Crunch Time at Time Inc.

Baldwin Louie — Mon, 04 Jun 2001 18:00:00 -0400

NEW YORK - As the H.M.S. Havengore pulled away from London's Tower Wharf on the afternoon of Jan. 30, 1965, the construction cranes lining the banks of the Thames began dipping their necks in an eerie, synchronized bow. On board the Havengore was the casket of Sir Winston Churchill, which was now being transported privately to a family plot in Oxfordshire.

On the quay, a Life photographer, one of 17 assigned by the magazine to cover the procession, snapped his final shots of the mechanical salute and handed off a roll of color film to a young local on a motorbike, who set about zigzagging his way through the crowds. As Churchill's coffin continued its stately journey, the film - the last of 70 rolls - raced west, to a temporary Life office 10 miles outside the city.

The "office" was, in fact, a Seaboard World Airlines DC-8 outfitted with everything the magazine's staff would need - including a fully equipped darkroom - to assemble an issue in the course of the 4,000-mile flight to its Chicago printing facility. It was the only way to get the funeral package into the next issue, and Life's management considered no expense too great in the pursuit of important journalism (which was expressed in that peculiar prose known as "Timestyle," respectfully emulated above).

From a bean-counting perspective, it might have been more sound to run the Churchill coverage a week late. But Life wasn't run by bean counters. Life and its sister publications "existed to explain the world and make a nickel," says Ray Cave, former managing editor of Time, paraphrasing company founder Henry Luce. Cave adds that Luce was willing to "put the nickel second."

These days at Time Inc., many feel the nickel has been gaining ground fast. And now that the notoriously bottom-line-oriented America Online has taken over, some within the company worry that "explaining the world" will take an ever more distant second place.

While every corporation has a culture, few are as developed and well-documented as Time Inc.'s. And even with the most famous and lavish perks of the company's heyday long gone, after decades of cost cutting and corporate mergers, Time Inc. has remained one of the best-compensated, most-secure places to work in journalism. It is still occasionally described, tongue only half in cheek, as Paradise Publishing.

Beginning in earnest last week, however, Time Inc. has also become one of the best publishing companies from which to lose your job, as it phases in early retirement packages to its older, longer-standing employees. These are, in many cases, the last guardians of the company's storied culture. The combined company has already replaced Time's popular profit-sharing program with stock options - an obvious nod to AOL's cash-flow-conscious influence and an unwelcome shock to the company's older employees.

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.

Last week, the company began formally to roll out its so-called 50-15 buyout, being offered to employees who are 50 or older and have worked for the company for at least 15 years. If too few people take the buyout, observers both inside and outside the company fear layoffs will be inevitable. Indeed, job eliminations have already hit the Fortune group, which had a supercharged year in 2000. Recently, Time began the process of eliminating 16 editorial positions and Sports Illustrated six. Magazine editors don't think much fat remains after the Logan years, but that's not how Wall Street sees it. In April, First Union Securities analyst Scott Davis wrote that AOL Time Warner "has an expense base of $30 billion, giving them a lot of room to tighten costs." Translation: Sack whoever you need to sack, but you will justify this merger on the bottom line.

Though they've just reported first-quarter earnings of $113 million - a 20 percent increase over the same period a year earlier - executives at Time are already feeling the post-merger budgetary pinch. "We hit our first-quarter numbers; we frankly had to do a lot of smoke and mirrors to do that," says one. "If the economy stays bad, many of the magazines around here couldn't hit the numbers AOL gave us at the beginning of this year." AOL might already have figured this out. Though the company denies it will have trouble making its targets, its recent $1.95 rate hike for Internet subscribers adds an easy $200 million to this year's bottom line.

