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Blue Chip Investing: Diving Back into Time Warner

Posted December 28, 2007

"After more than six years in an AOL-induced depression, Time Warner needs to do something, anything to get back its former vitality, even if that means sacrificing its position as the largest media company in the world." — Stephanie Grimmett.

by Stephanie Grimmett

Baltimore —(TFN): Time Warner (TWX: NYSE) may soon revive the old bounce in its step and the spring in its stock price if the company’s new CEO fulfills predictions.

Jeffrey Bewkes will takeover as CEO for Time Warner next week, and rumors are running rampant about his plans for the world’s largest media company. Bewkes could be planning to streamline the company, spinning off one division and selling two others.

And those changes could make Time Warner a viable investment again.

After more than six years in an AOL-induced depression, Time Warner needs to do something, anything to get back its former vitality, even if that means sacrificing its position as the largest media company in the world. The company has only held that moniker since the AOL buyout… and that move was such a good one for the company (yes, I’m being sarcastic).

AOL bought out TIme Warner for $124 billion in 2001, creating the largest media company on the planet. And the ensuing fiscal debacle, known in Wall Street lore as the death rattle of the tech bubble, ended with record losses (as in, the largest reported losses in the history of public companies, worldwide) and the shamefaced exits of CEO Gerald Levin and Chairman Stephen Case.

Ever since that day, when AOL sucked all of the energy out of the company, Time Warner has been limping along trying to make something good out of its bloated and graceless size.

As a media superpower, Time Warner has been more The Blob than King Kong. No one could ever explain to me why I should be afraid of a pile of red Jell-o with the velocity of a sloth and no recognizable thought processes. And the same goes for Time Warner. It’s size has made it slow and ineffective instead of producing a company that was efficient and cheaper to run per unit.

But word on the street is that Bewkes could change all of that. Jeffrey Bewkes headed up Time Warner-owned HBO, presiding over the premium cable channel’s transformation from a movie conduit to a showcase of superlative original series. And he moved the AOL division away from a failing Internet service company and to a free e-mail and Internet portal that made its money not from users but from advertisers.

AOL hasn’t seen those advertising dollars make up for its lost subscribers, though. And when he sits down in the hot seat of Time Warner, Bewkes may decide that selling the company to someone willing to concentrate on its transformation is a better idea than pouring more funds down its gullet.

Bewkes could also spin off his company’s cable television division. Time Warner Cable produces plenty of earnings. Up until the last quarter, when the company’s movie studios surged ahead, it led Time Warner in growth every quarter for the last three and a half years. But the division has high amounts of debt and capital spending that require a separate balance sheet, an accounting mess that may cost Time Warner more than it’s worth.

And today’s technological climate has put cable companies in a losing position to exactly those advances that benefit Time Warner’s other major divisions. The emergence of online and mobile viewing is giving a boost to the movie studio and television channels in Time Warner’s stable, while becoming a growing detriment to its cable company. And no one wants their company’s divisions at odds with each other.

Possibly the most important pruning, at least symbolically, could be the Time, Inc. division. Yep, Time Warner may sell the Time half of its name, including the eponymous magazine, People, Sports Illustrated, InStyle and Fortune, among a miriad of other publications.

After all of the trimmings, Time Warner would be left with its motion picture studios and its cable television channels. If Bewkes does decide to cut his losses and run with a pure movie and television production company, Tiime Warner stock may react badly initially but thrive in the long run.

We have to wait and see what Bewkes’ first moves will be, but his track record says he’s not afraid of drastic overhauls in the name of profits. And a good housecleaning could be exactly what Time Warner needs to start moving again.

Either way, don’t worry about searching for information, we’ll keep you updated on all of Time Warner’s moves here at Today’s Financial News. All you have to do is check your TFN newsfeed subscription to find out when to jump back into this media giant.

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Posted by Stephanie Grimmett · Filed Under News that Matters 

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