Can Media Company Spinoffs Like CNN and CNBC Be Beneficial for Investors?
Spinoff excitement is sweeping through the media landscape, but the key question remains: Can these new standalone brands thrive independently? Recent history presents a mixed bag of successes and failures, providing both cautionary tales and potential opportunities for savvy investors.
The Current Landscape of Media Spinoffs
Major players in the media world are making bold moves. Comcast Corp. (CMCSA) is at the forefront, preparing to separate its cable channels, including CNBC and MSNBC, to form a new entity called Versant. Similarly, Lionsgate Studio Corp. (LION) has just launched Starz Entertainment Corp (STRZ) by spinning off its cable channels. Meanwhile, whispers abound that Warner Bros. Discovery Inc. (WBD) is considering spinning off its cable properties, which could feature heavyweights like CNN, Discovery Channel, Cartoon Network, and TBS.
Executives herald these moves as strategies to "unlock value" and pave the way for future growth. However, this rhetoric is eerily reminiscent of spinoff efforts a decade ago when many media companies divested their newspaper and magazine businesses from their TV divisions.
Lessons from History: A Cautionary Tale
The results from past spinoffs were decidedly mixed. Many ended up being acquired by larger firms, leading us to ponder if these recent separations will provide lucrative opportunities for investors. As Jim Friedlich, CEO of the Lenfest Institute for Journalism, notes, “There is a distinction between a value-creating spinoff and an asset cast-off.” The success of a spinoff often hinges on several critical factors:
- Debt and Cash Position
- Parent Company’s Involvement
- Management Team Competence
Friedlich emphasizes that if investors are convinced about the brand strength, management track record, and the parent company’s commitment, they’re more likely to invest.
Evaluating Past Media Spinoffs
To gauge how these current spinoffs might perform, let’s take a closer look at some significant precedents.
Gannett
In 2015, Gannett split into two entities: Gannett Co. Inc. (GCI) and Tegna Inc (TGNA). Gannett entered the market with virtually no debt and a strong growth plan. Initially, shares surged to $14.37, and in its first year, revenue soared to $3 billion. Yet, subsequent challenges arose, such as a $1.4 billion merger with GateHouse Media, which loaded Gannett with $1.8 billion in debt.
Fast forward to 2024, Gannett’s revenue has plummeted to $2.51 billion, and it faces a net loss of $26.4 million. Its stock is now languishing around $3.50, representing a 75% decline since its initial launch.
Tribune
Tribune Publishing Co. provides a stark lesson in spinoff struggles. Emerging from a long bankruptcy in 2014, it spun off its newspaper properties but started with $350 million in debt and no cash. After poor performance, major stakeholders sold off their shares, causing the stock to tumble below $8 within a year.
Eventually, the company led to changes in management and identity, turning into Tronc Inc. By 2023, investors had lost complete faith in the brand, leading to a buyout by Alden Global Capital.
News Corp
In contrast, News Corp (NWSA) initiated successful spinoff strategies in 2013, emerging with $2.6 billion in cash. Though it faced challenges like declining newspaper revenues, it successfully repositioned itself, increasing its earnings significantly over the years.
As of 2024, revenue climbed to $10.1 billion, showcasing a resilient transition despite past hurdles.
The Fate of Time Inc. and Meredith Corp.
The split of Time Warner Inc. in 2014 into Time Inc. saw initial optimism but quickly turned sour, with shares dwindling to around $12.50 within two years. Eventually, the burden of stark market decline led to its acquisition by Meredith Corp. Culinary magazines thrived, but the fate of Time’s illustrious titles became a cautionary tale.
The Critical Question: Will New Spinoffs Be Worth the Investment?
As we glance into the future of media spinoffs, the question remains: Will these new companies prove to be wise investments? Investors are advised to keep a close eye on vital metrics like financial health, management effectiveness, and strategic positioning in changing markets. Spinoffs can be a double-edged sword—while they present opportunities for growth, they also carry risks underscored by past failures.
For those willing to navigate this uncertain terrain, the potential rewards can be significant. The drama of spinoffs continues, and only time will tell which stories will flourish and which will falter.
For more insights into media trends and investment strategies, consider checking reputable financial news sources such as MarketWatch or Bloomberg. Exploring these resources can provide a deeper understanding of market dynamics and emerging opportunities.