The history of Time Inc. - the very fact that it has a history - separates it from AOL, a company founded on the principle of throwing out the old, not guarding it. Just how difficult it will be to truly integrate the two companies is providing endless fodder for speculation, gossip and anxiety. And nowhere is there more potential for a cultural collision than in the hallways of the magazines. It may not be the largest part of the new corporate empire (accounting for just 12 percent of AOL Time Warner revenues last year and 9 percent of earnings), but it is the most visible, publishing 64 titles, including People, InStyle, Money and Entertainment Weekly. Some magazine staffers insist that they see no signs of AOL transforming their workplace - and indeed, many have barely encountered the new guys from Dulles, Va.

But the cultural differences are dramatic. Seventy-eight-year-old Time Inc., in some ways, is actually more like an Internet startup than 16-year-old AOL. Highly decentralized, it encourages its executives to act like entrepreneurs and empowers even those at the junior level to make decisions. AOL, on the other hand, is run by a "small think tank at the top," says one Time Inc. executive. An editor at Time Inc. observes, "AOL people always say 'my boss.' I've never heard anyone at Time Inc. say 'my boss.'" AOL's attitude toward its employees, according to an ex-executive, is: "If you want a friend, get a dog." The two companies also have different traditions when it comes to spending. One AOL executive recently boasted, "AOL runs lean. If people can't get with that, then they are children."

The Time Inc. culture goes far beyond mere generosity to employees. More central to the ethos is the belief among staffers that they are at the top of their field. As one longtime writer puts it, "There's an unwritten pride in people here being sort of Renaissance men or women." AOL is perceived as producing downmarket content with more of a marketing mission than an editorial one. The AOL homepage can seem like all Britney, all the time, while at Time, even Teen People has a claim on editorial classiness: It won this year's National Magazine Award for large-circulation magazines.

AOL comes rolling into a business that is steeped not only in its own cultural traditions, but one that has had an unmistakable influence on the culture at large. In 1923, 35 years before Steve Case was born, Time was founded by two friends from Yale University, Henry Luce and Briton Hadden. In an era when journalism was a blue-collar profession. Luce and Hadden conceived Time as an uplifting, patrician take on the news. Time's editors turned news into narrative and subjects into characters, identified by mock-Homeric epithets like "the duck-hunting dentist" (Minnesota Sen. Hendrik Shipstead) and "the long-whiskered admiral" (German naval commander Alfred von Tirpitz). Timestyle became the basis for the modern middlebrow magazine idiom. Eventually, Time became an integral part of American culture; in the '50s and '60s, its editors met regularly with presidents and wielded considerable influence in matters of foreign and domestic policy.

Luce also established business principles for conducting a journalistic enterprise, demarcating the famed line between "church and state," or the editorial and business operations. Today, many talk about the subtle ways that line has blurred over the years - it used to be that executives on the business side didn't even speak to those in editorial. While no one has made serious claims that Time Inc. has abandoned its ethical reputation, stories about AOL transgressions started swirling around newsrooms in the early days of the merger. In one tale, a hapless AOL salesman supposedly promised an advertiser favorable magazine treatment: "Don't worry, we're gonna guarantee you great coverage." Reports one editor, "He got his head served to him."

These concerns are overblown, say top editors - just as they were when Warner took over amid fears that Batman sequels would dominate magazine covers. The real issue is having the resources to do their jobs well. One Time Inc. editor worries that AOL execs "don't understand that there's a price attached to good journalism." Adds another insider: "I'm not worried about editorial integrity, [but] I don't know about editorial quality."

It's not the first time Time Inc. people have thought the apocalypse was nigh. Throughout the company's history, old-timers have been bemoaning the decline of "Time culture." Some veterans think the party ended when Time Inc. was first listed on the New York Stock Exchange in 1964. To others, the downward spiral began in 1973, when Time Inc. first diversified in a major way, taking control of Texas' Temple Industries - a huge lumber and plywood concern - in exchange for a 30 percent stake in Time. The increasing importance to the bottom line of People - which launched in 1974 and quickly became the most profitable magazine in history - mortified some corporate purists. Others see the ascendancy of Teen People and InStyle - which displaced the hallowed Sports Illustrated into another building - as the tipping point.

