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As Times Change, Vice Media Looks Like A Worthy Gamble For Time Warner Inc

As Times Change, Vice Media Looks Like A Worthy Gamble For Time Warner Inc
By: Martin Blanc
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It has only been a day since Time Warner Inc (TWX) spun off its ailing publishing business, Time Inc. (TIME), but the media behemoth is not wasting time searching for a viable business that could potentially fill that void.

Sky News reported yesterday that Time Warner is considering taking a sizable stake in Vice Media – a global news and entertainment company that has taken a markedly different approach to the media business. The report mentioned that discussions between the two have reached an advanced stage, and a deal could involve Time Warner taking a 50% stake in Vice Media for around $1.1 billion.

 

The development marks Time Warner’s shift away from print publishing to pursue opportunities in digital publishing.

As part of the deal, the media giant is also planning to assimilate its HLN news channel with Vice’s operations. An exchange of HLN’s TV assets in return for a stake in Vice has not been ruled out either. Sources close to the matter say that a deal could be announced very soon. Representatives of both companies have not yet denied or confirmed reports of a tie-up.

Time Warner Inc. stock rose 1.2% yesterday during normal trading.

Ramping Up New Media Presence

Vice Media was founded as a local magazine in 1994 in Montreal by incumbent CEO Shane Smith, Suroosh Alvi, and Gavin McInnes. The company has since expanded and diversified into many other categories, and has grown rapidly into a full-scale media brand with several websites and ambitious goals.

 

The Vice Media brand now includes an advertising agency and a music record label, and is involved in the production of documentaries and TV shows which are distributed in partnership with companies like Time Warner and Viacom Inc. (VIAB). Last year, Vice came out with a newsmagazine-style TV show on Time Warner’s HBO channel. It has also worked closely with Viacom’s MTV unit previously to produce and air entertainment shows.

More recently, the company has set itself apart by covering dangerous warzones, running provocative and impactful content with bold headlines, and focusing on style that screams ‘different.’ Its willingness to set itself apart is also evident from the fact that the company is now based in Brooklyn, New York – a refreshing change from Manhattan, where media companies usually make their nest.

The brand has also increasingly catered to a wave of younger users, focusing on social shareability and viral content. Vice operates many popular YouTube channels, and has partnerships with a number of media outlets that run its content on their websites. It generates close to 220 million monthly unique visits.

Its rapid growth has invited the interest of traditional media conglomerates. Last year, Rupert Murdoch’s Twenty-First Century Fox (FOXA) acquired a 5% stake in the company for around $70 million, valuing the enterprise at close to $1.4 billion. Time Warner’s willingness to pay a higher premium for Vice comes as a result of the former’s increased willingness to pay for an attractive new media business that stands out from the rest.

Other shareholders in Vice Media include The Raine Group, former Viacom CEO Tom Freston, and the London-based ad agency WPP Plc. The company’s co-founders have generally kept a tight control over the business by retaining their stakes, and analysts believe they will do the same in the agreement with Time Warner.

With a tie-up likely involving the exchange of Time Warner’s HLN channel, formerly Headline News, Vice could end up with a highly-prized TV channel that it can leverage to ramp up distribution of its content and drive its way forward in the social news space.

Letting Go Of Time Inc.

Time Warner’s move to invest in new media part is not unwarranted. The company has completed an unceremonious spinoff of Time Inc. – its struggling publishing segment that controlled several print and online magazines, including its namesake Time Magazine, Fortune, People, and Sports Illustrated – and needs another stable revenue stream with strong growth prospects.

The Time Inc. segment had been plagued for years, with subscription rates and revenues falling in 22 of the last 24 quarters, and bloated legacy costs driving down earnings. Last year, Time Inc. reported $370 million in earnings – a considerable decline from almost $1 billion in 2006.

The print magazine business is essentially dying, and Time Warner said that the publishing segment had become a burden on its stock price, thereby necessitating a spinoff. With a market cap of around $2.6 billion, the independent Time Inc. is now a pure-play on magazine publishing for investors willing to take the bet.

Time Warner still keeps its profitable CNN Money division for business news, which is part of its Turner broadcasting segment. Other segments which the media giant has retained include film studios, such as Warner Bros., and premium cable network HBO.

Shares of Time Inc. started trading on the New York Stock Exchange yesterday under the ticker symbol TIME. They declined 0.77% through the day to close at $23.30.

Is Time Warner’s interest in acquiring Vice Media warranted? Leave your thoughts below, and our analyst will respond as soon as possible.

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