Some analysts are beginning to wonder after seeing News Corp’s shares rise 11.6% from its decision last week. Time Warner would seem to be a natural candidate to try the same gambit: Like News Corp, Time Warner has a major publishing unit that many investors would like to ditch — and its stock could use a jolt after rising just 5.2% over the last 12 months. But analysts say that investors would be unimpressed if CEO Jeff Bewkes stole a page from Rupert Murdoch’s playbook. Time Warner’s publishing unit is much smaller than News Corp’s with $3.7B in revenues last year vs $8.5B for the owner of Dow Jones. “The relatively small size of the publishing segment suggests that a spin-off might prove to be too challenging” for Time Warner, says Dave Novosel of the independent corporate bond research service Gimme Credit. What’s more, he adds, Time Warner would feel the loss more acutely since its publishing company — with high-profile magazines including Time, People, and Sports Illustrated — had a profit margin of nearly 16% vs. less than 8% for News Corp’s. Novosel predicts that Time Warner’s publishing margins will fall this year as its domestic magazines lose advertising. Still, the unit could provide some ballast as the entertainment operations face their own challenges including the ratings slide at CNN, rising programming costs at TNT, and uncertainty at Warner Bros as it adjusts to declining DVD sales and the end of the Harry Potter film franchise.
Paradoxically, Bewkes also has less to prove to Wall Street than Murdoch does. Many buyers consider News Corp to be too complicated, and too subject to Murdoch’s deal-making whims. “Time Warner doesn’t suffer from either of those problems,” says Bernstein Research analyst Todd Juenger. Having unloaded its cable systems, music operation, and AOL, “it’s not a particularly complex company, and its management team is well regarded by investors.”