International: Will PR kill advertising?
Advertising is heading to its doom -- again. So declares prolific marketing guru Al Ries, ex-ad executive and coiner of the phrase "positioning." In a forthcoming August book, The Fall of Advertising and Rise of PR, he joins his daughter and consulting par
Advertising is heading to its doom -- again. So declares prolific marketing guru Al Ries, ex-ad executive and coiner of the phrase "positioning." In a forthcoming August book, The Fall of Advertising and Rise of PR, he joins his daughter and consulting partner Laura Ries in contending that public relations quietly has become the most powerful marketing-services discipline.
The Rieses still see a role for advertising, but primarily as a defense mechanism for established brands and products, not as a builder of new ones. Public relations -- specifically publicity and the resulting word of mouth -- is what really build new brands, they maintain.
The notion is far from comforting for the ad industry. Given that a substantial amount of advertising today goes to launch new brands and products, Ries acknowledges that his advice, if heeded, could mean a reduction in ad spending. The other logical result, he said, would be more new brands but fewer product launches or line extensions.
He and former consulting partner and Positioning co-author Jack Trout have long railed against brand and line extensions, arguing that they dilute or distort brands. But clients invariably want to extend old brands rather than launch new ones, in part because of the cost of advertising, he said. By launching new brands with PR, they dramatically reduce the marketing cost, making it practical to launch more brands, Ries argued.
But not all PR executives, however, are quite ready to agree. Thomas Harris, former co-principal at PR shop Golin Harris and now a Highland Park, Ill.-based PR consultant, calls the book "a gross generalization" that overlooks the vast majority of public relations beyond product publicity, and says that in some ways both overplays and overlooks the usefulness of PR.
Ries concedes that advertising is necessary for many launches, even in cases where PR can work. He cites the movie industry, which, despite a long history of extensively using publicity to launch movies, also needs to spend heavily on advertising to build first-week audiences.
Linda Recupero, vice president of the brand marketing practice of Burson-Marsteller, New York, agrees with the Ries' central premise that PR builds brands while advertising sustains them. "PR is more effective at building a brand in the beginning."
Burson has been the firm behind two of the bigger PR fueled launches in recent years Botox and Segway. Though PR revenues have joined ad revenues in falling since the dot-com crash and recession, Recupero said PR has still grown faster than advertising in the past five years.
Both suffered last year, however. According to Advertising Age figures, while Worldwide gross income for U.S. based ad agencies was down 2.5% to $31.74 billion, , the Council of Public Relations Firms reported worldwide revenue for PR in 2001 was $4.31 billion down 2.7%.
PR spending has long paled compared to ad spending, given the lack of media expense and relative lack of production expense involved. A 2001 survey by Thomas L. Harris/Impulse Research found consumer-products companies, for example, spend about 0.05% of revenue on PR. That's a tiny fraction of the 2% to 10% of revenues such companies ordinarily spend on overall marketing expense. Those figures don't count salaries and overhead.
The survey also found that marketers cut PR budgets as a percent of sales from 0.09% to 0.07% last year, a 29% drop. The percentage of client PR budgets earmarked for product publicity, however, actually went up five points to 23%, even though total spending on product publicity actually went down 10% to $518 million.
Recupero said lack of understanding among many marketing executives or top managers holds back growth of PR. "Advertising is something people see and understand," she said. "I still tell my mom I work in advertising."
"I think it would be wrong to say advertising will be totally supplanted by communications, but the mix is certainly changing," said Gary Bridge, a former IBM Corp. executive and now senior vice president of marketing of Segway, the motorized transport device that blanketed the airwaves with free TV coverage late last year.
Segway's publicity barrage last December alone generated 758 million impressions, valued in the $70 million to $80 million range, the company said, followed by similar levels in January and February. The company plans a much smaller ad campaign coming some time between late 2002 and mid-2003 to back the brand's consumer launch.
