In something unrelated but numerical, we’ll look at the pending purchase of Time magazine by Salesforce.com co-founder Marc Benioff and his wife, Lynne. I’ll show you that their actual cost is substantially greater than the $190 million stated price.
Sure, the Benioffs’ total cost for Time probably interests self-absorbed media folk (is there any other kind?) more than it interests regular people. But I think it’s important to realize what’s really going on when you read about the Benioffs, or that the late Sidney Harman bought Newsweek (one of my former employers) for $1 in 2010, or that Michael Bloomberg bought BusinessWeek (now Bloomberg Businessweek) for $5 million in 2009. Or when you read, one of these days, what some buyer is paying for Fortune or Sports Illustrated.
To the numbers. Stock market first.
As you probably know, Sept. 15 was the 10th anniversary of the collapse of Lehman Brothers. What you probably don’t know, though, is that Lehman’s failure is helping the stock market’s current 10-year returns look increasingly good — an insight I got from Dan Wiener, chairman of Adviser Investments.
Here’s the deal. The Standard & Poor’s 500-stock index fell 46 percent from the day before Lehman’s bankruptcy filing through the market bottom on March 9, 2009.
So when we look at 10-year market results from mid-September this year through the end of February, we’ll be measuring those prices against prices that were in free fall a decade ago.
Therefore, unless stocks fall almost as rapidly now as they did in the aftermath of the Lehman bankruptcy, 10-year returns are going to grow — substantially — through early next year.
Dan Wiener says that as of the end of September, the 10-year total return (price increases plus reinvested dividends) of the S&P 500 was 12.6 percent a year. That’s considerably above the historical return rate of 10.2 percent that the S&P has posted since 1926.
But now, watch. At my request, Wiener figured out what the 10-year total returns through next February would be if the S&P is unchanged from its end-of-September level.
I was surprised by the size. For the 10 years ending Oct. 31, the return would rise to 14 percent — a nice bump up from 12.6. For next February, the 10-year return would be an amazing 17.1 percent. (For November, December and January, the returns would be 14.9, 14.8 and 15.8 percent, respectively.)
So last decade’s pain ends up being this decade’s gain.
Now, to Time.
When you buy a magazine property like Time, you take on the obligation to deliver the magazines that subscribers have already paid for. But the money that subscribers paid for future issues will generally remain with the seller — in this case, Meredith Corp., which acquired Time magazine as part of its purchase of Time Inc.
Neither Meredith nor the Benioffs would tell me how much Time’s subscription liabilities are. But given Time’s circulation of 1.8 million, I guesstimate the liabilities are at least $20 million, possibly much more.
Similarly, there were double-digit millions of subscription liabilities assumed when Harman bought Newsweek from The Washington Post Co. (now Graham Holdings). The same was true when Bloomberg bought BusinessWeek from McGraw-Hill.
Unlike the situation when Time Inc. split off from Time Warner, Time magazine’s subscription liabilities aren’t all that big of a deal for the Benioffs. Even if the number is $40 million or $50 million, it’s chump change to billionaires like the Benioffs, whose fortune is valued at $6.7 billion by Forbes and $6.9 billion by Bloomberg.
By contrast, Time Inc., which was a publicly traded company, got stuck with almost half a billion dollars of subscription liabilities (by my estimate) when it was split off from Time Warner. Time Warner kept that paid-in-advance subscription money and didn’t compensate Time Inc. in any way that I could find.
This put Time Inc. (from which I retired in 2015) deep in the hole from the beginning.
In an email, Marc Benioff told me: “The $190M valuation is actually based on Time’s excellent profitability. You may know Time is a very successful and profitable company.” However, Benioff, Meredith and a Salesforce spokesman would not give me numbers. Perhaps after the Benioffs’ purchase closes, scheduled for later this month, we may get to see what’s going on.
Look, I hope that the Benioffs’ purchase works out for them — and for us. We really need strong, competent, independent, financially sound and well-funded journalism these days. But I’d sure like to see the numbers.