So, of course, it also gets a new logo. This one will look awfully familiar, since it is the same trio of well-known letters, and if you’re not paying attention you won’t notice a thing.

But look closely:

See? Yup: Two lower-case letters and a period.

The idea is that the type will remain consistent, but will be “revealed” when it sits on top of different images. The old AOL swoosh triangle goes away, although its sort-of iconic “running man” will stick around in some form, the company said.

Here’s a canned quote from CEO Tim Armstrong about what this means:

“Our new identity is uniquely dynamic. Our business is focused on creating world-class experiences for consumers and AOL is centered on creative and talented people–employees, partners, and advertisers. We have a clear strategy that we are passionate about and we plan on standing behind the AOL brand as we take the company into the next decade.”

Branding outfit Wolff Olins gets credit (and money) for figuring this one out. But let’s see what investors think of the work when the company spins off from Time Warner (TWX) next month.

Here is the full press release:

AOL PREVIEWS NEW BRAND IDENTITY FOR ITS FUTURE AS AN INDEPENDENT CONTENT-DRIVEN COMPANY

New Aol. Brand Expresses Commitment to Stimulating Content, Openness and Inclusion

NEW YORK–November 22, 2009–AOL today previewed its new brand identity for its future as an independent company committed to creating the world’s most simple and stimulating content and online experiences.

The new AOL brand identity is a simple, confident logotype, revealed by ever changing images. It’s one consistent logo with countless ways to reveal. The new brand identity will be fully unveiled on December 10, when AOL common stock begins trading on the New York Stock Exchange.

“Our new identity is uniquely dynamic. Our business is focused on creating world-class experiences for consumers and AOL is centered on creative and talented people–employees, partners, and advertisers. We have a clear strategy that we are passionate about and we plan on standing behind the AOL brand as we take the company into the next decade,” said Tim Armstrong, Chairman and Chief Executive Officer of AOL.

AOL partnered with Wolff Olins, a global brand and innovation consultancy, to develop a brand identity that speaks to the company’s future. The identity itself is a platform for expression and creativity reflecting the content, products and services which AOL offers. Some of the world’s best creative artists, including Universal Everything, GHAVA and Dylan Griffin created art and animations for the brand.

“Historically brand identity has been monolithic and controlling, little more than stamping a company name on a product. AOL is a 21st century media company, with an ambitious vision for the future and new focus on creativity and expression, this required the new brand identity to be open and generous, to invite conversation and collaboration, and to feel credible, but also aspirational. We’re delighted to have worked so closely with the AOL leadership team to create something bold and exciting that sets AOL apart,” said Karl Heiselman, CEO of Wolff Olins.

As many readers noted, one big problem–potentially–with the plan is that Adobe (ADBE) and Apple (AAPL) generally don’t play well together. And in the case of Apple’s iPhone, they don’t play at all: Adobe’s flash platform doesn’t work in the iPhone, which is why many video sites, which depend on flash, don’t work well on the gadget.

So what if this happens again with Apple’s tablet, if and when the thing finally arrives?

I noted this yesterday, but didn’t get to talk to Adobe and Condé about it until later. Now I have their responses. The short version: They sure hope it works out.

The longer version is that both Condé and Adobe plan on running on all sorts of devices. And there’s not a lot they can do to satisfy Apple’s (AAPL) tablet requirements in advance, since Apple won’t discuss the tablet or even acknowledge that the tablet is in the works.

Here’s Adobe’s official line, provided by Senior Experience Design Manager Jeremy Clark:

Adobe has taken initial steps to prepare Adobe AIR to support mobile with performance improvements (reductions in memory usage, runtime size, JavaScript CPU consumption, and reduced CPU usage for background applications), and support multi-touch input used by mobile phones and presumably a new generation of slate devices. In fact we just announced a beta for AIR 2.0 that incorporates many of these features.

Our job at Adobe is to help create a great digital publishing platform. If publishers like Conde Nast and NY Times are delivering brand-name content via Adobe AIR, we believe that the devices that will win in the marketplace, will be the ones that support this open format. It should also be noted that Adobe recently announced plans to enable Flash applications to be brought to iPhone and indeed several are available on the iTunes store.

