Time Warner’s Spinoff Plan Returns to Basics

With the confirmation on Wednesday that it would spin off its Time Inc. magazine division, Time Warner, once a colossus that included dominant cable and Internet companies, a book publisher and music unit, completed an evolution over several years into a pure cable television and movie production company.

The author of much of this transformation is Mr. Bewkes, himself a product of the company’s cable television division, who as chief executive has overseen the spinoffs of AOL and Time Warner Cable (the Warner Music Group and the Time Warner Book Group were shed before he was chief).

The strategy highlights Mr. Bewkes’s confidence in its high-margin cable channels like TNT, TBS and HBO, which brought in $3.67 billion in revenue in the most recent quarter. The latest spinoff also is an example of a philosophical shift in the media industry away from rapid acquisition and growth. It addresses the lingering fallout of the company’s recent corporate marriages (most notably AOL’s $103.5 billion acquisition of Time Warner in 2000) that ended badly, becoming case studies in M.B.A. programs on how not to run a company.

“This follows a long evolution of Time Warner from a decade ago, shrinking down to its core TV and film assets,” Benjamin Swinburne, a media analyst at Morgan Stanley, wrote in a recent report titled “Time Warner Inc.: The Final Spin.”

In an interview Mr. Bewkes said he did not set out to slim down the company. The spinoffs of Time Warner Cable and AOL, he added, provided additional value to shareholders and allowed Time Warner to more than double its earnings in the last five years. “The reason is those core assets” of cable channels and the Warner Brothers studio, he said.

He rejected the idea that Time Warner no longer wanted to own Time Inc. and magazines like People, InStyle and Sports Illustrated. The split will give Time Warner investors shares in Time Inc., though details have not yet been disclosed.

“We own it. Every one of us still owns it,” Mr. Bewkes said. “It’s just a separate piece of paper so it can have stronger equity return.”

That piece of paper, though, will contain the magazine that was the foundation for the modern company. Assembled in 1990 with the merger of Time Inc. and Warner Communications, Time Warner has in its history the storied dealmaker Ross, a former chief executive who also owned parking lots and funeral homes.

Time Inc., while profitable, had for the last several years stood out as the company’s weak spot. Time Warner’s walking away from a potential deal with the Meredith Corporation and the hurried announcement of the Time Inc. spinoff signaled to some inside the publishing company that its parent cared more about investors than the future of its celebrated magazines.

“Journalists are a prickly bunch of folks, and they managed to upset all of them,” said Michael W. Robinson, executive vice president of Levick, a Washington-based crisis communications firm.

The deal that would have spun off some of Time Inc.’s magazines into a separate company with Meredith was always the company’s “second choice,” said a person involved in the negotiations who would discuss them only privately.

Mr. Bewkes said he never wanted to sell Time Inc. “We have never, ever considered or discussed with anyone selling any of our magazines ever,” he said.

The spinoff strategy has made Mr. Bewkes popular on Wall Street. “Jeff in particular is reflective of a new style of management versus the folks who put these companies together,” said Douglas Mitchelson, a media analyst at Deutsche Bank. In the past, he added, it “was very difficult for media C.E.O.’s to take on what is essentially a shrinking of their power base.”

But Mr. Bewkes has company. Rupert Murdoch is preparing News Corporation for a split. Sluggish newspapers like The New York Post will soon form a separate entity from News Corporation’s profitable cable channels like Fox News and FX. And in 2006, Sumner M. Redstone split his companies, Viacom and the CBS Corporation.

“They’re starting to look a lot more like us,” a Viacom executive who would discuss the competition only anonymously said of Time Warner.

Article source: http://www.nytimes.com/2013/03/08/business/media/time-warners-spinoff-plan-returns-to-basics.html?partner=rss&emc=rss