But Segway's publicity keeps paying dividends, Bridge noted. The Segway HT has made prominent appearances in NBC's Frasier and the season finale of CBS's The Education of Max Bickford and will be in upcoming movies, he said.
Peter Himler, managing director of Burson, said there's plenty of room for PR to grow without cutting into ad budgets or significantly closing the gap in billings, because PR costs so much less. "Six-figure programs are healthy programs for us," he said, "whereas six figures in advertising won't get you very far."
But he disagrees with the Rieses' contentions that confinement of major PR firms representing two-thirds of industry billings within agency holding companies has prevented PR from promoting its superiority to advertising in brand building.
"I don't think that's entirely accurate," said Himler, whose company is owned by WPP Group. "Because many traditional marketers don't understand or haven't taken the time to learn what we do, it's hard for advertising executives to sell in PR. It's much easier for PR people to sell in advertising."
Some traditional advertisers, however, do appear to be sold on PR. When Unilever acquired Ben & Jerry's in 2000, the deal wasn't about turning a brand built on publicity into a big media advertiser. Instead, in a December interview, Unilever Co-Chairman Antony Burgmans praised Ben & Jerry's for its "low-budget, high-impact marketing." He added: "Something we can learn from is their ability to create awareness of news about their brand."
That said, Burgmans wasn't willing to sign up Unilever for Ben & Jerry's $3 million spring-summer marketing-publicity effort, which uses a partnership with the Dave Matthews Band to help get consumers and businesses to pledge specific cuts in greenhouse gas emissions.
Gillette is one established marketer that has become a big believer in PR, which helped propel the launch of its Sensor, said Michelle Szynal, communications director.
"We tried to come up with a number [to approximate the advertising spending equivalent] and all I can say is we couldn't have afforded it," Szynal said. "Every launch after Sensor we used public relations as the lead vehicle, and we built that into the strategic plans. It's become increasingly more important to Gillette because it works."
Gillette's faith in PR was borne out again during the 1998 launch of Mach 3 razors, which generated 750 million PR impressions pre-launch and 1.6 billion in all, ranging from ubiquitous business media coverage to a full-length feature in The New Yorker. Last year's launch of the Venus women's razor got similar levels of media attention, though more in beauty and women's magazines and TV shows, Szynal said. Omnicom Group's Porter Novelli handled.
Despite abundant free publicity, Gillette has spent plenty on advertising. Gillette Chairman-CEO James Kilts has increased Gillette's ad budget this year, up 17% in the first quarter to $137 million. Omnicom's BBDO Worldwide, New York, is Gillette's ad agency. Even brands that use PR as their primary marketing vehicle can find it's a mixed blessing, since the message isn't always quite the one they wanted to send.
H.J. Heinz Co. got $10 million worth of free publicity for its 2000 launch of Heinz EZ Squirt ketchup based on the novelty of green ketchup, which was part of the new line, said Kelly Stitt, senior brand manager for Heinz, at a recent talk to the Cincinnati chapter of the American Marketing Association. The free publicity amounted to more than three times what Heinz spent on media advertising for EZ Squirt on cartoon networks and children's programming via Bcom3 Group's Leo Burnett Co.
But it wasn't quite the same as what media dollars would have bought. The green-ketchup story leaked two months before Heinz was ready. The publicity generated so much retailer interest that the product had to be put on allocation during early months of the launch, Stitt said, meaning Heinz didn't have enough product to support in-store displays it planned.
In a sense, the publicity hijacked the marketing plan. While media attention focused on green ketchup, Heinz had planned to focus more on how the bottle was designed for ease of use by kids. "It was great publicity, but it sent us to market a little differently than we had planned," she said.
Segway's Bridge admits getting the right messages across using PR can be a nail-biter. "I took a giant, potentially career-ending risk in announcing the product on [ABC's] Good Morning America on live TV," he said. "If either one of those [hosts] had done a face slam on live TV, our product was gone."
