Parts worth more than the whole
The Time-Warner media empire is still the largest in that category, even though it has over the past decade dumped both its music and its book-publishing divisions. But the pressure is strong on new CEO Jeffrey Bewkes, who is under heavy pressure to goose the value of Time-Warner's shares.
According to a Bloomberg News story ("Time Warner May End Reign as Largest Media Company", 12/27/09), Bewkes's only real move may consist of splitting up the company. The only question is how much he will get rid of.
While Bewkes's predecessor (Richard Parsons) managed to stabilize the company and get it into the black (after the AOL bubble burst), he hasn't managed to increase shareholder value. In fact, the stock lost 23 percent of its value in 2007. As one analysts is quoted as saying in Bloomberg article, "Some of the supposed benefits of size, the synergies across the different businesses, have not been realized."
It's no secret that the company is eager to get rid of its AOL holdings. Time-Warner switched the declining Internet access division's strategy in 2006, making it a free service that would make up for the lost (and dwindling) subscription revenue with new ad revenue, based on the model That effort has fallen short: the ad revenues have not replaced the subscription fees, and AOL is not seen as a destination portal by the majority of users. It's hard to believe it, but, according to some Analysts, AOL might fetch as much as $18 billion.
The next step, according to the analysts, is to spin off Time-Warner Cable, a profitable business that combines strong profits and a strong market position (#2 in the US after Comcast). In 2007, the company sold off 18 percent of the company in a public offering.
Next to go would be the Time Inc. magazine business. That division is flat in terms of revenue, and unlikely to have great growth potential. While digital versions of some of its pubs have done well, print versions are losing ad revenue. An industry observer is quoted in Folio ("What a Time Inc. Spin-Off Might Look Like". 11/15/07) explains why the company would get rid of the division.
Bewkes is not a magazine guy, which I think is very important. He's a TV guy. And I think that when you get right down to it, the core properties that Bewkes knows about and cares about are the video and movies, not print. Because even if they invest heavily in developing new digital versions of their magazines, it's going to cost money. Meanwhile the revenue is going to continue to be flat to declining.
The remainder could be a movie and TV company about half the size of the current one, with $21 billion in revenue. It would include the Warner movie studios, and TV networks CNN, TBS, and HBO, among others. As the article points out, this would be a configuration similar to that of the current Viacom, which went through a similar split-up route a few years ago. Viacom's stock market performance has been far better.
Each of these new companies (with the exception of AOL), would be #1 or #2 in its field. Each would have more focused management with more freedom of action. There is no doubt that, in this case, the sum of the parts will be greater than the whole.