So we’ll continue to look for ways to enable publishers to deliver their content to the widest possible range of platforms, even on platforms that don’t yet support our runtimes.

It’s a reasonable enough response, given the alternative, which is to wait around for Apple to bring forth the wondergadget–or not. And in the meantime, the companies would miss an opportunity to help set standards for other guys’ gadgets.

On the other hand, there’s the less politic response, which you’re not going to hear from either company on the record: “Boy oh boy, are we screwed if our stuff doesn’t work with the market leader.”

But here’s one version of that take, from Time Inc.’s Josh Quittner, who is working on producing tablet-ready magazines for the Time Warner (TWX) publishing unit:

I am a hyperbolic guy, not to mention a purple writer, but I think it’s conservative to say that in the miserable publishing business, there is no greater hope for salvation that the iThing. With visions of giant iPhones dancing in our heads, all of us are working on prototypes of magazines and newspapers that will work on 9.7-inch, multi-touch screens linked wirelessly to stores. And, while there are at least a dozen manufacturers heatedly working on their own iterations, we all await the iThing because history has shown us that Steve Jobs leads the parade. Chaos will ensue, with many idiotic and competing platforms drawing precious resources from content makers who have to try just about everything until a frontrunner emerges.

Oh. One more quick item: As Quittner says, there are lots of publishers working on this stuff, and I look forward to seeing all of their efforts. And in case anyone gets the idea that I’m only paying attention to the biggest dogs, here’s what FastCompany.com’s Noah Robischon has to say about his company’s digital plans:

We’re working on delivering the magazine in several different digital formats right now, including to e-readers. Assuming the iTablet is a real product, and it uses any of these formats–and I’ve got no inside knowledge, it’s all based on rumor and guesswork–then we’ll be on the device too.

We’ve been approached by a few different companies working on e-reader formats for magazine publishers, as well as a couple that want to create digital versions of the magazine pages for online display. So we’re evaluating our options now. This space has become very active in the last 6 months, and it’s great to have so many options.

So there you go. Next?

[Image credit: clarity]

The voluntary layoff program begins Dec. 4, a few days before the company spins off from Time Warner (TWX). If AOL doesn’t get enough volunteers, it will ax people on its own.

This is lousy news for employees, who are faced with a “jump now or wait to be pushed” decision, but it is designed to cheer investors: AOL says the cuts will drop its annual operating expenses by $300 million. Through the first nine months of this year, AOL’s operating expenses ran around $1.8 billion.

Meanwhile, AOL is looking to shed some parts of its business altogether. It has hired bankers to sell off its ICQ messaging service and is considering dumping MapQuest, among other assets.

Armstrong’s (expensive) goodwill gesture: He is giving up his 2009 bonus, which was to be at least $1.5 million. His explanation to employees: “As a member of our team and the person who takes accountability for the results of the company, I am making the decision to forego my 2009 bonus. That decision is a personal one and is not a sign for the future payout of the overall bonus plan for employees.”

Here’s the text of the company’s filing with the Securities and Exchange Commission:

On November 19, 2009, AOL Inc. (the “Company”) informed its employees of proposed restructuring activities as part of its continuing cost reduction initiatives aimed at aligning the Company’s organizational structure and costs with its strategy (the “Restructuring”). The Restructuring is conditioned upon the successful completion of the Company’s previously announced spin-off from Time Warner Inc. (the “Spin-off”), as well as the approval of the Company’s new Board of Directors that will begin service in connection with the Spin-off. It is anticipated that, if approved, the Restructuring will include the reduction of approximately a third of the Company’s current employee base, which will be conducted on a voluntary and involuntary basis. The goal of the Restructuring is to reduce ongoing annual operating costs by approximately $300 million. If the Restructuring is approved, the Company expects to incur restructuring charges of up to $200 million, substantially all of which is expected to be incurred from the date of the Spin-off through the first half of 2010.

