Time Warner's Spinoff Of Time: A Dying Company

| About: Time Warner (TWX)

"It was the best of times, it was the worst of times…"

-Charles Dickens, "A Tale of Two Cities"

Time Warner (NYSE:TWX) has announced it is spinning off its shrinking and underperforming Time Inc. publishing unit. The move will allow the company to focus on its growing television and movie divisions. The company is in a sense, following the Dickens quote above, separating its good unit from its bad unit. The question is will anyone buy stock in the new Time Inc. public company?

The tax free spinoff to shareholders will include a slate of magazines that are amongst the best and most widely read in the country. Among the brands owned by Time Inc. are:

· All You, CNNMoney.com, Coastal Living, Cooking Light, Entertainment Weekly, Essence, FanNation, Fortune, Golf, Health, InStyle, Life, Money, My Home Ideas, My Recipes, People, People en Espanol, People Stylewatch, Real Simple, Southern Living, Sports Illustrated, Sports Illustrated for Kids, Sunset, This Old House, Time, Time for Kids

According to one source, Time Inc has eight of the top 50 circulated magazine brands in the United States.

The magazine unit has been struggling to grow, as less people read weekly and monthly magazines with the vast amount of news and opinion available on the Internet. Newsweek, one of the longest running magazines, closed stopped producing its physical print magazine and shifted to an entire digital presence. Time Inc. has adapted well to the digital transition and even claims that its namesake magazine was the first to launch a tablet edition.

Time Warner claims to have a 21.5% market share of the domestic magazine advertising segment. The company also reports 49.8 million monthly visitors to its websites in December. However, the unit continues to struggle financially and make up less of Time Warner's total value and revenue. In fiscal 2012, here is the breakdown of Time Warner's business segments:


Operating Income


$14.2 billion, +4%

$4.9 billion, +10%

Film and Television

$12.0 billion, -5%

$1.2 billion, -3%


$3.4 billion, -7%

$0.5 billion, -20%


$28.7 billion

$6.1 billion

As you can see, publishing represented the smallest percentage of revenue and operating income. The unit made up 12% of revenue and only 8% of Time Warner's operating income. Publishing revenue was down 7% in fiscal 2012, hurt by subscription revenue, advertising revenue and other revenue.

· Subscription revenue: $1.2 billion, -5%

· Advertising revenue: $1.8 billion, -5%

· Content revenue: $91 million, +8%

· Other revenue: $316 million, -21%

The new public company will compete against several privately owned magazine companies.

· Conde Nast owns magazine brands like Allure, Bon Apetit, House & Garden, GQ, The New Yorker, Vanity Fair, and Vogue.

· Hearst Corporation owns over 300 magazine brands around the world. Among the well known brands from the company are: Harper's Bazaar, Cosmopolitan, Elle, Seventeen, and Car and Driver.

Time will compete with one publicly traded company that could give investors a good idea in what to expect. Meredith Corporation (NYSE:MDP) owns 18 magazines including: Better Homes, Family Circle, Parents and Fitness. Meredith actually had discussions with Time Warner over starting a joint venture with several of the company's brands.

Meredith has also been a victim of declining magazine subscriptions and advertising revenue. In the company's last fiscal year, its national media segment saw declines in advertising revenue and other revenue. Overall revenue declined to $1.06 billion from a previous $1.08 billion. Meredith has been a strong investment for some, as despite its declining revenue it pays out a strong 4% dividend yield and continues to reward shareholders going forward.

If you own shares of Time Warner, you will receive shares of the Time Inc business. I would sell this spinoff and keep shares of Time Warner. I also won't consider investing in the Time Inc company, unless it has a high dividend. If you're looking for a pure play on magazines, consider Meredith as it has a small growing local television segment that could power the company's profits and eventually be spun off.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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