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Diller: Newsweek Not Dead Yet, But Get Ready For Big Changes

This article is more than 10 years old.

Barry Diller. (Image credit: AFP/Getty Images via @daylife)

If Newsweek ceases to exist as a print magazine sometime in the next year, don't say Barry Diller didn't warn you.

On IAC's second-quarter earnings call, the chairman and controlling owner addressed the question of what will become of the Newsweek/Daily Beast now that his company has taken majority control over what was previously a joint venture. Without saying anything definitive, Diller suggested that the newsweekly could cut back or eliminate its physical edition as early the fourth quarter of this year.

"We're examining all our options," he said. "Our investment next year is going to be significantly less than it is this year."

IAC doesn't break out the Newsweek/Beast's fiances, but published reports have consistently pegged its losses at around $30 million last year. (IAC officials have called that figure exaggerated.) 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. The magazine made some financial headway in the first quarter, largely thanks to an advertising-packed issue with a "Mad Men" theme, but gave up ground again in the second quarter, says the source.

With the losses piling up, the Harman family last week opted to cap its investment in Newsweek/Beast and hand over part of its 50% stake to IAC. Sidney Harman, an audio equipment mogul, bought Newsweek from the Washington Post Co. in 2010 and merged it with the Daily Beast later that year.

On the earnings call, Diller said it became clear shortly after Harman's death in April 2011 that his family at some point would stop subsidizing the publication. With its rock-solid balance sheet, driven by accelerating revenues in its search and online dating businesses, IAC can afford to absorb on its own the losses that made the Harmans flinch. In the second quarter, its revenues were up 40%, to $681 million, its adjusted net income rose 29% to $81.3 million, and it announced plans to double the dividend it pays investors.

Still, Diller said the Newsweek/Beast's losses are unacceptable, and he suggested a possible path to slashing them. "The [Newsweek] brand is good," he said. "So what is the problem? The problem is in manufacturing and producing a weekly newsmagazine, and that has to be solved."

"The transition to online from hard print will take place," he said. "I'm not saying it will happen totally."

While he stopped short of saying that Newsweek will shut down its print edition, it was clear Diller meant to at least float that possibility. Whatever the course of action, it will be decided upon by October, he said. "The plan is going to be different next year than it is this year," he said. 'I can't tell you in what ways, but it's going to be different."

Even before Diller's ominous comments, many at Newsweek/Beast were wondering whether Newsweek will survive in any form. While the magazine has an illustrious history and international recognition, the Daily Beast was Diller's idea.

Ironically, what made the merger a failure may be what makes unwinding it so easy. Insiders say the promise of a hyper-efficient newsroom that would put out both a daily website and a weekly magazine with a shared staff was never really realized. Instead, each publication had its own editorial team with minimal overlap. Maintaining both brands made it harder to sell integrated ad packages across both ad and print.

With Newsweek losing far more money, ad sales manpower has been concentrated there, leaving the Daily Beast neglected. The source with knowledge of the business says it is on track to bring in less than $7 million in revenues this year. If that happens, it will again lose around $10 million.