But will they actually pay up? Here, the conventional wisdom is not so helpful. Nor are studies predicting consumer behavior. To wit:

• Nearly 50 percent of U.S. Web users are willing to pay for online news, says the Boston Consulting Group.
• Not a chance, says Forrester (FORR): Try 20 percent.

For what it’s worth, my money’s on the Forrester number, or one that’s even lower. My gut says people love consuming news, but only in the broadest sense–Obama doesn’t really Twitter! What was Belichick thinking?–and that sort of stuff, which appeals to a very large audience, will always be free, and you’ll get it from Google (GOOG) or something like Yahoo (YHOO). Which leaves you with a small audience willing to pay for everything else.

But! We should note that people are indeed paying for “content” right now. In fact, they’re paying for a lot of it: $115 a month, up seven percent from last year, says NPD Group. The breakdown:

As of August 2009, 81 percent of U.S. households subscribed to a television service (satellite TV, basic/premium cable, or fiber-optic television service). A similar percentage of households (76 percent) paid for Internet subscriptions. Seventeen percent subscribed to an online music service or satellite radio; and 14 percent subscribed to online gaming subscription services.

More traditional forms of entertainment subscriptions, however, did not fare so well. The number of people subscribing to newspapers fell by 2 percentage points to reach 29 percent in August 2009. Forty-one percent of consumers subscribed to magazines this year, compared to 43 percent who did so last year.

According to NPD, an influx of new smartphone owners has led to an increase in mobile data-plan subscriptions: 9 percent of U.S. consumers had mobile data subscriptions this year, versus just 6 percent last year. Fourteen percent of consumers subscribed to a home-video subscription service, like Netflix, this year, which is 2 percentage points higher than last year.

Ah, see? Problem solved: If you want Americans to pony up for stuff on the Web, just link it to something they’re already paying for, like their cable or Internet subscription.

This is what smart guys like John Malone have been talking about for a while, and it’s also the core of the strategy behind the Time Warner (TWX)/Comcast (CMCSA)/everyone else “TV Everywhere” gambit. But it’s also what many people have been trying to do for a very long time–ask the music industry–with limited success.

Little by little, AOL is offering investors more and more details about what the company will look like after it spins off from Time Warner (TWX).

The problem: The more AOL discloses, the less attractive the company looks.

The most recent nuggets come from a preliminary prospectus Time Warner filed with the Securities and Exchange Commission yesterday. Some, but not all, of this has broken out in previous filings or earnings announcements. In any case, it helps to see it all in one place.

The big picture: AOL’s subscription service, which accounts for the “vast majority” of the company’s operating income, is withering away. But advertising revenue, which was supposed to replace that money, has been declining for nearly two years (see tables below; click to enlarge):

And here’s a closer look at the ad business and its recent performance:

The good news for AOL is that some of this is the result of self-inflicted wounds, and it’s possible to heal some of them. The company’s previous regime seemed to go out of its way to mismanage and dismantle the sales force, for example, and if new CEO Tim Armstrong can rebuild that team, he can make a bit of headway.

The flip side is that some of AOL’s woes may be well beyond Armstrong’s control. Money from a Google (GOOG) search deal, which provided a third of AOL’s $2.1 billion in ad revenue last year–and had been increasing up until this year–is now dropping off, too.

Google dollars fell by $42 million in the most recent quarter, representing more than half the $75 million drop in ad dollars from its AOL Media unit. And Google income fell by $90 million in the last nine months, representing about 40 percent of $197 million decline in that period.

AOL says some of the Google decline stems from its declining subscriber base, which brought down search query volume. The rest is due to lower revenue per search query–that is, Google has changed its algorithm in way that ends up punishing AOL. But Armstrong can’t do a whole lot about either of these variables.

He can try extracting more money from Google, whose search deal expires at the end of next year, or from Microsoft (MSFT), which is trying to gain share any way it can.

Earlier this year, Armstrong turned down a new deal from Google and now says he’ll deal with search after he gets other things in place. But the longer he waits, the less leverage he may have.

