Time Warner Embraces Content, and a Truly Scary Ad Market (TWX)

Time Warner's (TWX) new message: Forget about cable systems. And prepare to forget about AOL. We're a content company now, focused on our TV networks, film and TV studio, and HBO. That strategy is getting a welcome reception in the press and Wall Street, but it has a distinct downside: it's making Time Warner a lot more advertising-dependent, just as the U.S. moves squarely into an advertising recession.

Before the spinoff of of its cable unit, Time Warner was the least dependent on advertising of the major media conglomerates, relying in it for a mere 19% of revenue. But the spinoff of Time Warner Cable (TWC), meant that the company also got rid off a big chunk of revenue not tied to advertising: cable subscription fees. As a result, the percentage of Time Warner revenue derived from advertising rose 9% to 29%, based on the conglom's Q2 numbers.

If Time Warner succeeds in finding a buyer for AOL's dail-up access business, the company becomes even more ad-dependent, and will rely on advertising for 32% of revenue. That brings the company more in-line with its more content-focused peers like Viacom (35%) and News Corp. (39%) and further away from Disney (20%), which has so far weathered the downturn nicely, even though it owns a hard-hit broadcast network and local TV stations.

Time Warner has little choice: the cable system confused investors and AOL's dial-up business is on a slow trip to zero. Moreover, Time Warner shares have languished with both in the portfolio, so worth a try divesting them. And it would also very much like to find a buyer for the AOL content business as well.

Here's how the media conglomerates measure up in terms of exposure to advertising after Time Warner's cable spinoff, according to Sanford Bernstein and our own analysis:

Disney (DIS): 20%
Time Warner (TWX): 29%
Viacom (VIA): 35%
News Corp. (NWS): 39%
CBS (CBS): 69%

Time Warner Embraces Content, And A Truly Scary Ad Market (TWX)