The other problem is what Bridge describes as second-day syndrome. "One of the things about media that drives me crazy is that the second guy who writes the story doesn't want to write anything the first guy wrote," he said. "And all he's left with is negatives."
Consider, for instance, Segway's entry in Time Inc.'s Business 2.0's recent report "101 Dumbest Moments in Business History." The report contrasts its two years of pre-launch hype to the reality of a product that costs 30 times what a bicycle does yet makes a rider look, according to the magazine, like "a total dork who's too lazy to walk."
"It's very hard for marketing people to not have control over the message," said Bryan McCleary, communications manager for personal health care at P&G.
That said, and despite criticism in the Rieses book for relying on $50 million in media advertising for a product that could have been a PR success, P&G put an extensive PR effort behind its launch last year of Crest Whitestrips. P&G generated 400 million pre-launch media impressions behind Whitestrips and another 130 million earlier this year when it signed Canadian figure skating gold medalists Jamie Sale and David Pelletier as spokespeople for its Crest Healthy Smiles 2010 cause marketing program.
P&G also used a variety of other methods to build buzz prior to Whitestrips' June 2001 launch, including selling the product for a year on a limited basis in dentist offices, online or on the QVC home-shopping channel and about $2.7 million in print advertising. Those efforts combined to build 15% consumer awareness and $23 million in sales prior to retail availability, Mr. McCleary said. By using codes linked to discounts specific to each marketing method, P&G was able to determine that 33% of those pre-launch sales were linked directly to PR.
The brand has since reached $200 million in annual sales. Interpublic Group of Cos.' DeVries Public Relations worked on White Strips, while Bcom3's D'Arcy Masius Benton & Bowles, New York, does the ads.
P&G isn't spending any more money on PR than it did three years ago. But it has learned to be more media savvy than five years ago, when its Scope brand named talk-show host Rosie O'Donnell to a list of the 10 least-kissable celebrities. O'Donnell later launched a "just say nope to Scope" campaign and urged viewers to buy rival Pfizer's Listerine. With some wooing -- including a $2 million donation on behalf of P&G's Pantene brand to O'Donnell's foundation for children -- O'Donnell later endorsed WhiteStrips.
Georgia-Pacific Corp.'s chairman-CEO, A.D. "Pete" Correll, told an investor conference recently that while he intends to increase marketing behind the company's consumer brands, that support won't necessarily come from media. Instead, other communications channels, including PR, will play a bigger role. And its Angels in Action cause-marketing program for Angel Soft, from which Georgia-Pacific expects to generate more than 100 million PR impressions, is part of that effort.
"Adding PR is a reach extender and awareness builder beyond traditional advertising," Brand Manager Patrick Dodson said. "It does that in a very cost-effective manner. ... We are not going to do less media."
As attention-grabbing as the idea might be, Ries doesn't expect his book to signal the death of advertising.
"It could even mean more advertising, but after a brand is launched," he said. "We definitely are not saying that advertising is dead. ... You can fan the flames with advertising. You just can't start the fire."
Read more news about (internet advertising India, internet advertising, advertising India, digital advertising India, media advertising India)
For more updates, be socially connected with us onInstagram, LinkedIn, Twitter, Facebook Youtube & Whatsapp
TOP STORIES
Uber appoints Lucinda Barlow as Senior Director of Marketing for Asia-Pacific
Prior to this, Barlow was Global Marketing Director at YouTube
Uber has appointed Lucinda Barlow as Senior Director of Marketing for Asia-Pacific. Barlow will be based in Australia and will be responsible for the marketing of Uber products and businesses other than food delivery service Eats.
Prior to this, she was Global Marketing Director, YouTube. She worked for Google as head of corporate communications and public affairs and later as marketing director for Australia and New Zealand. She has also worked for Symbian, the company that created the operating system for Nokia’s range of smartphones.
‘Uber has had an extraordinary impact on the lives and livelihood of millions of people. I’m thrilled to join the Asia-Pacific team to help bring further mobility, freedom and opportunity in this exciting region,’ Barlow was quoted as saying.
