Time Warner’s Restructuring

Time Warner’s (NYSE: TWX) shares have gone nowhere during the past five years and shareholders have been crying for radical action. The Company has appointed Jeff Bewkes as the new CEO. He is expected to turnaround the entertainment conglomerate by taking some tough decisions.

Here’s what I think Time Warner should do.

Combine Time Inc. with AOL and spin it off as a separate entity. This will allow the Company to better leverage both the businesses. AOL can use the high quality content of Time Inc. to build its verticals. Time Inc. would find a strong user base for its historically print business that needs to reinvent itself online in a meaningful and profitable way.

Time Inc. has a host of high quality magazines, especially in the Lifestyle segment. Time has some wonderful properties like Cooking Light, Essence, InStyle, Health magazine, etc. which could be great to integrate into AOL’s Content/Advertising. AOL also needs to leverage Time’s Entertainment, People and EW.com better.

Similarly, AOL can better leverage Time’s Sports Illustrated, GOLF and Fan Nation to grow its sports vertical. AOL could also emerge as a major player in the Business & Finance space by integrating Time, Fortune and Money. Today CNNMoney.com, while a very successful Business & Finance property online, is caught in a strange and dysfunctional organization structure.

The synergies are all there, but the organization is tangled up.

My core thesis is that old media companies need to organize around vertical audiences, not media type (print, online, tv). It is the audience that advertisers are trying to reach, and increasingly, with online video and IPTV, all forms of media are eventually going to be delivered over the Internet.

The organizing principle for media companies needs to change.