Time Warner (TWX) shares are down 10.8% so far this year, lagging most other large cap media stocks. News Corp (NWS) is down 6.1%, Disney (DIS) is down just 3.7%, and Viacom (VIA) is down 5.2%.
The largest single component of TWX’s valuation is Time Warner Cable (TWC), whose shares are down less than 1%. This suggests that investors are placing less value today on TWX’s content assets than they were to start to t the year. In fact, you could say that the content assets have been devalued by much more than 10% since TWC makes up at least one-third of the total value of TWX. This makes the comparison to NWS and DIS even more appalling for TWX shareholders.
TWX’s key content assets are Cable Networks, Filmed Entertainment, and AOL. Led by good ratings and strong scatter advertising the TV nets are performing well this year. Filmed Entertainment is also having a good year on flattish box office a gain of around 20% in DVD units.
The business mixes of NWS and VIA are fairly similar to TWX’s content businesses. VIA lacks a big internet business while NWS has MySpace and TWX has AOL. Speaking of AOL, if you follow the preceding analysis of TWX’s other segments it seems that the incremental valuation destruction at TWX this year must be coming from investor’s views of AOL. It is well known that AOL has suffered a sharp slowdown in advertising growth. This may be investors to question the long-term strategy of redeveloping AOL as an ad-based business. I’ve long been skeptical of this transition because I believe AOL has a very weak brand. AOL represents Web 1.0 not Web 2.0….

….Further exacerbating concerns over AOL is the stunning silence from TWX management while the Microsoft-Yahoo dance continues. Chris Atayan has forcefully argued that TWX is missing a chance to rid itself of its AOL problem. The problem has only grown larger this year as outlined above.
Carl Icahn is still messing around trying to rescue his massive loss in Motorola. Maybe he should end his truce with TWX.