Time Warner (NYSE: TWX), the world’s largest media company, known for everything from CNN to Superman, is made up of five main divisions. They are AOL, with its interactive operations; Time Warner Cable (NYSE: TWC), which features high-speed digital phone and cable; Film and Entertainment, which is the television, video and distribution division, Network, which features their cable and broadcast networks; and Publishing, which is largely their print magazine division.
Time Warner Cable is a publicly traded company of which the parent company, Time Warner, owns 84%. The Network division is largely comprised of the former Turner Broadcasting System properties, most notably CNN. Publishing has the magazines Sports Illustrated, Time Magazine, and Fortune, and DC Comics which publishes Superman, Batman and other super heroes.
Time Warner, with its $60 billion market cap and its $46.5 billion in revenues last year, has been a moribund media giant. In 2001, they undertook the merger with AOL, which has been a drag on operations. Unlike the prior assimilation of the Turner Broadcasting System, which provided the stellar addition of CNN, Time Warner has not been able to figure out how to utilize AOL or unlock any real value.
As for earnings, Time Warner has a $1.17 per share number over its last twelve months, and is expected to earn $1.10 in 2008 and $1.24 in 2009. Not great, but steady. This may be modified by whatever strategic developments it undertakes, particularly if it sells AOL. The stock price took a massive hit after 2000, plunging straight down from the heights of $90 plus per share to the depths of the teens, where it has mostly languished. It has traded in the 14.64 to 21.97 range in the last year, and closed recently at 16.49. What catalyst can the business operations bring to get the stock price going again?
Time Warner is reportedly looking to either unload AOL or partner with perhaps Microsoft (NYSE: MSFT) or Yahoo (NASDAQ: YHOO). With Time Warner’s heavy debt load, $36 billion in long-term debt along with $10 billion in short-term debt, despite its heavy cash-flows and revenues, Time Warner doesn’t have a lot of financial maneuvering room for additional acquisitions, probably a good thing.
While there are some non-media companies that are much larger than Time Warner, such as Exxon-Mobil (NYSE: XOM) with its market cap the size of a small planet at $470 billion and consumer products giant Procter and Gamble (NYSE: PG) at $203 billion, the question arises as to why isn’t Time Warner working better. A couple of simple things, perhaps. Time Warner’s bigness is not working for it, but against it. The five divisions, while four of them have thriving brands, assets and are currently decent operationally (AOL being the exception if not the eyesore), are not well integrated.
The word streamline comes to mind. Under new CEO Jeff Bewkes, who took over this year, Time Warner is under a mandate to streamline. Some small cuts in the publishing division have occurred. With the print media facing an extremely difficult competitive environment and future regarding both circulation and advertising revenue, this seemed inevitable. But what else can be done, other than the obvious shedding or linking up of AOL to a more appropriate partner? The other four divisions will no doubt face scrutiny if not cost cuts, but whether that will be enough to make the giant nimble is anyone’s guess.
One other thing Time Warner might look at is better integrating some of their media properties. It does not seem that they have utilized their brand names very well or been able to create more potent synergies among, say, print and internet, or even tv film and network, in ways that highlight their strengths. This is not a conglomerate of disparate businesses, of say, cement trucks and fast-food restaurants, so they need to get busy here. There is potential.
Media is a fast moving business, getting faster all the time. The present and the future will belong to those who can bring the considerable assets up to date while anticipating how to grow new assets and strengthen the overall mix for the future.
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