‘She (Barlow) is uniquely positioned to lead Uber’s Asia Pacific brand, product marketing and reputation efforts, and support the continued growth of a stellar regional team,’ a press note from Uber said.
‘Lucinda brings over 20 years experience in internet, technology and mobile business across Asia, the United States and UK. From a former mission critical systems engineer at BHP, to leading YouTube marketing globally, to launching Symbian’s first office in China, to building marketing functions at two internet start-ups, Lucinda is an agile leader with an industry acclaimed track record of delivering impact at a staggering scale.’
Barlow wrote on twitter:
Incredibly excited for my next chapter. I'm joining Uber to lead marketing in APAC. This is a company and region I'm passionate about. https://t.co/IQB5cjfECq
— Lucinda Barlow (@lucindabarlow) October 9, 2019
Read more news about (internet advertising India, internet advertising, advertising India, digital advertising India, media advertising India)
For more updates, be socially connected with us onInstagram, LinkedIn, Twitter, Facebook Youtube & Whatsapp
ShareWPP AUNZ's Switched On to join AKQA, Australia
The joint entity’s emphasis will be on rich, innovative brand storytelling throughout the entire customer journey
WPP AUNZ has announced its Sydney-based digital marketing and media consultancy, Switched On, will join the Australian arm of global innovation and experience design agency AKQA.
This union is in direct response to client interest and demand for comprehensive digital solutions that help define, find, connect and inspire customers across all brand interactions, from acquisition through to retention. The joint entity’s emphasis will be on rich, innovative brand storytelling throughout the entire customer journey, bringing clients’ long-term brand purpose to life whilst maintaining a laser focus on short term performance.
John Steedman, interim CEO WPP AUNZ said: “This is two teams with momentum becoming one, and a bold move by them both. It’s driven by a burning desire to provide pioneering solutions from two highly experienced senior local teams.
“Joining Switched On and AKQA formalises the close working relationship both agencies already have. The partnership uniquely combines media, tech, data and design literally under one roof. The result is a stronger client offering and WPP AUNZ is proud to support them,” Steedman concluded.
By fusing their respective MarTech and AdTech capabilities, the driving principle will be to deliver on the unfulfilled promise of large technology platforms and connected transparent media investments.
“This initiative is a terrific example of our team’s growth mindset and a shared vision of the future. Both agencies are at the top of their game. It’s a powerful combination that offers a modern, post-broadcast perspective to the interface of customer and brand,” said Brian Vella, AKQA Managing Partner.
The new offering builds on the success of AKQA Media in San Francisco, an elite business that delivers a 360-degree view of brand experience for clients including GAP, Volvo and Uber through an integrated approach to media, technology, and data.
“AKQA Media is widely regarded as one of the world’s premier media and technology agencies, something we believe will resonate well with Australian marketers,” Vella continued.
“As the worlds of marketing, technology, and customer experience converge, it’s clear a strategic reprioritisation of brand building is essential. We feel what’s needed is a unified proposition that straddles the need to balance this long-term vision with the reality of short-term performance in today’s digital age. That’s why we’ve come together,” said Chris Hitchcock, Managing Director, Switched On.
The combined entity’s capabilities offer an unrivalled depth and breadth of experience with more than 300 team members covering:
- Digital Consulting
- Performance Media
- Creative Strategy & Storytelling
- CX and Transformation Strategy
- Experience Design
- Communications Planning and CRM
- Technology and Engineering
- Commerce Data, Insights and Personalisation
- Innovation and R&D
- Social and Influencer Marketing
Switched On will continue to be led by Managing Director, Chris Hitchcock, responsible for the continued success of the Switched On team and its integration into AKQA. Hitchcock will join the AKQA Executive team, reporting into Brian Vella, Managing Partner of AKQA in Asia Pacific. Both agency brands will continue, with Switched On transitioning to become AKQA in the future.
