Time Inc. Sells Time Life Division to Direct Holdings

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Direct Holdings Worldwide LLC has acquired Time Life Inc., the music and video direct marketing subsidiary of Time Inc., the two companies said yesterday.


Direct Holdings Worldwide, which also owns Lillian Vernon Corp., was formed last year by Ripplewood Holdings LLC and ZelnickMedia as part of the acquisition of Lillian Vernon. ZelnickMedia will be responsible for daily management of the company with Strauss Zelnick as chairman/CEO.


The sale price was not disclosed. The transaction included cash and ongoing royalties to be paid by Direct Holdings Worldwide to Time Inc.


"We were contacted by the corporate development team at Time Warner [which owns Time Inc.] to explore our interest in Time Life, and that was shortly after we announced our Lillian Vernon acquisition [in August 2003]," said Jim Friedlich, a partner at ZelnickMedia, New York.


"I think [the reason they contacted us] was twofold: We had just announced a major direct marketing acquisition, and because we're known personally within Time Warner. Strauss has a longstanding relationship with Dick Parsons, the CEO of Time Warner. It goes back about six years. We also have a long and valued relationship with Rob Marcus, who is their head of corporate development."


Time Life's purchasing power in DRTV was cited as one of its strengths. Synergies between Lillian Vernon and Time Life also made the deal attractive.


"The economics of the Time Life business are quite attractive in combination with Lillian Vernon," Friedlich said. "The companies have extremely compatible distribution, fulfillment and back-end infrastructures. We expect to integrate various parts of the back-end facilities of Lillian Vernon and Time Life. We haven't made any decisions about the timeline or specifics of the combination.


"I think within the next six months we'll make decisions ... regarding the back end. We will be looking at opportunities for cost reductions and greater efficiencies across the board."


Time Life's revenue last year totaled about $350 million while Lillian Vernon, which operates on a fiscal year that ends in February, is expected to exceed $200 million. For the fiscal year ended February 2003, revenue totaled $238 million.


Friedlich said Time Life has focused on audio and video content in the past few years.


"We intend to continue that emphasis, including music compilations, comedy videos, religious music, classic music, including best of the '60s, '70s, etc., and to continue the emphasis on family and kids content," he said.


The company's future could include the marketing of books, educational software and what he called "family oriented, educationally driven" games.


"This is a business in which one does a great deal of testing and product development," he said. "It remains to be determined which of these areas we'll exploit in a big way.


"We plan to explore getting back into books, which means conducting tests and developing new product and letting the market tell us whether to proceed. They did pull back from the book business a few years ago. My sense is that they were not able to compete in the current book environment."


Friedlich also discussed Time Life's exit from the catalog sector during the summer. Titles included: Heartland Music, which included golden oldies and religious-oriented music; Serenade, which appealed to an African-American audience and included gospel music; and Time Life Music, which contained an across-the-board product offering.


"My understanding is they sold the non-exclusive use of the catalog list to another cataloger over the summer," he said. "We intend to explore catalogs as a sales channel. We have both economies of scale and expertise to bring to bear from Lillian Vernon. One or more successful tests will determine if catalogs are brought back."


In addition to DRTV, sales channels include a Web site, direct mail, retail and telemarketing.


"I wouldn't expect radical changes in how Time Life markets its products," he said. "They have had great results around the world with DRTV and they have a growing presence at retail, both of which we expect to continue to grow."


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