While the future of post-AOL Time culture is being decided right now, Time Inc. staffers are acutely aware of their company's swashbuckling legacy. The firm was a bastion of ruling-class WASP mores, with an Ivy League staff, heavy emphasis on drinking and rampant intramural, extramarital affairs. "It was a glamorous and amorous place," says Ralph Graves, former managing editor of Life. John Gregory Dunne, who served as a Time staff writer from 1959 to 1964, once described the prevailing mood as "a corporate hubris ... a confidence in ourselves, and in our place in the world."

Time Inc.'s management did everything in its power to bolster this sense of entitlement. On late-working nights, white-gloved waiters served three-course meals that included beef Wellington and French wine. A rolling bar roamed the halls. Abroad, the magazine's staff lived even more lavishly. "When you were in a foreign capital and you saw some huge mansion, the joke was, 'That's either some Arab ambassador's residence or the Time bureau chief's house," says Calvin Trillin, who wrote for the magazine in early '60s (and again, as a columnist, in the '90s).

These extravagances are largely gone today, but the sense of entitlement has lingered. "The magazines are generously staffed and the top executives are generously remunerated," one editorial executive says. "That creates a culture of privilege and seriousness."

By far the most widely held view has always been that the 1989 merger with Warner Communications - the deal that gave birth to Time Warner - was the end of Time culture. "Anyone who was here pre-'89, they'll say, 'It's awful, it's gone to hell,'" a current editor says. Indeed, one editor who was at the company for close to two decades bemoans that, after the merger, there was "a creeping sense that if [something] made money, it was better than if it made headlines." One who objected to the merger was Andrew Heiskell, a Luce prot&#233g&#233 who inherited half the founder's mantle as Time Inc.'s chairman and CEO from 1969 until 1980: "I thought our reputation for integrity would not be improved by it. I happen to think that's the most important thing you have."

But equally important, at least in the current era, was that you could make a lot of money. "They've made many millionaires here," says one high-ranking editor. Managing editors make well into the six figures, but even their deputies at some publications can make as much as $350,000 to $400,000, including bonuses. "People can't afford to go somewhere else," he says.

A Time Inc. pay package can include bonuses that easily reach six figures. These bonuses used to be based on goals one former editor describes as "quite amorphous ... journalistic things." But in more recent years, bonuses have increasingly reflected financial performance. And now, some fear that bonuses will start being tied more to AOL Time Warner's overall performance, rather than individual divisions'.

Few things provoke worry and whispering like tampering with people's pay and perks. There is "tons" of paranoia at the company, says one Time Inc. executive. "It's very, very distracting. My staff will read something in the press," he adds, referring to reports on everything from prospective layoffs to cutbacks on free pizza, "and all the good will gets swept away quickly."

It's not just the rank and file, but the company's elite crop of top editors who might feel some of the pain. For a time, the weekly magazines' managing editors - the highest-ranking editorial position at Time Inc. - had three-year contracts that automatically renewed each year, meaning that there were always at least two years left on their contracts. And the fate of retiring editors and executives again reflected Time's special custodianship. Although some left the company directly, others went upstairs, into jobs with titles like "corporate editor."

Getting kicked upstairs meant going to the company's 34th-floor offices, a plush perch that is perhaps more significant as a metaphor than an actual place. "Thirty-four is a state of mind," says one editor. "It's people whose cards come up 'bingo.'" While 34 is more powerhouse than pastureland (Editor in Chief Pearlstine and Chairman Logan have their offices there), its denizens have also included leisurely lunches and editors making themselves useful. "You sort of make up the job," says Gil Rogin, a former Sports Illustrated managing editor who did time on 34 in the late '80s. He says he oversaw "the first huge cost-cutting," critiqued titles like People and Money, and even researched the possible health effects of computer use.

But this journalistic Elysium - where the reception-area ceilings feature copper printer's plates from old Time covers, the walls are lined with Margaret Bourke-White's greatest hits and the potted palms receive regular dustings - has a museum feel to it. "This was the floor of the Zeppelin pilots," says Ralph Graves, who adds that he had real duties when he moved to 34, but saw many executives with vaguer responsibilities. "They don't have anything to do anymore because they're not flying any more Zeppelins, but they still go down to the hangar every morning."

