Another sign of changing times was the internal announcement in mid-April that Time Inc. was discontinuing a special fund that paid the first-year salaries of more than 70 minority employees each year. Time Inc. Editor in Chief Norman Pearlstine told staffers that decentralizing the program would give managers greater autonomy. But, gripes one editor, "he's not giving the magazines any extra money." Joe Ferrer, the executive editor who oversaw the program, is leaving the company. "The budget change certainly triggered my decision to depart," he says.
Time Inc. Chief Executive Don Logan now reports to AOL COO Robert Pittman, who says, "Whatever Don thinks is right, I'm supportive of." But the balance of power has changed.
To be sure, the pressures at Time Inc. may by definition be attributable to the swift and severe ad slowdown that lately has taken the breath from more than one media executive. Some Time executives are saying just that. At a recent "President's Awards" lunch on the eighth floor of the Time & Life building in midtown Manhattan, Logan tried to assure his staff that the cutbacks and layoffs were not driven by the AOL merger. But some suspect that a pre-merger Time Inc. might have been more flexible about earnings targets than AOL, where missing numbers is definitely not part of the culture.
When Logan took over the magazines in 1992, earnings at Time Inc. were flat or shrinking. He followed Time Warner Chairman Steve Ross' predisposition to decentralize the business, dividing Time Inc. into several business units with their own presidents, budgets and earnings goals. The move quickly drove earnings growth (measured as the year-to-year percentage gain in earnings before interest, taxes, depreciation and amortization, or EBITDA) into the mid-teens, where they've remained since 1993. With the AOL merger comes a push for even greater gains.
AOL Time Warner Chairman Steve Case and CEO Gerald Levin promised Wall Street 31 percent earnings growth in 2001 for the whole corporation, to $11 billion. An exact internal target at Time Inc. is closely guarded; several executives close to the situation put it somewhere between 20 percent and 30 percent, a markedly aggressive figure even in a good year.
Will the Street - and AOL brass - lower the bar if the ad slowdown makes it impossible to meet those numbers? "I don't think they're going to be flexible," says a high-ranking editor. Even with accounting vagaries - like the recent earnings boost - from Time Inc.'s recent acquisition of Times Mirror Magazines and increased subscriptions through marketing on AOL, "it's going to be very difficult to meet those targets." And there's good reason for counting every penny. In its first quarterly earnings filing, the company revealed that the merger-related restructuring will cost at least $965 million - barely less than the $1 billion in extra earnings the deal is expected to generate.