AKQA operates in 28 markets globally, with over 2100 people worldwide. In APAC the studios who collaborate closely include Melbourne, Sydney, Auckland, Tokyo, and Shanghai. It most recently was awarded two Grand Prix Lions at the Cannes Lions Festival of Creativity.
AKQA and Switched On are part of WPP AUNZ, Australasia’s leading creative transformation company.
Read more news about (internet advertising India, internet advertising, advertising India, digital advertising India, media advertising India)
For more updates, be socially connected with us onInstagram, LinkedIn, Twitter, Facebook Youtube & Whatsapp
Helena Snowdon is Publicis Media ANZ’s new business and marketing head
The former Mindshare MD, who has also been previously associated with top global media agencies like PHD, Maxus and iProspect, replaces Mandy Henry
Helena Snowdon has been appointed Publicis Media’s head of business and marketing for Australia and New Zealand, as per media reports. The former Mindshare MD replaces Mandy Henry.
Snowdon has been previously associated with my global media agencies, including PHD, Maxus and iProspect. She was managing director Mindshare Melbourne from May 2017- September 2018.
“I feel privileged to be joining Publicis Media, working with the executive leadership team in ANZ, as well as the talented teams at Starcom, Spark Foundry, Zenith and Performics,” Snowdon was quoted as saying. “Publicis Media presents a progressive and transformative model which opens up huge opportunities for clients. I’m looking forward to playing my part in communicating this message and meaning across ANZ, and driving further impact and growth for the business overall.”
Read more news about (internet advertising India, internet advertising, advertising India, digital advertising India, media advertising India)
For more updates, be socially connected with us onInstagram, LinkedIn, Twitter, Facebook Youtube & Whatsapp
CNN International Commercial appoints Phil Nelson as Chief Operating Officer
Previously, Nelson was Managing Director, Turner North Asia and South East Asia Pacific
CNN International Commercial (CNNIC) has appointed Phil Nelson as Chief Operating Officer (COO) to lead CNN’s operational and international growth initiatives outside of advertising sales.
As COO, Nelson will oversee CNNIC’s Business Development and Strategy, Finance, Strategic Planning and International Sales Operations as well as its Content Sales and Licensing. This includes managing and growing CNN’s relationships with over 300 digital, broadcast and Out of Home content partners – from local CNN branded channels to airlines and hotels that carry CNN content live and on-demand.
Previously, Nelson was Managing Director, Turner North Asia and South East Asia Pacific. In this role, he has overseen all aspects of Turner’s business in these regions including distribution of CNN International and taking a key role in establishing local partners CNN Indonesia and CNN Philippines. Nelson has also held other business development and strategic planning roles at Turner since he joined in 2010 and has significant digital experience from his time at AOL, culminating in him being Managing Director for AOL Asia. In addition, Nelson holds an MBA from Harvard University and, prior to entering the corporate sector, was a commander in the US Navy.
Nelson will be part of the CNNIC Senior Management team, reporting directly into Rani Raad, President of CNNIC, and will work closely with a wide range of divisions across CNN and WarnerMedia. Nelson will continue to be based in Singapore in the near-term and his team is spread across the globe, particularly in key CNNIC hubs of Hong Kong, Singapore, London and Miami.
“The CNNIC business has continually evolved since it was created back in 2013 to optimise the revenue, brand and commercial partnerships across our dynamic offering of CNN content and products,” said Rani Raad. “I am delighted that Phil joins us as we enter the next chapter of our business in a role that brings together all the operational, strategic and non-advertising sales revenue under one leadership. Phil has a first-rate track record at Turner and will bring a unique skillset of business acumen, creative thinking and forensic focus.”
“After many successful and exciting years at Turner Asia, I am very pleased that my next move is within the WarnerMedia family to a brand as remarkable as CNN,” said Phil Nelson. “CNNIC has done a great job in innovating and adapting its business to stay ahead of the competition during a period of unprecedented change in the news and media industry. I am looking forward to contributing to this success in the years to come.”