AOL shareholders will be paying Armstrong well to figure this out, though. His three-year deal pays him a base of $1 million a year, plus annual cash bonuses of up to $4 million. In addition, he’s getting $20 million worth of stock grants to make up for Google shares he left on the table when he resigned from his old employer. And he’ll get stock options worth as much as 1.5 percent of the company once the spinoff is complete.

That said, AOL will also be paying former AOL CEO Randy Falco, who got tossed out in March. Falco will continue to pull down a $1 million salary through 2010–and he’ll get $7.5 million in bonuses through then as well. Former AOL COO Ron Grant, meanwhile, will earn $750,000 a year, plus another $3.3 million in bonuses.

Some perspective: As I noted last week, AOL has already spent $83 million on separate restructuring efforts through the first nine months of this year. And parent company Time Warner has said it will spend $100 million on its restructuring/mass layoffs at its Time Inc. publishing unit.

It’s not clear if News Corp. (NWS) will end up investing in the joint venture, which is designed to control distribution of “print” content to readers like Amazon’s (AMZN) Kindle and Apple’s (AAPL) rumored tablet, or if the company will simply agree to tailor its stuff–most notably, The Wall Street Journal–to the joint venture’s standards.

In either case, News Corp. has yet to officially sign on, sources tell me. An announcement formally acknowledging the JV itself is supposed to be a couple of weeks away, though I have been hearing this for at least six weeks.

No comment from News Corp. or Time Inc., the Time Warner (TWX) publishing unit that has been assembling the JV. Other expected partners include Hearst, Condé Nast and, perhaps, Meredith. (Disclosure: News Corp. owns Dow Jones, which owns this Web site.)

In some ways, News Corp. is an obvious partner for the coalition, which I like to call “Hulu for magazines.” Murdoch has been an outspoken critic of Amazon’s distribution and pricing policies; he argues that by controlling the subscription of digital newspaper and magazines delivered through its e-reader, Amazon deprives publishers of a valuable asset.

Murdoch also wants more money for the stuff it does sell: In an earnings call last week, he said that while the bookseller was now paying his company up to $6.50 a month for each $15 monthly subscription to The Wall Street Journal, that split wasn’t good enough.

The JV is supposed to solve those problems for publishers by letting them control sales, customer billing and pricing. But it is also primarily designed with magazine publishers in mind, and News Corp. isn’t in that business.

Meanwhile, New Corp.’s Dow Jones unit is proprietary about the system it has already built to handle subscriptions to the Journal’s print and online editions and its BlackBerry and iPhone apps.

While it’s possible that the JV could use the Dow Jones subscription/commerce platform as the technological base of the JV, Dow Jones could be prickly if asked to play well with others. “Newspapers and magazines, don’t mix well, for reasons that aren’t obvious to the outside world,” says a News Corp. executive briefed on some of the company’s conversations.

In any event, balancing different partners’ interests is only one of the hurdles facing the JV. Some others, from the story I published last month:

• They’ll have to convince consumers who already have billing relationships with Amazon, Apple and other vendors to sign up with yet another service.
• They’ll have to convince device makers to play along with the strategy, which runs counter to many of their own plans. Both Amazon and Apple, for instance, have intentionally created closed systems that give them control of both devices and distribution.
• They’ll have to create content consumers want to buy. The new product can’t simply be a digital version of the magazines they’re already printing: That’s already available on the Web, and consumers have shown almost no interest in paying for it, and advertisers haven’t fully embraced it either.

So what exactly will the JV be selling? That’s probably the most difficult question for publishers to answer, made even more difficult because they don’t know what capabilities the e-readers of the future will boast. Apple for instance, refuses to even acknowledge to Time Inc. executives that it plans to produce a tablet device, let alone provide them with specs.

You’ve been able to get Funny or Die clips on YouTube before, of course, but only with some effort–until now, the site has tried to keep views on its site or with its proprietary player.

That only worked in limited doses, though, so it makes plenty of sense for the site to expose its videos to a much larger audience. But note that even Funny or Die is trying to preserve a “windowed” approach to video distribution: Its clips will still premiere on the Funny or Die site before moving over to its YouTube channel.

