What Meredith's Purchase of Time Inc. Means for Magazine Publishing

In this segment of MarketFoolery, host Chris Hill, Million Dollar Portfolio's Jason Moser, and Stock Advisor Canada's Taylor Muckerman consider why Meredith (NYSE: MDP), most notably the publisher of Better Homes and Gardens and Parent, has been itching to ink a deal for Time Inc. (NYSE: TIME), the owner of Time, People, Fortune, and Sports Illustrated, among many others. Consolidation among media properties makes sense from some business perspectives, but is this combination likely to succeed more profitably in a digital world?

A full transcript follows the video.

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This video was recorded on Nov. 27, 2017.

Chris Hill: We're going to start with the deal of the day. It turns out the third time was a charm for Meredith Corporation. Meredith Corp., which had tried on two previous occasions to buy Time Inc., succeeded. So Meredith is buying Time in an all-cash deal valued at $2.8 billion.

For those who are unfamiliar with Meredith Corporation, and I'm assuming that's mostly everyone in terms of the name Meredith Corporation, but you are almost certainly familiar with the brands of magazines that they have, like Better Homes and Gardens, Family Circle, Parents, Allrecipes, etc. This is one media company buying another. And of course, with Time Inc., they're getting Time and Sports Illustrated and People and the tens of millions of people who are in that database, which appears to be one of the keys to this deal.

Jason Moser: Yeah. Basically, getting ready to corner every physician's office and dentist's in the entire country.

Hill: Congratulations, Meredith Corp.!

Moser: You're going to be seeing this company a lot of places, I'm sure. I think we said before that Facebook (NASDAQ: FB) had a very good idea in the strategy of trying to consolidate as many apps under their umbrella as they could early on. I think the same applies here for media properties. I think it makes sense, ultimately, to see consolidation in the space, bring more properties together under one umbrella, utilize as much financial leverage as you can there to exploit the value in those properties.

The trouble is, today, the advantage that these magazines and properties had 40 years ago was distribution. You got the magazines in the mail, there was really no internet, the free flow of information didn't exist like it does today. So these magazines just don't hold the same sway that they did before. They just don't have any pricing power. They really don't scratch that instant-gratification itch, either. If you're getting a monthly publication, you're really only getting it once a month, and then you have to wait, and then by the time you get it, you've probably read, in some capacity, everything that's already in there anyway. So they're figuring out ways to go digital, and that's the right thing to do, obviously. Utilizing partners like Facebook and Twitter (NYSE: TWTR) and Google (NASDAQ: GOOG) (NASDAQ: GOOGL) and figuring out ways to disseminate the news in their pieces.

By the same token, I wouldn't assume that the printed word is going away. You're going to see places where magazines hold place. Again, when you look at Time, Time itself is a business sort of in slow decline. If you look in the numbers, the top line is shrinking, margins are shrinking, subscribers are not growing. So this will do something to help bring a little bit more power together, and hopefully take advantage of everybody being under one roof.

Hill: Here's one other thing that's striking, and it's the number of issues that you get. I came to realize this recently, because I actually subscribe to Sports Illustrated and got a notice the other day that was essentially, "By the way, we'd like you to subscribe again, and next year." It was something like 37 issues or something. I was like," I'm sorry, you're a weekly publication and the last time I checked, they were more than 37 weeks in a year."

Taylor Muckerman: Oh, I didn't realize it was weekly.

Moser: Yeah, I used to subscribe to Sports Illustrated many, many moons ago, but I haven't in a long time. I don't think I subscribe to one magazine now at this point, because I get it all either on Twitter or in a Google search. I guess I subscribe to The Wall Street Journal. I do that.

Muckerman: That's newspaper, and you can get it online.

Moser: Although it's through here, so that's kind of an easy one to just say, "Yeah, sure, I'll take it."

Muckerman: For Sports Illustrated, I think they need to focus more on their website than I do -- because, I think it's the clunkiest website I've ever --

Hill: It really is.

Muckerman: It's the worst. I won't go there, ever, because I just hate it. It's my most hated website.

Moser: Are they not utilizing an app? I think the key for all of these properties, they need to embrace the app ecosystem. I guess, it's gone a little bit away from the app back to the mobile web. So wherever they decide to land, I think making it a simple and easy-to-use interface on the phone is going to be crucial.

