It was an elite reception at a glittery Manhattan setting: prominent media figures like Gayle King and Lesley Stahl gathered on the 10th floor of the Time Warner Center on Monday night to toast Sheryl Sandberg, the Facebook executive who recently released a book about her life.
But another executive was drawing a crowd of his own: Richard Stengel, Time Magazine's managing editor. Throughout the evening, well-wishers made their way through the crowd to Mr. Stengel, among them Suze Orman, who told him how great she thought it was that Time was separating from its parent company, Time Warner, and striking out on its own.
The encouragement seemed heartfelt, but also framed by the timing and the setting. Only days before, Time Warner announced that it was spinning off its struggling magazine division, after failing to reach a deal to sell many of Time's magazines to the Meredith Corporation. And the high-wattage party, with Mr. Stengel as one of the hosts, seemed like just the kind of lavish expense that Time Inc. might have to leave behind as it confronts the steep financial challenges buffeting the magazine industry.
The new magazine company is expected to start with $500 million to $1 billion in debt, in contrast to the publishing company that the News Corporation will spin off this summer, which will have no debt. Circulation and advertising revenue at Time have suffered sharp declines.
In the three months that ended Dec. 31, revenue fell 7 percent, to $967 million, while revenue at Time Warner's cable channels has soared. After the split occurs, Time will no longer have the lucrative film and television assets to prop it up.
"It's sort of put up or shut up time," Mr. Stengel acknowledged. "I think great, let's really test that hypothesis that people will pay for great content and great journalism. We can now invest our own capital."
Time executives hope that they can build a company that can pour its profits into helping its magazines transition into the digital age, rather than hand them back to the parent company. They also hope that their new independent structure will let them restore the journalistic vision created by the founder, Henry Luce.
Analysts tracking the magazine industry point out that even though Time's profits have declined in recent years, the newly created company will remain by far the biggest player in the business. On its own, Time generates one-quarter of the revenue produced by the nation's top 50 magazines, according to data tracked by John Harrington, a magazine industry consultant.
He said that Time owned four of the nation's top 10 revenue-generating magazines—People, Sports Illustrated, Time and InStyle. Together they produce $3.1 billion of the $6.379 billion generated by the nation's top 10 grossing magazines, he estimated. People alone brings in $1.4 billion.
"Time as a whole is still the biggest force in magazine publishing," Mr. Harrington said. "They're an attractive group of magazines."
The announcement of the spinoff last week at least provided some clarity to nervous Time employees. On Jan. 30, Time said it would lay off 6 percent of its global work force, about 500 employees. Two weeks later, Time Warner announced it was in talks with Meredith, leaving those who had kept their jobs to nervously await word of the fate of their magazine, and whether they might have to relocate to Meredith's headquarters in Iowa.
Several current and former Time Inc. employees spoke about the unease at the magazines, requesting anonymity so they could publicly discuss private conversations. "This is for the most part a really nice place to work and people are happy to know that it will stay intact," said a current Time executive. "The layoffs were really hard. The uncertainty on the heels of the layoffs made it particularly painful. Some people were really nervous about this Meredith idea."
A former company executive who is still in touch with many employees said, "Morale dipped dramatically when the layoffs occurred just a couple of months ago. No merit increases were given. Bonuses were extremely low. Then rumors spread Meredith was going to purchase the magazines and morale dipped. Generally people are really pleased that Time is going to be given the opportunity to survive on its own."
Some employees blame Time Warner's chairman and chief executive, Jeffrey L. Bewkes, for the problems at Time, saying his priorities lay elsewhere.
"There was a real sense that Jeff didn't have either interest in Time and magazine publishing and didn't have faith in it as a business going forward," another former executive said. "His focus was always the film and TV side of the company."
In an interview with The New York Times last week, Mr. Bewkes said the spinoff was intended to help the magazines thrive and was in no way an indication of his lack of enthusiasm for the publishing business. "We still own it. Every one of us still owns it," Mr. Bewkes said.
Don Logan, the chief executive of Time from 1994 to 2002, noted just how challenging a task it was to transform a print magazine division for the digital age, even for Time, which has such strong brands.
"It's not an easy company to manage," Mr. Logan said. "It's hard to balance this. I don't fault anybody."
Time employees hope that as an independent company they now will be able to invest more in digital publishing, where they recognize they have plenty of catching up to do. Data provided by comScore shows that many of Time's Web sites, including CNN Money, Sports Illustrated and People, all experienced declines in unique users between February 2012 and February 2013. And one year after it announced the departure of Steve Sachs, the consumer marketing executive who helped convert the magazines for iPads and other electronic readers, Time has not found a replacement.
Current and former executives also hope that the new company can find the right leader, after missteps with its last two chief executives. Mr. Bewkes hired Jack Griffin in August 2010 then asked him to leave barely six months later, publicly rebuking his management style. After a nine-month search, he reached outside the publishing industry to hire Laura Lang, who had won accolades for transforming Digitas from a direct mail company to a successful digital advertising agency.
But her attempts to bring the same type of digital transformation to Time proved more difficult. She struck a deal with Apple to make Time's magazines available on the Apple newsstand, a major shift for Time, which previously shunned Apple's restrictions on subscriptions and consumer data. But several acquisitions she was considering were blocked by others at the company, according to a person with knowledge of the discussions. And as revenue fell she was forced to resort to the layoffs, which only alienated more employees.
Now, even as their future has become clearer, Time employees remain wary about what is to come.
"It's not like a piece is being fixed or its bureaucracy is going to be aligned," said a current Time executive, referring to the new company. "If you keep doing the same thing, you're going to have the same results."
Amy Chozick contributed reporting.