loss of 6 cents a share, excluding certain costs.

During the company's first-quarter conference call, Time CEO Joe Ripp emphasized efforts to ramp up digital revenue through programmatic and native advertising initiatives, as well as paid content strategies.

Toward that end, the company in May rolled out a partial paywall, starting with the Entertainment Weekly Web site. Paywalls for the Health, People, Money, Real Simple and Time Web sites will follow this summer. The paid approach is a gamble, though, since online audiences have become accustomed to getting much of their news content for free.

"We are aggressively going after multiple types of revenue," said McAllister. In that vein, he pointed also to Time acquisitions including FanSided, a network of more than 300 lifestyle and entertainment Web sites, and Cozi, a Seattle company that makes home management software and services.

Video is another focus for the company, with 22 Time brands producing original video, and the company announcing 11 new development projects at the Digital Content NewFronts event in May.

Teaming up with Apple to help ignite revenue growth fits with that multipronged approach. But there's no guarantee the News app will be a hit. The more limited app it effectively replaces, Newsstand, was a dud. It also faces a wide range of competitors from other news aggregators like Flipboard to social newsfeeds to apps for individual news outlets like Fox News and NPR.

What's more, Time risks cannibalizing the audiences for its own branded apps and Web sites. Still, that's a chance the company needs to take given the decline of its legacy print business , according to Tim Nollen, a senior analyst at Macquarie Securities who covers Time. But he suggested it could help incrementally. "We think any efforts to achieve digital distribution should be viewed favorably," he said. "Going through an aggregator is different from keeping it in house, but Time has had very limited success thus far getting digital subscribers at all."

McAllister said key aspects of Time's participation in the News app are still being negotiated with Apple, including the ability to solicit new subscribers through Time content included. And while articles from signature titles such as Entertainment Weekly and People would be part of the package, the extent of content to be provided through the app is still under discussion within Time.

Investors appeared unmoved by announcement of the News app, which little impact on the company's stock price. Time's share price this week has been hovering around $23.50, squarely within its 52-week range of $19 to $25.95 a share, and roughly the same level as when the company went public last June.

This article is commentary by an independent contributor. At the time of publication, the author held shares of Apple.

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