And I think as time goes on, we're seeing more and more that the phone is all you need. It's all most people want. The fewer devices, the better. I've sworn I will never buy another iPad again because I just don't need it. I can literally do the same thing with my iPad that I did with my phone. So I think as long as they're embracing the mobile -- and it doesn't sound like they're doing a great job with it.

Muckerman: Yeah. On the computer. I haven't really gone there on my mobile device, but I imagine it's probably something similar. And with the app, you get the die-hard users who are going to download the app. But if you want to reach the common person through social media or a regular Google search on your phone, you need that website presence, because they're not going to have that app to load it in.

And there's so much competition out there for eyeballs, between Facebook, probably being the largest news company in the world without actually publishing any content of its own, YouTube, the largest video distributor in the world without actually publishing any content of its own. So there's just so much competition out there, and I think these companies aren't keeping up. Time has 15 million Twitter followers; Katy Perry has 105 million Twitter followers. So people are interested in other things, and they have to get their act together.

Hill: And yet, in terms of investors, there is optimism. Meredith Corp was up about 9% this morning, the stock hitting a 52-week high. And I don't know enough about how Meredith has made their print strategy and digital strategy work, and I'm assuming they're doing it to a pretty solid degree, because if you think about the brands under the Time Inc. umbrella -- People magazine,Sports Illustrated, Food and Wine, Fortune, Travel and Leisure -- these are great brands, and yet, for whatever reason, over the last 20 years, under various groups of leadership under Time Inc., they haven't really been able to expand those brands beyond the printed magazine. And yes, they have digital properties as well. But one of my thoughts when I was reading through the coverage this morning was about Sports Illustrated's attempt to go into 24-hour sports television programming. For anyone who thinks --

Moser: [laughs] Because no one else was doing it.

Muckerman: Exactly.

Hill: But back in the mid-'90s, for those who weren't around or don't remember, CNNSI, as part of the whole AOL-Time Warner merger, that was a competitor to ESPN. And Sports Illustrated is a great brand, a brand that's been around a lot longer than ESPN, and in pretty short order, ESPN made pretty quick work of CNNSI. And it was gone six years after it launched.

Moser: I think ultimately, you've got to see, because it's a lot of different names involved with both companies -- and I do agree with you, there are brands that hold some sway, I think some more than others. Some probably don't resonate with the up-and-coming generation as maybe they did.

Muckerman: More nostalgic, yeah.

Moser: Right, perhaps there's a little bit more nostalgia there. Because no one is going to sit there and download 20 different apps to have access to all of these. So they're going to need to do a few things. They're going to need to leverage the mobile internet. They're really going to need to leverage their relationships with Facebook, Google, with Twitter, with Instagram, with Snapchat.

We're kind of at this point where it seems like people are trying to minimize the number of apps that they have. Remember when the phone first came out, and it was like, "500 apps, check it out, I can scroll my screen forever and it never stops." And now it's like, "Wait a minute, out of those 500 apps, 495 of them really serve no purpose."

Muckerman: And the updates continually take up more space on your phone.

Moser: Exactly. So you really try to whittle it down to the apps that you use the most, the ones that matter. Then you really relegate those to the first screen. Those are your Facebooks, Googles, Twitters, Snapchats, Instagrams, things like that. So that's really going to be the key for them, figuring out ways to integrate those brands, leverage those key apps where all the traffic is. And really, that shouldn't be that difficult, because those audiences are so big. It then just boils down to being creative and tapping into what your audience wants. I think that's the tricky part. It's difficult understanding what the younger audience wants today, versus what the audience that grew up with you over the past 30 years wants today.

Muckerman: Yeah, especially with the brands that Time has, because those are the most competitive areas. Time with news, Sports Illustrated with sports, Travel and Leisure and food, those are the most competitive areas that I think you can be in publishing, whereas Meredith has a little bit more niche publications. They have some big ones, but also targeting a little bit more of a niche market, where there's not as much competition, I don't believe. So I think there's going to be some cost-cutting, and then just aggregate eyeball growth for advertising, because that's where these companies really make their money.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill has no position in any of the stocks mentioned. Jason Moser owns shares of Twitter. Taylor Muckerman owns shares of Alphabet (C shares) and Twitter. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Twitter. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.