Newsweek Fallout: Regrets, Staff Cuts and Residual Pain

The presses stop rolling for Newsweek magazine at the end of the year, but the losses will keep on coming for IAC/InterActiveCorp (Nasdaq: IACI), the media group that owns Newsweek Daily Beast Company.

In a conference call to analysts on Wednesday, Barry Diller, IAC’s founder and chairman, said the company’s media unit is on track to lose close to $40 million this year -- higher than what had been predicted -- and expects to lose $23 million in 2013. He added that it could be several years before Newsweek ekes its way back to profitability.

It was just a week ago that Newsweek’s editor-in-chief, Tina Brown, announced via blog post that the 80-year-old magazine will abandon its print edition and transition to an all-digital format in 2013. The new subscription-based publication will be called Newsweek Global and will be available on tablets, e-readers and the Web.

“We have a very, very solidly growing Daily Beast … but there's real enthusiasm for Newsweek Global,” Diller said on the call. “But we have no stars in any of our eyes, and our plans for next year, or for any year for that matter, are not going to relate in any way to the results from Newsweek.”

Diller added that downsizing the Newsweek staff is a “painful process.” Without getting specific, he stated that staff cuts would be as spare as possible.

Some high-profile staffers have already begun to jump ship. Star writer Peter J. Boyer is leaving to become an editor-at-large at Fox News, the cable network announced last week. Additionally Capital New York reports that Rebecca Dana, a senior editor, has left the publication to work on a book.

Brown reportedly grew misty-eyed at a staff meeting last week when she said she didn’t know how many people she would have to let go. Newsweek Daily Beast has a combined newsroom of about 270 people.

The general consensus seems to be that Brown inherited a tough situation. Newsweek’s circulation peaked in 1991 at 3.3 million, but it was down to about half that when Brown took the reins in 2010, after Diller’s IAC merged the publication with her Daily Beast website. But not even Brown’s controversial and highly talked-about magazine covers could reverse that trend at a time when the idea of getting news by the week seems as antiquated as manual typewriters and Whiteout.

“You cannot actually change an era of enormous disruptive innovation,” Brown told the New York Times last week. “No one single person can reverse that trend. You can’t turn back what is an inexorable trend.”

Diller added in the same article that he now believes it was a “mistake” to take on the burden of Newsweek. In a Q&A with Ad Age last week, Newsweek’s CEO, Baba Shetty, echoed that belief, stating that the decision to fold the print edition “liberates us.”

Despite the magazine’s imminent death, Diller said during the earnings call that the decision has vastly improved IAC’s prospects. Overall, the company’s third-quarter earnings beat analysts’ estimates. IAC’s media unit, which includes Newsweek Daily Beast -- along with the video website Vimeo and the multi-media firm Electus -- nearly tripled its third-quarter revenue, despite reporting an operating loss of $13.2 million.

The Daily Beast website, meanwhile, has increased its advertising revenue by 40 percent in the past year, a sign of the all-digital future that more and more media professionals are realizing is already here.

Newsweek will print its final issue on Dec. 31.