Read more news about (internet advertising India, internet advertising, advertising India, digital advertising India, media advertising India)
For more updates, be socially connected with us onInstagram, LinkedIn, Twitter, Facebook Youtube & Whatsapp
Giorgio Presca named Clarks CEO
Presca to join in March, will manage operational, financial and commercial aspects of the business and lead the Clarks strategy with the Executive Committee
Clarks, the global casual footwear brand, has announced the appointment of Giorgio Presca as Chief Executive Officer.
Presca will be responsible for all operational, financial and commercial aspects of the business and will lead the Clarks strategy with the Executive Committee. He will join the company in March.
Presca, born in Trieste, Italy, has more than 20 years of experience in managing and developing global premium brands, particularly in the footwear and apparel industries, working across listed, private-equity-owned, family-run, and founder-led businesses.
His most recent position was CEO at Golden Goose Deluxe Brand, where he led the operating transformation, rapid growth and global expansion of the business.
Between 2012 and 2016, he was CEO at Geox where he executed a brand and company turnaround and returned the business to profitable growth. Giorgio has built his track record in senior leadership positions in Diesel, VF Corporation Jeanswear International division, Citizens of Humanity, Levi Strauss & Co. and Lotto.
Commenting on the appointment, Tom O’Neill, Chairman, said: “I am pleased to welcome Giorgio to Clarks as our new CEO. He brings a wealth of experience, including a deep understanding of the footwear market. He will work together with interim CEO Stella David to ensure a smooth transition over the coming weeks, after which Stella will return to her previous role as non-executive director. I would like to thank Stella for stepping in as interim CEO at a challenging time for Clarks and for her tireless and engaging leadership in the role.”
Presca said, “I cannot wait to join an iconic and historic brand like Clarks and work closely with the Board, the Executive Committee, its 13,000 people and operating partners across the world. Clarks faces the challenges of today’s competitive markets, changing distribution channels and the need to adapt to a rapidly evolving consumer environment but has the competences and assets to return to sustainable growth and profitability in the course of the next few years.”
Read more news about (internet advertising India, internet advertising, advertising India, digital advertising India, media advertising India)
For more updates, be socially connected with us onInstagram, LinkedIn, Twitter, Facebook Youtube & Whatsapp
Tupperware appoints ex-PepsiCo exec, Chris O'Leary, to its board of directors
O'Leary has more than 37 years of operational and leadership experience, having served in several strategically important executive positions at companies like General Mills & PepsiCo
Tupperware Brands has appointed Chris O'Leary to its board of directors, according to media reports.
O'Leary joins the US-based kitchen and households product company renowned for its model of direct sales as it looks to ramp up global growth. He takes up the new role immediately.
Rick Goings, Executive Chairman, Tupperware Brands said, "We are pleased to have Chris join our board. He brings more than 37 years of operational and leadership experience to Tupperware, having served in several strategically important executive positions at major global consumer product companies including General Mills and PepsiCo. We believe the combination of his deep industry knowledge, broad international experience and strong, proven leadership skills will be invaluable to the Company as we continue to execute our global growth strategy."
O’Leary previously spent 16 years at PepsiCo, Inc., where he held numerous roles, culminating in serving as Chief Executive Officer and President of Hostess, Frito-Lay, Inc. before moving to General Mills. In almost 20 years there, he became head of international business before leaving the company in 2016. He holds a Bachelor of Business Administration in marketing from Pace University and a Master of Business Administration from New York University.
Commenting on the appointment, O'Leary said, "I look forward to working closely with board members and the management team to provide new insights and perspectives as Tupperware continues to take aggressive steps to advance its performance and drive enhanced value for shareholders."
Read more news about (internet advertising India, internet advertising, advertising India, digital advertising India, media advertising India)
For more updates, be socially connected with us onInstagram, LinkedIn, Twitter, Facebook Youtube & Whatsapp
International: Hottest media property that's not for sale? Time Inc.But skeptics question top execs' real long-term intentions
Time Inc. consistently makes impressive double-digit profit margins and is considered by many a good media business, a still-growing company with as-yet-unlocked potential synergy with the rest of the Time Warner operation. Yet everyone from the Time & Life Building to Wall Street and Nebraska keeps on wondering when the property is going to be dealt.