This isn’t nearly as important as deals Google’s (GOOG) site has already struck with providers like CBS (CBS), Disney (DIS), Time Warner’s (TWX) Turner, and Sony (SNE).

But it does provide me with a chance to run a YouTube clip featuring Will Ferrell. Warning–Mark Wahlberg drops a couple F-bombs in the last 30 seconds of this one:

And the first look at results from News Corp., which owns this Web site, seems similar. Revenue of $7.2 billion are in line with Wall Street’s expectations, and the company figured out how generate earnings of 22 cents a share, a nice bump from the 18 cents a share consensus.

Just as Time Warner reported this morning, News Corp.’s most valuable assets are its film studio and its cable TV business. Its broadcast TV business is wobbling, and its print business has been in decline for some time. A quick look at each sector:

• Movies: Operating income up due to yet another “Ice Age” movie, among other releases.
• TV: Fox’s local stations saw operating income drop 26 percent due to crummy advertising; the Fox broadcast network also dropped because programming costs increased and ad revenue dropped.
• Cable networks: Booming. Operating income up 41 percent, as News Corp. is able to extract increased fees from cable operators for the likes of Fox News Channel.
• Newspapers: Getting hammered. Operating income was a mere $25 million, a decrease of $109 million in the last year. You know why, but for the record: The Wall Street Journal saw ad revenue decline, though price increases boosted circulation revenue.
• MySpace/Web properties. News Corp. doesn’t offer much transparency here, but does say that “earnings contributions” from its Web unit dropped $22 million because of lower search and advertising revenue. Sure we’ll hear more about this during the call.

Beyond the macro take, News Corp. (NWS) is worth paying attention to because of Rupert Murdoch’s increasingly pugnacious stance toward what he calls the Internet’s “Philistine phase”–the one where just about everything on the Web is free. And because Murdoch almost always makes for entertaining earnings calls, where he frequently veers off script.

I’m covering the earnings call as it happens. All notes below are paraphrased unless I use quotes.

CFO David DeVoe notes the digital group (MySpace, etc.) is in “significant transition.” Revenue was down 26 percent at the unit. Says MySpace revenue goals will take longer than expected.

Rupert Murdoch:
Looking ahead, seeing “encouraging trends in most of our businesses.” Broadcast TV business appears to have hit bottom of cycle. Advertising pacing for December looks good. October flat, November up in midteens. Cable TV ads doing well. “Quite pleased” with momentum at film biz.

Cable now generates half of company’s operating income, which is “no accident.” Love those dual-revenue streams, especially when we can jack up affiliate fees.

Digital media group: Difficult to predict when we’ll see improved results, but overhaul has clearly helped it for long-term.

Newspapers: For what it’s worth, all of our newspaper and TV businesses are having a great November.

Very confident about short- and long-term future. Clearly in better shape than a year ago. But recovery is “still a little fragile.” [Note: Rupert is clearly sticking to his initial script this time.]

Q&A

Question: When will you start cutting shareholders some dividend checks?

Murdoch: Not thinking about it. We’re right to be sitting on this cash. We have a $2B debt repayment due next year, so pile isn’t as big as it looks.

Question: How does international cable market look?

Murdoch: For the most part, it’s a new growth area. Markets are relatively undeveloped. So they’re all growing double digits, 15, 18 percent on average. May start another 30 channels this year.

Next, there’s a question about retrans (getting paid for broadcast programming): How many renegotiations will we see in next few years? Murdoch offers a nonanswer, for the most part.

Question: You said affiliates fees were up 18 percent and that affiliates fees represent 70 percent of revenue. So that means cable ads are down, right?

David DeVoe: Yes, but I think they’ll be up a bit this quarter.

Question: How can MySpace search revenue be down? Isn’t Google (GOOG) kicking in a fixed amount through next year?

Murdoch: Quite simple. “We have not been making our minimum guarantees,” so our search revenue will not be what we’d expected.