Such paternalism is being replaced by a focus on numbers. Imagine Pittman reviewing the three-year plans that Time Inc. editors used to write "every once in a while," as Graves remembers it. "Everybody knew that only the first year was really serious," he says.

Today, executives at Time Inc. find themselves worrying about quarterly - even weekly - targets rather than annual ones. "It becomes a very controlled environment," says one. At some magazines, taking colleagues out to lunch, once encouraged, is more or less a no-no; bananas have vanished from the Fortune kitchen; and they're scrutinizing the magazine subscriptions of People staffers. At going-away parties, says one Time Inc. writer, "you serve pretzels, there is no shrimp anymore. Those little things do make a difference." And last month the company eliminated its internal biweekly company newsletter FYI and its four-person staff. Launched in 1939, it was technically the fourth-oldest magazine published by Time Inc. It will continue to exist in some circumscribed form online.

But the real worry is the "L" word. A significant layoff of about 2,400 at the newly combined company came only a week after the merger was finalized. Time Inc. editorial wasn't hard hit, but Time-Life books is being phased out, and hundreds of people lost their jobs at CNN. Ted Turner went on the record in the New Yorker in April decrying how the financial targets imposed by AOL - the "occupying army," in one editor's words - would jeopardize the editorial excellence of the news channel.

Many inside the company insist that Time Inc. has lived through hard times before and suffered through other "reductions in force." During the recession of 1991, Time Inc. laid off 10 percent of its workforce. Just how much pressure is coming from AOL is discussed more in terms of gut feelings than hard facts. "People are very, very worried," notes one editor, about the finances and about the journalism. "Case and Pittman apparently say all the right things about journalistic independence," he says. "But I don't know these guys and they're very stock-price driven. I'm very skeptical of them."

Logan is the man on the barricades. When he first arrived at Time Inc. in 1992, some of the older staffers saw it as the ultimate expression of the changes ushered in by the Warner merger. Fears swirled that he would be a financial hatchet man. And he imposed unprecedented financial discipline. Under Logan, Pearlstine was the first editor in chief at Time Inc. to have formal business duties. To many, it was significant that he reported to Logan rather than directly to the company's board - a move perceived as a decline in the editorial side's power. But now that AOL appears to be out-Loganing Logan, he is looked upon as editorial's savior. One Time Inc. editor admits "we were all wrong" about Logan. "You couldn't find anyone on the edit side who would say anything less than that he saved the company. He rationalized the processes, gave great power to the business units. He gave people goals, supported entrepreneurship." Logan indicated at a breakfast meeting in April that he had his limits when it came to cuts. "He said that we're a company that's grown through new ideas and 'I'm not going to make cuts that hurt us in the long run,'" recalls one executive. Logan declined to be interviewed.

AOL, some at the magazines point out, hasn't gone through down cycles like this one before. "I think they just don't understand that it's OK, that this is what happens in businesses. They slow down," one editor says. Logan is a good line of defense, he adds, "but if they put a gun to his head ... Time Inc. is still committed to producing these high numbers at a very tough time." Indeed, some of the highest-ranking magazine executives dutifully say the AOL targets could be reachable. "This isn't about people smoking dope down in Dulles," says one. AOL declined comment, except to say it was "committed to journalistic integrity and quality."

Though Time Inc. has weathered tough times before, perhaps none has been so financially pressing as these. Staffers are counting on their new colleagues from AOL to realize that even if "making a nickel" takes precedence over newsgathering in Luce's two-pronged imperative, it still can't be the company's exclusive motive. This is, they reason, the legacy of Time's culture - that good magazines are what ultimately bring in the money. After the Logan years, the company has maintained a respectable measure of editorial quality, and it works like hell to hit the numbers. "At this place, it's 'just produce,'" says one editor. "I would be stunned if Pittman would ever want to tamper with that."

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Crunch Time at Time Inc.