Will an Outsider Restructure Time Inc.?

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The restructuring of a troubled company is often led by its chief executive officer or another very senior executive. Apparently, this will not be the case with America’s largest publisher, Time Inc. (NYSE: TIME).

The firm has struggled with the industrywide drop in print advertising and an inability to charge large numbers of customers for online access to its publications. According to a report in the New York Post, McKinsey partner Christian Schmitz and about 25 subordinates from the consulting firm will run the effort to find what Time CEO Richard Battista said will be about $400 million in annual cost savings.

Schmitz has been at McKinsey less than two years. Before that, he had stints at private equity firm KKR and the Boston Consulting Group, where he worked on client restructuring. He also has worked with clients on sales strategies and product management.

While an outside eye often helps companies review their costs, strategies and avenues for future change, skilled insiders should have an inside track on institutional knowledge of a firm’s operations and how they might be altered for the positive. The argument to turn to an outsider is that long-term employees often have biases based on the roles of themselves and their associates have played as a company has gotten into trouble. This assumes that senior management cannot be self-critical as it examines strategies for plans to improve financial results. If this is the case, the problem at Time has run deeper than basic plans to cut costs and reinvest money in promising projects.

Among the reasons traditional media have sometimes turned to outsiders for help is that the epidemic of falling revenue and costs cuts that have crippled their ability to spawn new growth has rarely been addressed successfully. A few companies, like the New York Times, have “reinvented” themselves. In the case of the Times, this is primarily because it can charge for online subscriptions. At the end of the most recent quarter, the New York Times had 2.33 million digital-only subscriptions. The revenue from these rose 46% from the same quarter a year ago to $83 million. This helped company to post quarterly revenue growth of 9.2% to $407 million. Net income for the period was $15.6 million, up from a slight loss in the year-ago period.

For the second quarter, Time revenue dropped to $694 million from $769 million in the same quarter of 2016. The company lost $44 million compared to a profit of $18 million. Circulation revenue fell 12% to $207 million. While the circulation revenue numbers between the New York Times and Time are not entirely comparable, they do demonstrate a pattern. Time has to cut costs, but it also has to find revenue growth beyond its digital ad sales.

Schmitz can cut costs, whether or not it is with the same skill and biases as an insider. As he turns his attention to revenue, he has a much, much more difficult assignment. Even McKinsey will have trouble reinventing the traditional media wheel.