Time Warner’s Digital Magazine Moves Provide Little Stock Upside

February 15th, 2011 by Trefis Team
TWX: Time Warner logo
TWX
Time Warner

Time Warner (NYSE:TWX) competes with other media and broadcasting companies like Disney (NYSE:DIS), News Corp (NASDAQ:NWS), CBS (NYSE:CBS), Viacom (NYSE:VIA) and New York Times (NYSE:NYT) in the media and entertainment business. Our price estimate for Time Warner’s stock stands at $35.51, which is roughly in line with market price.

The trend to go digital has affected all form of media, including magazines. Time Warner has moved to offer subscriptions to its magazines like Sport Illustrated and People on connected devices. More specifically, the company recently announced an offering for Samsung’s Galaxy tablet and Android-based smartphones that bundles digital content and print versions of magazines at a single price. [1] The company will also offer a similar deal for its Sports Illustrated and People magazines on HP’s upcoming tablet.

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Why This Move?

Magazines have been forced to adapt to the digital shift to stay competitive. The trend has necessitated offers of digital content as a complement to print business. Hybrid business models of physical and digital media are nothing new (from newspaper publications to Netflix), and this appears to be the next frontier for magazines. Newspapers like The Wall Street Journal already offer bundled packages, but the landscape remains relatively uncharted for magazines. [2]

See our full analysis and $35.51 price estimate for Time Warner

How Does this Affect Time Warner?

While offering magazine content on Android-based phones does provide a substantial mobile distribution platform, penetration of the tablet market goes through the iPad. While no immediate plans exist in this regard, Time Warner has expressed interest in ultimately bringing its offering to Apple’s gadgets. However, if we look at the big picture, such a development might not yield much upside to Time Warner’s stock value, which primarily relies on the company’s TV and movie entertainment businesses.

We estimate that magazines constitute only 12.4% of Time Warner’s stock value, with Sports Illustrated representing just 2.5% and People contributing another 4.2%.

The interactive chart above showcases the affect of changes in Sports Illustrated subscribers on Time Warner’s stock value. As illustrated in this chart, the company’s stock value is rather insensitive to this metric.

Notes:
  1. Sports Illustrated unveils another digital app subscription plan, Reuters, Feb 11 2011 [↩]
  2. Time Inc. Strikes Blows for Publishers in Standoff with Apple, Forbes Blogs, Feb 11 2011 [↩]