Time Warner chief Dick Parsons recently told a "town hall" meeting of 400 employees about a conversation he'd had with Omaha investment wizard Warren Buffett on the subject of selling Time Inc. "As your friend, don't do that, it's a good business," said Mr. Buffett, according to people who heard Mr. Parsons recount the story. "But," he added, "if you do sell it, sell it to me."
And there's the rub. Time Inc. consistently makes impressive double-digit profit margins and is considered by many a good media business, a still-growing company with as-yet-unlocked potential synergy with the rest of the Time Warner operation. That fact, along with Mr. Parsons' persistent denials that there are any plans to sell, ought—one might think—to kill this story. Yet everyone from the Time & Life Building to Wall Street and Nebraska keeps on wondering when the property is going to be dealt.
It's also been noted that Mr. Parsons, whose contract is up in May 2008, is not Jeffrey L. Bewkes, Time Warner's president-chief operating officer and the company's heir apparent. And Mr. Bewkes has repeatedly said that nothing is off the table. "It is constantly looked at," Mr. Bewkes said at a Goldman Sachs media conference last September. "What should we not have? Or what should we get?" Many people believe Mr. Bewkes would sell Time Inc. for the right price.
A note to skeptics: Time Inc. could probably fetch bids above $16 billion. Try finding a CEO who wouldn't at least slow down for a look.
Anyone following the ongoing upheavals in media—not to mention the jangled nerves following round after round of layoffs at Time Inc., where McKinsey & Co. is now examining areas like information technology and finance—won't be surprised to hear that questions over Time Inc.'s place at Time Warner aren't going away.
The Monday after Mr. Parsons' "town hall," as it happens, a Bear Stearns analyst raised his rating on Time Warner to "outperform" partly because he believes the company, particularly once Mr. Bewkes takes over, will get more aggressive about restructuring its portfolio. To wit: It could merge AOL with another leading web property—or perhaps could spin off Time Inc.
"We think that the publishing division is the least attractive strategic fit with Time Warner's other video-centric businesses such as cable networks, cable systems and filmed entertainment," said the analyst, Spencer Wang, in his note. Combined with challenges in the magazine business such as slow growth due to online cannibalization, he said, there could be several benefits of divesting publishing.
A year ago, Reed Phillips—managing partner at the media-investment bank DeSilva & Phillips—would have given a Time Inc. sale or spinoff no chance. "Today I would no longer say 'never,' because Time Warner has continued to change and evolve," Mr. Phillips said. "I get the clear impression that the company is focused on operating performance and measures how each division is doing and how each division contributes to the overall company. And if there's a sense that part of the company is no longer contributing in the way that top management expects, I don't think anything's sacred."
Top management at Time Warner, like that at any public company, is under pressure to improve revenue and earnings year after year, no matter the market conditions. Although Time Inc. Chairman-CEO Ann S. Moore is expanding quickly online, moving the needle with print has proved much harder. That has forced strikingly difficult decisions, most recently last week's death sentence for the Life newspaper supplement.
"Wall Street wants to see growth," said Robert Safian, the Fast Company editor and Mansueto Ventures managing director who worked for Time Inc. titles Money, Fortune and Time during the last decade. "The bigger your base, the more you need in raw terms to show it. But if you back Time Inc. out of Time Warner and there's more growth in other divisions, then the overall growth might look bigger."
Plenty of people still consider the idea—first pushed to the front burner during Carl Icahn's 2006 drive to break up Time Warner—to be unlikely, impossible or ridiculous. For one thing, "Time" is the name on Time Warner's door, said Andrew Swinand, president-chief client officer at media agency Starcom USA. "I would be shocked if they sold it," he said. "For me, the biggest thing is that Time Warner as a company needs to be dynamically flexible. I still believe that the initial vision of integrated media was correct. I just believe that they haven't activated it."
