Posted on | July 26, 2012 | 13 Comments
Or words to that effect. Tuesday we got the not-surprising news that the merger of Newsweek with Tina Brown’s Daily Beast has failed to stem the multimillion-dollar losses at both operations. Tina Brown has never done anything else but lose vast sums of money — a journalistic career written in red ink, as it were — and I had predicted exactly this result when the “Newsbeast” merger was announced in 2010.
After Tuesday’s announcement that the Harman family was pulling back from its “investment” (Sidney Harman bought Newsweek for $1 in 2010), this required some explanation from Barry Diller, whose IAC conglomerate holds the controlling interest in Tina Brown’s red ink empire. And in a Wednesday conference call, Diller seemed to signal that Newsweek would cease print publication later this year:
Newsweek will eventually transition to an online publication, owner IAC/InterActiveCorp (IACI) said today, marking the beginning of the end for the money-losing magazine’s 79-year run as a print weekly.
IAC Chairman Barry Diller made the announcement during a quarterly conference call, saying the New York-based company aims to curb investments in the business. Newsweek is projected to lose as much as $22 million this year, according to a person with direct knowledge of the matter. Still, Diller stopped short of saying the magazine would undergo a “total” shift online.
“The transition to online from hard print will take place,” Diller said. “We’re examining all of our options.”
A plan for Newsweek will be announced as early as September, Diller said. Newsweek became part of his media holdings in 2011 when it merged with IAC’s Daily Beast Co., an Internet news startup that Diller founded with former Vanity Fair editor Tina Brown. The merger was part of an agreement with the late Sidney Harman, who acquired Newsweek from Washington Post Co. (WPO) for $1 and the assumption of liabilities.
It has been estimated that the Daily Beast was already losing $10 million a year before the merger with Newsweek, a magazine that was carrying $50 million in debt when Harman bought it for a token $1. Jeff Bercovici at Forbes reports:
IAC doesn’t break out the Newsweek/Beast’s fiances, but published reports have consistently pegged its losses at around $30 million last year. . . . While Diller said in December that the losses were moderating, a source with detailed knowledge of the business estimates it is now on course to lose as much as $35 million this year, with Newsweek accounting for more than $20 million of that.
That’s a lot of money to lose on a Web site and a magazine. Nevertheless, when Diller expressed the obvious fact that these staggering losses cannot continue infinitely, it evidently set off a panic among Newsweek staffers, requiring Tina Brown to issue this note to her staff:
Barry Diller would like to make it clear that he did not say on the earnings call as reported that Newsweek is going digital in September.
He made the uncontroversial, industry-wide observation that print is moving in the direction of digital.
Below, in summary, are the points he actually made on the IAC earnings call when he was reporting the tremendous results of the company this quarter.
1. The Newsweek brand is strong, and far stronger than it has been in years.
2. We wouldn’t finance The Daily Beast at anywhere near the level of ‘12.
3. That eventually, over time, digital would replace much of print (hardly a controversial revelation).
4. In September we would be evolving our plan for the year ’13, with many options to choose from.
Lots to chew on in that brief note, e.g.: How is a brand “strong,” in a business sense, when it is synonymous with catastrophic financial losses? More important, however, is the revelation that Diller won’t continue funding Tina’s operation “at anywhere near” its current levels.
What that will likely mean — if you read between the lines — is a hiring freeze, at the very minimum, and the possibility of significant layoffs.
In other words, the gravy-train years at the Daily Beast are coming to an end, Diller’s stockholders can’t continue forever footing the bill for these extravagant expenses, and Tina’s employees will be expected to endure some belt-tightening measures in coming months.
Tina Brown herself, however, will continue to be the privileged publishing diva she has always been, with an amazing knack for convincing people to let her throw away their money.