Case Study: Spun Off by Its Parent

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¶ … spun off by its parent company. While it is still profitable, it faces considerable challenges in attracting both audience and advertisers. Thus, Time Inc. needs to evaluate its position vis-a-vis the external market in order to determine the best strategy going forward. It needs to do two things in order to survive. The first is to increase its bargaining power and the second is to become a technological leader in order to leverage the power of its top brands.

Situational Analysis

There are a few different frameworks by which the understand the magazine industry. The magazine industry has struggled to cope with the digital revolution and many firms in the business are battling in an increasingly competitive and rapidly changing market. The industry would formerly have been considered to be conservative, with a slow pace of change, and it doubtless shock up a lot of people in the business to have the Internet arrive with a host of new competitors, new business models and see revenues be thrown into a tailspin. Some established brands, such as Newsweek, eventually converted to an all-digital format, though that company has since reversed that move (AdWeek, 2013).

Overall, the industry is starting to find its level after years of declines. The MPA, an industry organization, notes that growth in digital media, such as tablets, is helping to offset declines in print media. Major advertising buyers such as drugs & remedies, food, and toiletries & cosmetics, are all major buyers in both new and traditional media and seem willing to carry over their prior relationships in with publishing entities. There has been a 6% increase in magazine readership among affluent Americans, something that has allowed for the industry to stabilize a little bit (Murphy, 2013).

Porter's five forces explain the profitability of an industry. Where a company stands in relation to these forces will determine its ability to earn profits. Time Inc. is one of the strongest firms in the industry. The five forces are the bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants, the threat of substitutes and the intensity of rivalry in the industry (Porter, 2008). The bargaining power of buyers is relatively low in this industry because no one consumer is important to the company. The products are all differentiated, which further reduces bargaining power. While the buyers are price sensitive they are also price takers for the most part. The bargaining power of suppliers is relatively high, however. Input suppliers like paper companies will have low power because they need the volumes that a company like Time Inc. offers. However, advertisers now have a lot of different platform options and that increases their bargaining power. The biggest advertisers have tremendous bargaining power.

The threat of substitutes is very high. This threat has come from digital media, and it affects both the audience side and the advertising side. This threat has seen companies like Time Inc. forced to adjust their offerings, but the rise of the tablet has resulted in a good new platform for magazines where perhaps computers and smartphones were not. The threat of new entrants is quite low. Industry profits are not particularly strong, even having just stabilized and there are still high fixed costs associated with starting a major magazine. Thus, few new entrants are enticed into this business. For the most part, firms are exiting the industry. Lastly, the intensity of rivalry is high. The firms in this industry compete for shelf space, for audience and for advertisers. For every publication that Time Inc. has there is probably a rival publication chasing after the exact same demographic.

Put together, the magazine industry is only marginally attractive for existing players and not attractive for new players because of the fixed costs associated with market entry. Firms in the magazine business are still figuring out how to make money. If we look at the Boston Consulting Group Matrix (BCG) we can see that this industry is somewhere between a dog and a cash cow (Value-Based Management, 2013).. A cash cow would have a high market share in a slow growth industry. The matrix does not account for a shrinking industry, but recent figures suggest that it is back to being slow growing. That said, the intense competition has this industry being less than ideal for cash cow conditions. Furthermore, Time Inc. is not actually that big -- its market share is high in the magazine business but in the competition for all advertisers it is small.

The competition for audience and advertisers is wide-ranging, which is part of Time Inc.'s problem. The company has generally defined its industry as the magazine industry, but today it is seeing advertisers siphoned off by all types of media.. If there is growth in the magazine business on tablets, it competes with anything else you might look at on an tablet, so the Internet, or even television. Time Inc. made $2.39 million in revenue in 9 months. It is competing against Google ($57.39 billion), Yahoo ($4.76 billion), News Corp ($8.83 billion) and Time Warner's own media properties. The television advertising market is worth $70 billion (Kantrowitz, 2013). Time Inc. does not have a large market share in the total advertising market.

Internally, Time Inc. is adjusting to the new industry realities. The company has a host of strong, recognizable brands but those brands are increasingly challenged to deliver audience and relevance. The company is looking to the affluent market as far as audience goes, which is around 50 million in the U.S., for two reasons. The first is that this audience is more likely to still read print magazines. The second is that this market is lucrative for advertisers. The revenue model for magazine companies is basically 50/50 as far as audience revenues and advertising revenues. So the key to success is to pursue an audience that maximizes both. Time Inc. At this point is facing a challenge with respect to its traditional revenue streams and is also looking to transition to digital platforms while retaining the ability to earn ad revenue. Finding the right model and not having the audience taken away by free content is an ongoing challenge for all in the industry. That Time Warner feels the magazine division needs to be spun off is not encouraging, since under the BCG matrix that is the recommendation for dogs. Yet all hope is not lost for Time Inc. based on recent industry sales figures.

Recommendation

Going forward, Time Inc. has a few different options that they can pursue. The first is to leverage their existing brand strength by getting these brands across platforms. If the audience wants online, tablet and print, Time Inc. has to meet the audience there. There are incremental costs associated with adding platforms but the audience still has value to advertisers, so pursuit of the audience has be important.

It is also recommended that Time Inc. needs to bundle its advertising. It might see a reduction in audience revenues by switching platforms but it can make up for that by offering advertisers an alternative to Google and the other big online advertisers. Advertisers are always looking for an edge, and the ability to get across platforms is something that Time Inc. will need to have in order to appeal. Thus, the company needs to view technology as an opportunity and pursue technological leadership. This may even require a shift in culture at the company, something that will actually be easier once it is divested from Time Warner.

Looking at the BCG Matrix, the company is a dog, which does not bode well, with its small market share and its slow growth rate. If the growth rate is higher, the company would still only be a question market. But the… [END OF PREVIEW]

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