What should a magazine company be now? The most storied one in America has to come up with an answer fast.

By Gabriel Sherman

In the 92 years since Henry Luce co-founded Time Inc., there have been just seven journalists to hold the title of editor-in-chief. More people have walked on the moon than have sat in Luce’s custom Eames chair in his office on the 34th floor of the Time-Life Building. With wood paneling, private dressing rooms, and sweeping views of Rockefeller Center, the stately backdrop was an emblem of publishing’s glamour and power—Luce’s American Century brought to life. In fact, it was the Time-Life Building that the producers of Mad Men turned to when scouting period details for the offices at Sterling Cooper Draper Pryce.

But one morning earlier this month, when I arrive to meet Norman Pearlstine, Time Inc.’s new top editor, he receives me on the second floor, in a modestly furnished office with a street-level view of a Citibike stand and a halal-food cart. As a cost-saving measure, Time Inc. shuttered the 34th floor and relocated senior executives to a former conference center. (Pearlstine has been working here since April.) Next year, the company is scheduled to abandon its midtown headquarters altogether and move into a cheaper space in lower Manhattan. “I really was never a fan of the 34th floor,” says Pearlstine, who occupied it for a decade when he served as editor-in-chief. “I mean, great offices. But it really created barriers.”

The office downsizing reflects the economic realities for Time Inc., the nation’s biggest magazine publisher, whose stable of roughly 90 titles includes the newsmagazines Time, Fortune, and Sports Illustrated, as well as fashion and lifestyle glossies like People, InStyle, and Real ­Simple. Time Inc. titles still generate remarkable cash flows—InStyle sells more ad pages than Condé Nast’s Vogue, and People brought in more than $600 million in revenue last year. But while the company claims that none of its titles lose money, it has seen earnings fall by nearly 65 percent since 2006. The number of advertising pages in the flagship Time has dwindled by 50 percent over the past five years. Even People is sputtering: Newsstand sales slid 12 percent last year, and the news budget has been cut in half. Layoffs have become an annual rite. In the past four years, Time Inc. has churned through three CEOs and endured nine months during which there was no single executive running the company.

Last year, the financial trends and management upheavals broke the patience of Jeffrey Bewkes, CEO of Time Inc.’s corporate parent, Time Warner. “He didn’t like and didn’t know how to deal with Time Inc. in a situation where revenue was flat and they didn’t have the growth characteristics to fix it,” says Don Logan, a former Time Inc. CEO. A steely, by-the-numbers ex–HBO CEO, Bewkes saw Time Inc. as a millstone weighing down his stock price. So after a somewhat desperate play to merge Time Inc. with the Meredith Corporation failed, Bewkes decided to spin Time Inc. off. “It was a financial decision,” Logan says. A newly formed Time Inc. made its IPO on the New York Stock Exchange this June.

Bewkes’s strategy was validated a few days later, when Rupert Murdoch made a stunning $80 billion takeover bid for Time Warner, which represented a roughly 20 percent premium over its stock price. (Time Warner’s board rebuffed the offer, but left many believing the company is still in play.) But for Time Inc., the send-off was brutal. Time Warner had saddled the new company with $1.3 billion in debt and required it to pay Time Warner $1.4 billion to acquire IPC, the British magazine-publishing division, and furnish a dividend to shareholders. Time Warner kept CNNMoney, a profitable website, as well as Bleacher Report, a fast-growing online sports destination. Time Inc. journalists, looking at the terms, felt betrayed. “Time Inc. wasn’t given the respect that you’d give a pimple on your ass,” a longtime editor says. By contrast, Murdoch, a print sentimentalist, provided his publishing arm with a $1.8 billion cash safety net when News Corp. split in two last year. “Time Inc. is like Iraq. It’s a dire situation,” says a former senior executive. “The business model is collapsing. And now with the spinoff, it’s too much for one company to bear.”