Missed most of the M&A question and answer, but it Murdoch evidently said he wouldn’t rush into anything. That doesn’t mean that much.

Question: Can we get an update on The Wall Street Journal and the relationship with Amazon (AMZN) Kindle, other e-readers?

Murdoch: Oh. WSJ.com going well. Pricing up very strongly. Will be announcing some “extra developments” with it “if they haven’t been announced already, I’m not sure.” Kindle: Look, it’s a fantastic invention for reading books. It’s not great for newspapers. We’ve gotten them to charge $15/month for WSJ and give us $6.50, but that’s not a great deal for us. Half-a-dozen early-stage e-readers on market for Christmas, and we’ll be available on them provided they give us a good deal. But there’s much more advanced work going on.

Question: What’s the new strategy at MySpace?

Chase Carey: Obviously, we got spread a bit wide and thin. No focusing on heart of business being a social network focused around key content sites. “We’re not trying to beat Facebook. We’re not trying to beat Twitter.” Music, gaming, etc. Farthest along with music. “Clearly a work in progress. We’re still losing traffic.”

And now for some press Q&A. This usually makes Rupe a bit testy, which is fun:

Question: Any interest in NBC?

Murdoch: No. “When things come around, we kick the tires, but we’re not in any talks with anybody at the moment.”

Question: What’s up with MSNBC-Fox News truce, which appears to be broken? 

Murdoch: “We didn’t start this abuse, which we thought went way beyond…finally, we had to allow people to retaliate. When they stop we’ll stop.” 

Question: And is it good for you to have antagonistic relationship with the White House?

Murdoch: No.

Question: Bidding on Travel Channel?

Carey: We’re not going to comment on any specific properties [mumbles].

Question: How will Comcast-NBCU deal affect way you deal with Comcast (CMCSA)?

Murdoch: It won’t. We’ll be competitors with NBC as broadcasters and partners with Comcast when it comes to cable.

Question: What’s up with plans to erect some sort of paywall at all News Corp. newspaper sites in 2010?

Murdoch: “We’re all working very hard on this, but I wouldn’t promise that we’re going to meet that date…it’s a work in progress, and there’s a huge amount of work going on.”

Question: Is WSJ profitable?

Murdoch: “Yes. Barely. But Yes.” How did you do that? “We produced a better newspaper.”

Question: Please talk about digital/MySpace some more.

Carey: Going to repeat what I said already, basically. “We’re in state of transition…work in progress.” Can’t tell you what it will look like in 12 months because I don’t know. “Work in progress.” “Work in progress.”

Question: Google promised you $900 over three years. How far short will you fall?

Murdoch: “I don’t know. But it will be a real figure….It will certainly drop by $300M.” Carey or DeVoe corrects Murdoch, noting that it will be closer to 10 percent. I’ll ask News Corp. PR for a ruling and get back to you. UPDATE: Ruling from News Corp. PR–MySpace will be about $100M short on its Google payment for this year.

But if you’re impatient, you can simply look at the following table, which details the publisher’s Q3 performance:

Bewkes has a less drastic spin on the cuts, of course: He argues that among other things, they will help “increase consumer utility.” How’s that? Well, Fortune magazine, for instance, will publish less frequently, which will supposedly make each issue that much better. But you can see where this logic leads…

One item of note so far: While Time Inc. has said that it will not be closing titles during this round of cuts, Bewkes left the door wide open for future moves, promising to “take a hard look at non-strategic and unprofitable titles.”

In the meantime, while I’ve read reports that say folks who work in online operations won’t be affected by the cuts, that’s not the case; I’ve heard of a few different staffers on the Web side who are on their way out.

Here’s the full set of slides Time Warner (TWX) used during the earnings call:

time inc slides –

That won’t help employees at Time Warner’s Time Inc. publishing unit: The company confirmed that it will make big cuts this quarter and spend up to $100 million on restructuring charges. This is different from the $100 million in cuts that had been previously reported, but it will still mean hundreds of layoffs at the publisher.

