Tune Into an Increasingly Focused Time Warner

by Tom Taulli | March 7, 2013 2:16 pm

Tune Into an Increasingly Focused Time Warner

Not long ago, it seemed likely that Time Warner (NYSE:TWX[1]) and Meredith Corp. (NYSE:MDP[2]) were going to combine their consumer magazines into a separate, publicly traded company, as the two companies were in serious discussions[3].

The talks ended in no deal, though, and now TWX has announced plans to spin off its magazine publishing unit[4], Time Inc. The new company will still be publicly traded and the deal is expected to be completed by the end of the year.

Time Magazine certainly has an assortment of great brands, inlcuding Sports Illustrated, Better Homes & Gardens, People and Family Circle. In fact, according to a report from AP[5], the unit could fetch a value of $2.5 billion or so.

Still, the magazine business has been in a secular decline — and one that has accelerated over the past few years because of the huge growth in tablets from Apple (NASDAQ:AAPL[6]) and e-readers from Amazon (NASDAQ:AMZN[7]). For the most part, the magazine unit has become a distraction and has weighed down on TWX’s performance.

Instead, the growth driver for TWX is the premium content business … and the prospects for the business certainly look bright. For example, TWX has gotten traction from its original programming for cable, such as TNT’s Dallas and TBS’ Men at Work.  Broadcast TV has also been healthy, with hits like The Voice, Revolution, 2 Broke Girls, The Following and Mike & Molly.

There is also plenty of sports content, with coverage of Major League Baseball, NBA, NASCAR and NCAA. And as for the film businesses, TWX still knows how to crank-out billion-dollar franchises. This was the case last year with The Dark Knight Rises and The Hobbit.

Plus, in today’s digital world, premium content is actually becoming a hot commodity. TWX has demonstrated this by pulling off licensing deals with Amazon.com and Netflix (NASDAQ:NFLX[8]). There have also been lucrative arrangements in Europe, such as with pay-TV operators.

On top of that, TWX has been working to focus more on this business. The spin-off of Time Inc. is actually not unusual considering it unloaded Time Warner Cable (NYSE:TWC[9]) and AOL (NYSE:AOL[10]) since 2008.

As should be no surprise, TWX’s shareholders have benefited nicely. For the past three years, the average annual return was an impressive 24%. In fact, last year the company paid $1 billion in dividends and purchased more than $3 billion of its stock — or 8% of the shares outstanding.  The company also recently put in place another repurchase program for up to $4 billion.

And as premium content continues to provide steady growth — with drivers like healthy demand in emerging markets and the proliferation of digital platforms — it’s a good bet that the company will continue to be careful with its strong cash flows, with an emphasis on share buybacks and dividend increases.

Tom Taulli runs the InvestorPlace blog IPO Playbook[11]. He is also the author of “How to Create the Next Facebook[12]” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders[13].”Follow him on Twitter at @ttaulli[14]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. TWX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWX
  2. MDP: http://studio-5.financialcontent.com/investplace/quote?Symbol=MDP
  3. in serious discussions: http://investorplace.com/2013/02/3-reasons-a-time-meredith-magazine-marriage-makes-sense/
  4. spin off its magazine publishing unit: http://investorplace.com/2013/03/time-warner-to-spin-off-magazines/
  5. AP: http://business.time.com/2013/03/06/time-warner-spinning-off-time-inc-magazines/
  6. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  7. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  8. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  9. TWC: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWC
  10. AOL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AOL
  11. IPO Playbook: http://investorplace.com/ipo-playbook/
  12. How to Create the Next Facebook: http://www.amazon.com/gp/product/1430246472/ref=s9_simh_gw_p14_d0_i1?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-3&pf_rd_r=0GRB6ZMCTYDZVNG7Q7NV&pf_rd_t=101&pf_rd_p=470938811&pf_rd_i=507846
  13. High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders: http://goo.gl/pR2F3
  14. @ttaulli: https://twitter.com/ttaulli

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