Media and entertainment giant Time Warner will spin off Time Inc., parent company of TIME, into a separate, publicly traded company, Time Warner said in a statement Wednesday. The decision to separate Time Inc. from Time Warner came after talks to sell most of Time Inc.’s magazines to Des Moines-based publisher Meredith Corporation ended without an agreement. The spin-off is just the latest sign of the rapidly changing media landscape as the Internet continues to disrupt traditional publishing business models.
“A complete spin-off of Time Inc. provides strategic clarity for Time Warner Inc., enabling us to focus entirely on our television networks and film and TV production businesses, and improves our growth profile,” Time Warner Chairman and CEO Jeff Bewkes said in a statement. “Time Inc. will also benefit from the flexibility and focus of being a stand-alone public company and will now be able to attract a more natural stockholder base.”
In 2009, Time Warner spun off Time Warner Cable, now the nation’s second largest cable company. And later that year, the company spun off Internet pioneer AOL. “As we saw with the prior spin-offs of Time Warner Cable and AOL, we expect the separation will create additional value for our stockholders,” Bewkes said. Time Warner shares climbed 1.41% in after-hours trading. A Time Warner spokesperson declined to comment beyond the press release.
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Time Warner had been in negotiations to sell Time Inc. to Meredith, which publishes Better Homes and Gardens and Ladies Home Journal. Under the initial terms of the deal, Time Warner would have maintained ownership of TIME, Fortune, Sports Illustrated and Money. But after those talks concluded without an agreement, Time Warner decided to proceed with a total spin-off of Time Inc., which is expected to be completed by the end of 2013.
“We respect Time Warner’s decision and certainly remain open to continuing a dialogue on how our companies might work together on future opportunities,” Meredith CEO Stephen Lacy said in a statement.
Time Inc. has been buffeted by decreasing advertising revenues due to lower magazine advertising demand, as marketers increasingly shift their spending elsewhere, including the Internet. The publisher has also faced declining revenues due to lower domestic and international newsstand sales. In 2012, Time Inc. revenue declined by 7%, and operating income decreased by 25%.
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Still, Time Inc.’s share of 2012 domestic advertising led the industry at 21.5%, up from 21.0% in 2011, according to Publishers Information Bureau data cited in Time Warner’s year-end financial report.
Time Inc. CEO Laura Lang will stay on through the spin-off process until a successor has been identified. “Laura indicated to me that we should find a different kind of CEO for this new public company, and I respect her decision,” Bewkes said in the statement. “She has been a great partner who has given Time Inc. forward momentum to make this transition possible, and I look forward to working with her to select the right leader to head the company as an independent entity.”
The Time Inc. spin-off is just the latest indication of how rapidly the media landscape is changing. Rupert Murdoch‘s News Corp. is also in the process of separating itself into two independent companies. Fox Group will contain News Corp.’s most lucrative entertainment businesses, including Hollywood movie studio 20th Century Fox, the FOX broadcast network and cable news leader Fox News Channel, as well as the company’s new sports network, Fox Sports 1. A much smaller publishing entity, which will keep the name News Corp., will include the company’s newspapers, its education business, and the HarperCollins publishing house.
(MORE: What News Corp.’s Breakup Means for the Future of Murdoch’s Media Empire)
Last month, The New York Times Co. announced plans to sell The Boston Globe, and cable giant Comcast said it would spend $16.7 billion deal to buy the remaining half of NBCUniversal from General Electric. Earlier in February, John Malone’s cable giant, Liberty Global, announced a $16 billion deal to buy British cable company Virgin Media. And there have been rumors that U.K. education titan Pearson might put the Financial Times up for sale, although new Pearson CEO John Fallon recently told reporters that the salmon-hued newspaper is not on the block.
Time Inc. was founded in 1922 by Yale classmates Henry Luce and Briton Hadden, and the first issue of TIME was published on March 3, 1923. The magazine is currently celebrating its 90th anniversary. Time Inc. announced a merger with Warner Communications in 1989, a deal that was formally completed the next year, creating Time Warner, one of the largest entertainment companies in the world.
In a memo to Time Inc. employees, Bewkes wrote: “Although change can be unsettling, I am confident that you have the fortitude to stay focused on what Time Inc. does better than anyone: produce great journalism that your readers and audiences love. That great legacy will live on as Time Inc. embarks on this new journey as a publicly-traded company.”