Time Warner also boosted its guidance for the remainder of the year and confirmed once again that it wants to spin off AOL before the end of the year. As well it should: The company said it has already spent a staggering $24 million on the spinoff so far this year, which includes $9 million in “pretax direct transaction costs (e.g., legal and professional fees).” It has spent another $83 million in restructuring charges at that unit in 2009.

As usual, Time Warner said ad sales have been lousy, but that its cable networks and film divisions had done okay. The breakdown:

• Cable networks: Revenue up five percent, because subscriber fees were up nine percent. Ad revenue was down one percent.
• Warner Bros. movie studio: Revenue down four percent, because of slumping DVD sales.
• Time Inc.: Revenue down 18 percent; advertising down 22 percent. Adjusted operating income down 42 percent. Hence the coming cuts.
• AOL: Revenue down 23 percent. Subscription revenue, which will continue to shrink, was down another 29 percent, and ad revenue, which is supposed to improve one day, was down 18 percent.

Shumaker comes to Hearst from DoubleFusion, the “in-game” advertising company, where she ran sales for its core games group, and was at Electronic Arts (ERTS) prior to that. Johnson spent the last three years building Hearst’s magazine sites (Cosmopolitan.com, etc.), then took off this summer to run something called Modelina.com; he has also put in time at IAC (IACI) and Time Warner’s (TWX) AOL.

UGO is one of many players trying to capture a piece of the market for young men between 18 and 34 who like girls, funny things and videogames, and the company, which claims 13 million monthly uniques, is often mentioned as an M&A candidate.

But Hearst says it is still looking to hire a new CEO for the spot that opened up once co-founder J Moses left in June. Hearst Interactive president Ken Bronfin is still running the unit on an interim basis.

That has to be unnerving, but I can at least offer a little bit of comfort: The worst-case scenario the employees would be facing had they been purchased by private equity firm ZelnickMedia, which was also bidding for the publication.

The short version: Almost everybody gets fired.

Here’s the longer version of the plan, provided to me by a person familiar with ZelnickMedia’s bid. It sounds like a plausible idea for a PE group that specializes in turning around distressed assets–and a chilling one for anybody who draws a paycheck at BusinessWeek:

• Wind down BusinessWeek’s print business “as profitably as possible”–the company would have to honor existing subscriptions and could still sell ads in the magazine. But the focus would be on building up BusinessWeek’s Web site, which has a decent-sized footprint, though not a huge one.
• Dump almost all of the company’s newsgathering staff and outsource most of that work to Thomson Reuters (TRI).
• Employ a small handful of editorial employees–perhaps 20, down from the 200-plus who are there now. Some of them would run a Huffington Post-style aggregation site that produces no original content, and some more expensive hires would produce a smattering of high-quality reporting and writing designed to burnish/sustain the BusinessWeek brand. “Just to give it uniqueness and sizzle,” my source tells me.
• Dump most of the existing business side, as well, but overhaul and bulk up the sales force.

The insult-to-injury kicker: Under ZelnickMedia’s proposal, the buyer wouldn’t pay a dime for the publication it intended to rebuild. Instead, McGraw-Hill would pay the fund to take the publication off its hands. If that sounds implausible, consider that McGraw-Hill just announced that it will save up to $25 million next year by not owning the title.

Given the above terms, it’s easy enough to see why McGraw-Hill ended up going with Bloomberg. For starters, the winning bidder actually paid cash for the magazine, and McGraw-Hill will end up netting a $5.9 million gain, after taxes, on the deal.

Also important: McGraw-Hill won’t have to anguish as it watches one of its flagship properties get dismantled.

So what will happen to BusinessWeek now that Bloomberg owns it? Nothing nearly so drastic, at least in the short term. For now, Bloomberg is talking about bulking up the title, not shredding it, so that’s a good sign for both employees and readers.

Alas, Bloomberg can’t take on all of the magazine employees looking for jobs, and that pool is only going to get bigger.

