Will News Corp. Split Encourage Time Warner to Spin Off Magazines?

Media Conglomerates' Circumstances Are Actually Very Different

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News Corp.'s decision to divide itself into separate entertainment and publishing companies has sparked speculation that Time Warner could be next.

Time magazine last year on the News Corp. scandal
Time magazine last year on the News Corp. scandal

The company has long heard suggestions that it spin off its Time Inc. magazine division, accompanied by arguments that the magazines would benefit from a more entrepreneurial environment and pleas to let investors buy shares in the businesses they really want: TV and movie operations such as Turner Broadcasting and Warner Bros.

As News Corp. made its momentous decision last week, Pivotal Research analyst Brian Wieser renewed the calls for a Time Inc. spin-off. Such a move would "represent a continuation of broader industry de-consolidation among many of the industry's former conglomerates paired with specialization focused on video," he wrote. "With that de-consolidation, much of the industry has now approached a point where a meaningful number of companies have a broadly similar focus on video production, programming and packaging."

But some analysts say it's unlikely the media giant will consider a News Corp.-like split in the near future.

Yes, Time Warner 's publishing division -- like most of the industry -- is under pressure. Time Inc., whose magazines include People and Sports Illustrated, reported a 3% drop in revenue to $773 million in the first quarter, with ad revenue and subscription revenue down 5% and 2%, respectively. Revenue at Warner Bros., by comparison, increased 7% to $2.8 billion.

And Time Warner has split off other divisions in recent years, spinning off its Time Warner Cable division and AOL in 2009, drastically simplifying the business.

But the circumstances for Time Warner are very different than for News Corp., which continues to deal with the aftermath of the phone-hacking scandal and ensuing bribery allegations. London police arrested three more people as part of their investigations into those matters this week. And a judge ruled Wednesday that Glen Mulcaire, the private investigator who has been jailed for phone hacking, had to identify the person who told him to intercept voicemails for the now-defunct News of the World.

News Corp. investors' appetite for a newspaper spin-off was only heightened by the scandal, said Morningstar analyst Michael Corty. There is no such fuel for a separation at Time Warner .

Investors in News Corp. had also watched unhappily at times as the company bought yet more newspapers, Mr. Corty added. "Separating the publishing at News Corp allows that entity to have an M&A strategy that does not affect the entertainment business," he said. "Time Warner does not have this issue with Time Inc., as they are not acquisitive with publishing."

Time Inc., too, has a new-ish CEO in Laura Lang, who arrived from Digitas in January and hasn't had time to implement her priorities yet. Bain & Co. consultants hired to help identify areas for Time Inc. to focus on only recently finished their work.

Finally, Time Inc.'s focus on magazines, not newspapers, makes a split less likely, said David Joyce, analyst at Miller Tabak, in an email. Magazines have struggled with changes in the media landscape, but not to the extent that newspapers have.

Time Warner declined to comment on any possibility of a split.

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