Synergy Alert: Time Inc. contemplates exclusive deal with AOL

Time Inc. is thinking about making its magazines exclusively available on AOL. This is potentially a big play for synergy, and a sharp contrast to, say, the bickering between AOL and Roadrunner over the “broadband” access market.
According to the WSJ, Time thinks it’s too expensive to operate its web sites, is concerned that they’re cannibalizing print sales, and feels that there’s not enough advertising to compensate for those disadvantages.
It must be difficult for Time Inc. to sell advertising on their Web sites. With the (possible) exception of Fortune, their readers are undifferentiated Jane and Joe Twelve-Packs who live vicariously through the lives of celebrities.
They also know no one’s going to pay for access to the Entertainment Weekly web site.
Even granting this grim alternative scenario, it’s difficult to make the math work.
Doing a deal with AOL means making Time’s “content” available to only a third of US Internet users — a small enough audience to cut into their advertising reach but too big not to be source of cannibalization. And it isn’t exactly going to improve their chances of getting on Ralph Lauren’s (or even P&G’s) next media plan.
Sure, it would be nice (for AOL) to have control exclusive access to People, Entertainment Weekly, and In Style; but what are they really willing to pay Time for that exclusivity? Do they simply propose to relieve them from the cost of operating their Web sites? Will they compensate them for the cost of supporting AOL’s proprietary Rainman format? Does this mean break-even is the best Time can hope for online?
If the way you make this deal a win-win is to assume that Time Inc’s Web sites will always lose money and it might, theoretically, boost AOL customer loyalty by a few percentage points, then each company must value this deal pretty poorly.

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