Time Cannot Erect a Paywall

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Time Inc. (NYSE: TIME) posted another disappointing set of earnings. At its core is a problem that has plagued most newspaper companies, particularly New York Times Co. (NYSE: NYT). Time does not charge for most of its online content. It is a company without significant paywalls.

Time posted a revenue drop of 10% to $694 million. Advertising revenue declined 12% to $347 million, circulation revenue fell 12% to $207 million and subscription revenue dropped 8% to $141 million. By contrast, in the most recent quarter, The New York Times posted a revenue increase of 9.2% to $407 million. Ad revenue was flat at $132 million. Subscription revenue rose 13.9% to $250 million, while digital only subscription revenue rose 46.4% to $82.5 million. The New York Times paywall has transformed its business.

Time’s struggle at the top line pressed its net income to a $44 million loss from an $18 million profit in the same period a year earlier. As the company announced earnings, Time President and CEO Rich Battista said:

I am pleased with our second quarter Adjusted OIBDA of $88 million, which was roughly flat year-over-year. Our revenues continued to be impacted by disruption through the first half of 2017, as we said on our last call. Despite that revenue disruption, we executed in a highly disciplined way, which enabled us to beat Adjusted OIBDA expectations. The third quarter represents an important turning point for the Company as we are seeing strong momentum and sequential improvement of year-over-year trends for total advertising revenues. Today, we are reaffirming our 2017 Adjusted OIBDA outlook.

The highlight of his comments was the future of advertising sales. That speaks volumes about the future of circulation, particularly subscriptions. Battista needs to have his subscription model transformed to arrest the drop in the revenue. For the time being, there is no sign that will happen.

Shares were down over 9% to $12.55 early Tuesday, against a 52-week trading range of $20.40 to $11.65.