Forbes slashed deep into its staff this week, and next week Time Warner’s (TWX) Time Inc. will lay out some of its layoff goals. I’ve heard Time Inc. employees refer to layoff plans as “tree-trimming” or “surgical,” but I think the trimming will feel much blunter to the folks who lose their jobs. The publisher’s cost-cutting plans include hundreds of layoffs–something likely similar to the cuts the publisher went through last year, I’m told.

The New York Post’s Keith Kelly reports today that Time’s News and Finance unit, which includes Time, Fortune and Sports Illustrated, will be particularly hard hit, and I’ve confirmed that myself.

UPDATE: No surprise here: BusinessWeek President Keith Fox is stepping down. Mild surprise: He’s staying on at McGraw-Hill. Here’s his memo:

When we announced that McGraw-Hill was exploring strategic options for BusinessWeek, I promised to communicate with you as openly and often as I could. In this spirit, I wanted each of you to know that I will be remaining with McGraw-Hill after the deal with Bloomberg is closed. I will continue to play a role in the integration post-close and plan to take on a new role at McGraw-Hill in 2010.

During this process, our collective goal was to find the best buyer for BusinessWeek. I am proud that I played a role in ensuring that BusinessWeek has a new home at Bloomberg, where it will thrive under the leadership of Norman Pearlstine. I am committed to the transition and helping in any way that I can.

It’s been a privilege to be the President of BusinessWeek. I thank Terry McGraw for his confidence and trust in me and Glenn Goldberg for his support, direction, clarity, and sense of humor. I’ve also been a member of an amazing team which has navigated the transformation of the media environment with agility, focus, passion, and integrity.

The team–Steve Adler, Jessica Sibley, Tania Secor, Linda Brennan, Roger Neal, and Carl Fischer–is the best in the industry. Like BusinessWeek, they have bright futures ahead of them. I will miss the daily interaction, but I am wiser (and a little grayer) because of their collaborative spirit and desire to make BusinessWeek the global leader in business that it is today.

I also have a special thanks to Patricia Hipplewith, my assistant, who juggled my calendar, protected me from solicitors, and kept me on schedule and well fed! She is the personification of commitment and integrity.

I am humbled by BusinessWeek’s 80-year history. Thank you for allowing me to play a small part in it.

Keith

The publisher said newspaper revenue dropped 20 percent in the third quarter, and print ads dropped by 28 percent; both of these numbers are worse than Q2, which saw revenue drop by 14 percent and print ads by 20 percent.

No relief from Web ads, either: Internet revenue dropped 18 percent, a decline from the nine percent drop in Q2. And online display ads, which had been more or less flat for the last few quarters, fell off a cliff, dropping 14 percent.

Don’t be duped by headlines reporting a drop in the newspaper division’s losses, by the way. That’s due to one-time accounting charges the previous year. If you look at operating revenue and expenses via a less formal, but more practical, lens, the results are very unpleasant: Losses increased by 55 percent (see summary below; click to enlarge).

Want more bad news? Okay: The company’s magazine group says revenue dropped 33 percent, driven by a staggering 48 percent drop in ad sales at Newsweek.

If you’re at, say, Time Warner’s (TWX) Time Inc. and want to whistle past the graveyard, you can try blaming the drop on the title’s unsuccessful overhaul. But I find it hard to believe that Newsweek’s woes don’t reflect a larger magazine malaise. We’ll see next week.

The good news, as always: The big difference between the Post and many other publishers is that its parent company doesn’t depend on print media. The company’ core education business, which is what has sustained it for many years, continues to do well.

The latest unpleasant news comes from magazine heavyweight Meredith (MDP), which does its best to explain that things aren’t that bad: Two of the publisher’s big titles–Better Homes and Gardens and Family Circle–saw ad revenue grow in the last quarter, and the company says its magazine unit notched its “third consecutive quarter of advertising performance improvement.”

That sounds good, right? Except that magazine ad revenue still dropped five percent compared with the same quarter a year–and last year’s quarter was a terrible one in which ads dropped by 18 percent.

More data points to watch for in the next few days: The Washington Post (WPO), which reports tomorrow, and Time Warner (TWX), due up next week.