Time Warner’s talks with Meredith Corp about combining their magazines in a separate company collapsed today. But here’s Plan B for the media giant: It will spin off its publishing arm into an independent, publicly traded entity, likely by year end. Until recently, Time Warner execs scoffed when asked whether they’d consider mimicking News Corp, which is spinning off its newspaper assets. Now, though, Time Warner CEO Jeff Bewkes says the idea provides “strategic clarity” that will enable his company to “focus entirely on our television networks and film and TV production businesses.” Time Inc will need a new CEO: Laura Lang told Bewkes that “we should find a different kind of CEO for this new public company, and I respect her decision,” he says. She’ll stay on through the spin off process and will help identify a replacement.  Meredith, the publisher of Family Circle and the Ladies’ Home Journal, said today that Time Warner initiated talks to blend their assets. CEO Stephen Lacy adds that he remains “open to continuing a dialogue on how our companies might work together on future opportunities.”

Wall Street has been eager to see Time Warner cut loose the magazine unit which — like most publishing companies — has been battered by competition from digital media. Operating income for the Time Inc properties fell 25.4% last year to $420M while revenues dropped 6.6% to $3.4B. But Bewkes has been coy about his intentions. Just this week he told an investor conference that he “would not” consider magazines to be a non-core asset. Although Time Warner’s talks with Meredith had been widely reported, he added that “the press is very active. Who knows if they know what they’re talking about?” Time Inc’s most valuable properties include Time, Sports Illustrated, Fortune, Real Simple, and Money. The magazine company is worth about $2.9B, Morgan Stanley’s Benjamin Swinburne estimates.

The Time Inc spin off might be seen as the most important step in the dismantling of the media empire assembled in the 1990s, largely by former CEO Jerry Levin. It kicked off with the merger of Time Inc and Warner Communications. Executives assured those who feared that entertainment values would overwhelm the news operations that the added income from movies, music, and TV would provide financial protection for Time Inc. — and that the businesses could grow synergistically. That theory collapsed as Time Warner, and then AOL Time Warner, evolved into a collection of warring fiefdoms.  Since Bewkes became CEO in 2009, Time Warner has spun off AOL and Time Warner Cable.

Here’s Time Warner’s release:

 

NEW YORK – March 6, 2013 – Time Warner Inc. (NYSE:TWX) today announced that its Board of Directors has authorized management to proceed with plans for the complete legal and structural separation of Time Inc. from Time Warner. Following the proposed transaction, Time Inc. would be an independent, publicly traded company. Time Warner aims to complete the proposed transaction by the end of the calendar year.

Time Warner Chairman and Chief Executive Officer Jeff Bewkes said: “After a thorough review of options, we believe that a separation will better position both Time Warner and Time Inc. A complete spin-off of Time Inc. provides strategic clarity for Time Warner Inc., enabling us to focus entirely on our television networks and film and TV production businesses, and improves our growth profile. Time Inc. will also benefit from the flexibility and focus of being a stand-alone public company and will now be able to attract a more natural stockholder base. As we saw with the prior spin-offs of Time Warner Cable and AOL, we expect the separation will create additional value for our stockholders.”

Time Inc. CEO Laura Lang has advised Time Warner that she will stay on through this process and will help in identifying and selecting a successor. “Laura indicated to me that we should find a different kind of CEO for this new public company, and I respect her decision,” Bewkes said. “She has been a great partner who has given Time Inc. forward momentum to make this transition possible, and I look forward to working with her to select the right leader to head the company as an independent entity.”

After the proposed separation is completed, Time Inc. will continue its mission as the leading multi-platform publishing and branded content company, reaching nearly half of U.S. adults each month and millions of consumers around the world.

The proposed transaction will be structured as tax-free to Time Warner stockholders. The transaction is contingent on the satisfaction of a number of conditions, including completion of the review process by the Securities and Exchange Commission of required filings under applicable securities regulations and the final approval of transaction terms by Time Warner’s Board of Directors.