Time Warner’s long experiment of trying to create a vertically integrated media content and distribution giant finally came to a merciful end yesterday with the news that it would get rid of its entire stake in the nation’s #2 cable company, Time Warner Cable (TWC), by the end of 2008. It’s a move that’s been expected for some time now, as shareholders have been screaming for the company to find a way to boost its lagging share price. By ridding itself of the debt-laden cable firm, Time Warner will once again become a pure content company focused on movies, television, and publishing — both online and of the magazine variety. All I can say is, it’s about freaking time.
Oh, what a difference a decade makes. It was roughly 10 years ago when AOL bought Time Warner with the grand delusion that the massive new AOL Time Warner would be a competition-killing monster that could devour rivals by leveraging powerful content and distribution brands that all work together in mass media bliss. I won’t get into the specifics about why it failed so miserably — it’s been covered ad nauseum by me and everyone else — but Time Warner to this day is still paying for the mistake in the form of not only the aforementioned poor share price and debt, but also the downright shame of having what it hoped would be a winning strategy instead become an embarrassing, if not arrogant, debacle.
While I understand what Time Warner gains from the divestiture, I really don’t see what sort of upside there is for TWC, aside from the independence to go its own way in an increasingly competitive market. The details of the divorce contain a couple eyebrow raising elements. TWC will have to pay a one-time dividend to Time Warner totalling $10.9 billion, all of it borrowed. And that’s on top of the $13 billion in debt the company already has on the books. That’s a heck of a lot red ink for any firm, much less one that’s just gained independence. TWC CEO Glenn Britt rationalized the dividend by calling it, “a statement of our confidence in our business.” I call it evidence that someone needs to introduce a pair of scissors to his credit card.
How will this split help Time Warner? It’ll allow the company to cut two-thirds of its $34 billion debt load, and free it up to focus on content and even consider getting back into the acquisitions game. But that’s just speculation. Time Warner’s next order of business should be finding someone stupid enough to buy AOL, an ISP that’s been dying a slow death and a major albatross around the media giant’s neck. Seriously, do you know anyone that uses dial-up anymore? When was the last time you heard that fingernails-on-the-chalkboard equivalent that is the sound of a phone modem firing up? I don’t think it’ll be too much longer before Time Warner is forced to just shut AOL down and take its lumps with a loss.
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