The tax hit on any outright sale would be painful too, if less so in a spinoff to shareholders (which could lead in turn to a takeover). Time Inc. also owns huge stores of content that should prove valuable in a Long Tail world. And the company has been securing better position for showing growth by cutting costs, redirecting investment to digital projects, selling 19 magazines and closing two others.
"Corporate has worked closely with Time Inc. in developing its new online strategy, which is showing success," a Time Warner spokesman said. "We don't have any plans to spin off Time Inc." A Time Inc. spokeswoman referred inquiries about the company's relationship with Time Warner to the parent company.
Finally, there's the issue of price, but that could cut either way. Two media bankers said a premium property like Time Inc.—which really has no equal in its business—would command a sky-high multiple of perhaps 15 times earnings before interest, taxes, depreciation and amortization. Last week's client note from Bear Stearns estimated that Time Warner's publishing division will have 2007 EBITDA of nearly $1.1 billion, which could put a bid close to $16.5 billion.
That is not a figure anyone would take lightly—neither a potential bidder nor the potential seller.
But the money is out there. "Private-equity firms have become so much bigger in the past year that now that kind of bite size is attainable," Mr. Reed said. "A private-equity firm could do that transaction today. It would have been much harder to do a year ago, but they've raised so much money, and you see all the time that they're looking at big media opportunities."
Time Warner shareholders wouldn't let management ignore a $16 billion offer either. "Companies can't just stiff-arm shareholders," Mr. Reed said. "They really have to listen today, more and more."
Meanwhile, the thousands of Time Inc. employees who survived the cuts of 2005, 2006 and 2007 walk the corridors occasionally wondering what Ms. Moore, Mr. Parsons and Mr. Bewkes really think of them.
"I don't think anyone is confident that Time Inc. will stay part of Time Warner," said one former Time Inc. executive, who predicts the conglomerate will eventually split up. "From the CEO down, everyone questions whether or not Time Inc. will be spun off."
There certainly could be advantages for an independent Time Inc., such as a better ability to focus on long-term strategy. Mr. Swinand, the sale skeptic, said Time Inc. would have fewer resources on its own but would be speedier and more flexible.
Mr. Reed, the agnostic, said Time Inc. wouldn't lose much if separated from Time Warner and would retain enormous clout. "They would also be able to invest much more aggressively in taking the brands into the digital realm," he said. "They're doing a pretty good job already; it's just that they're hamstrung by having to deliver earnings to the parent company."
All the talk of speed and aggression, as a matter of fact, reflects the reality of the magazine business today. It's in transformation. The business will survive, but those publishers that adapt best will thrive the most. Others will keep having to make difficult choice after difficult choice, pinned between the need to prepare for the future and the state of the field today. Even though Time Inc. owns some incredibly powerful brands, really changing the business model might take a "reset" year—which Wall Street rarely allows public companies.
As things stand, the need to make short-term numbers all the time is breeding resentment.
"Basically the dollars are going into digital at that company," the former Time Inc. executive said. "If you're not one of the four weeklies, people are very frustrated. They are not putting money behind transforming the women's lifestyle publications. Those are the ones that have had constant growth, and yet they're not getting the investment."
Another former staffer recalled the speculation among Time Inc. employees. "There was hallway chatter about it at different times," the ex-staffer said. "Sometimes it was hopeful. 'Wouldn't it be great? Will Warren Buffett buy us?' Other times people said, 'Who would buy us and what would they do with us? They might squeeze us even harder. That Midtown real estate is expensive. Maybe Time Inc. could move to Princeton, N.J.'"
Source: Adage
Read more news about (internet advertising India, internet advertising, advertising India, digital advertising India, media advertising India)
For more updates, be socially connected with us onInstagram, LinkedIn, Twitter, Facebook Youtube & Whatsapp