Very few companies have seen their fortunes improve to the degree that Time Warner (NYSE:TWX) has in the past five years. For that reason, I'm pleased to be able to fill Fools in on a recent presentation by the company's CEO Dick Parsons at the Merrill Lynch U.S. Media Conference.
The "presentation" actually involved a conversation between Parsons, Time Warner's leader of the past five years, and Jessica Reif Cohen, Merrill Lynch's longtime media analyst. The pair covered all the company's key entities -- cable, online operations, AOL, film/video-on-demand (VOD), and publishing -- providing informative detail on the status and prospects of each.
A changed form?
Reif Cohen began the conversation with a query about the likelihood of a change in Time Warner's current structure. But Parsons wouldn't bite, saying, "I wouldn't look for a radical change. We went through a period of time where everybody and his brother was looking at our company from the point of view of, are the parts greater than the sum of the whole? And the net conclusion people drew ... is the one that we've drawn internally that the whole is greater than the sum of the parts."
He did observe, however, that the newly public Time Warner Cable (NYSE:TWC) was given "its own bottom" (taken public in March) to permit it to participate in the further consolidation that he anticipates for the cable industry. The cable unit has joined industry leader Comcast (NYSE:CMCSA), along with Cablevision (NYSE:CVC), Charter, and Mediacom, among the ranks of the publicly traded cable operators.
Regarding the cable unit, of which 16% is now in the hands of the public, Parsons predicted double-digit top-line and bottom-line growth for the remainder of the business planning cycle of three to five years. As such, he expects it to join AOL and the cable networks as the company's primary growth drivers in the years ahead.
Hatches on offense
Parsons pinned much of the expectation for the cable networks' growth on the need to maintain the expansion of their digital operations. In that connection, however, he observed that CNN.com ranks as the largest news site online, with 26 million or 27 million "uniques" monthly. And because of the online unit's success, he said, "I worry more about CNN now than I'm worrying about CNN.com. I mean the online extrapolation is really quite good."
Following a wonderful mixed metaphor by Parsons ("We've kind of gotten the hatches battened down, and are looking forward to going back on offense"), the discussion shifted to AOL. AOL has been operating under a free subscription and paid advertising model for slightly over a year and is substantially healthier than it has been during most of this decade.
The other major change at AOL has been the sale of the European subscriber-access component. According to Parsons, "Europe is a market where we were competing almost head-to-head with the utilities' bundled product. We couldn't win that fight."
Big gorilla
The film business discussion, which Parsons believes is going to have a terrific year, focused primarily on the various aspects of video-on-demand (VOD). I personally continue to believe that VOD is a potentially terrific functionality for cable whose development is being retarded by an array of involved special interests. In essence, Parsons confirmed that thesis: "Everyone's afraid that it's [VOD's] somehow going to upset the 800-pound gorilla, Wal-Mart (NYSE:WMT) or the Best Buys (NYSE:BBY) of the world."
With publishing, from whence Time Warner originally sprang, the pruning of magazine titles -- which has occurred steadily for more than a year -- is unlikely to abate. As Parsons explained, the number of titles had ballooned from fewer than 40 a dozen years ago to about 150 at the beginning of last year. The "culprit" has been acquisitions, because the acquisition of three beneficial titles usually comes packaged with three or so other titles. Therefore, the company has just begun to weed through the less appealing titles, either through sales or closure.
But while Parsons and his team are being far more disciplined than they were in the past about the titles they retain, the publishing unit appears unlikely to be jettisoned in its entirety anytime soon, as some -- including yours truly -- have predicted. According to Parsons, "We're not looking to move our publishing company out, or to do something more esoteric with it."
So there you have it: a multifaceted media company that, on Parsons' watch, has been honed, pruned, and polished -- and that has performed well for its shareholders. It's a company that, I'd suggest, deserves the attention of Foolish investors who just might be on the prowl for solid media opportunities.
For related Foolishness:
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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He does welcome your questions or comments. Wal-Mart is an Inside Value selection. The Motley Fool has a disclosure policy.
