Time Warner to shed cable business, struggles continue

In a move that may have serious implications on the possibility of a future AOL + Yahoo pairing, Time Warner said Wednesday that it will be spinning off its cable division.

Time Warner owns about 84 percent of the cable provider, and its CEO said in a statement that a "complete structural separation" will be in the best interest of its shareholders.

It is not immediately clear how the spin-off will be handled, or how much of a stake in the new company Time Warner will retain. However, it said a deal was being worked out, and something will be announced "soon."

News of the split comes as the company continues to struggle. First quarter net income fell 36 percent to $771 million. Profits at its AOL division plummeted 73 percent as revenues shrunk from its ISP business.

When Time Warner first announced AOL was exiting the ISP business, it promised the division would make up for lost revenues through ad sales. That hasn't happened: it reported only a one percent increase in ad sales for the period.

Shareholders have begun to press for results, and CEO Jeff Bewkes seems to be responding to those calls. It may not be the last Time Warner division to be tossed aside either: rumors about that AOL is being offered to Yahoo.

Time Warner may also be interested in selling AOL as soon as possible with a Microsoft-Yahoo deal possibly on the horizon. If that goes through, the list of possible suitors would shrink, say industry insiders.