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Time Warner to Shed Time

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In a strategic move to unlock the value of its core business activities, Time Warner Inc. (TWX - Free Report) decided to go ahead with its plan to spin off Time Inc. magazine into a separate, publicly traded company. The news of the divestment, which is expected to be completed by the end of the year, pushed the shares of this Zacks Rank #3 (Hold) company up by 78 cents or 1.4% to $56.24 during after-market trading hours.

The move to shed Time Inc. followed the negotiation between Time Warner and Meredith Corporation (MDP - Free Report) to create a magazine based company, which eventually did not materialize. 

Management believes that the decision to offload Time Inc., which includes brands such as People, Sports Illustrated, InStyle, Time, Real Simple and Fortune, would augur well for Time Warner, as this would facilitate the latter to concentrate purely on television networks and film and TV production businesses. The company's magazines boast over 110 million readers nationwide per month, and its websites witness traffic of approximately 50 million every month.

The decision would be accretive to the shareholders of Time Warner in the same fashion, when this diversified media conglomerate divested Time Warner Cable Inc. and AOL Inc. into independent companies. Laura Lang, the CEO of Time Inc. would renounce her position once the new successor is found but in the meanwhile would continue to assist the company through this transition.

The secular headwinds and the migration of advertisers to the Internet due to increasing online readership have been hurting the publishing business, and Time Inc. remains no exception. According to the data released by Publishers Information Bureau, U.S. magazine advertising revenues dropped 3% to $21 billion in 2012. Time Warner’s Publishing division’s revenue fell 7% to $3.4 billion reflecting a 5% decline in both advertising and subscription revenues and a 21% drop in other revenues.

Another media company, News Corporation (NWSA - Free Report) has decided to split into two separate publicly traded publishing and media and entertainment entities. There has been immense pressure from shareholders to divest the publishing arm, which has been grappling with lower operating profit compared with the entertainment unit. The Publishing Company will comprise publishing businesses, education unit and the integrated marketing services business. On the other hand, Entertainment Company will include cable and television assets, filmed entertainment, and direct satellite broadcasting businesses.

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