Time Warner plans to split off its cable services division to lift its sluggish stock price as it also reported quarterly earnings Wednesday that fell just short of Wall Street's expectations.
Chief Executive Jeffrey Bewkes has already taken steps to revamp the company, which also owns Time and the Warner Bros movie studios.
Time Warner has held discussions to merge its AOL online unit with Yahoo , sources have said.
"We've decided that a complete structural separation of Time Warner Cable, under the right circumstances, is in the best interest of both companies' shareholders," Bewkes said in a statement.
Time Warner owns about 84 percent of Time Warner Cable.
Bewkes's "statement provides some comfort to those expecting a separation," said Christopher Marangi, a portfolio manager at Gamco Investors, which owns Time Warner shares.
Now, investors will focus on AOL as another possible target for divestiture, Marangi added.
Time Warner's first-quarter earnings just missed Wall Street expectations as sluggish advertising sales at AOL offset gains at Turner cable networks and at the cable services division's digital phone and broadband services.
Net profit fell 36 percent to $771 million, or 21 cents per share, from $1.2 billion, or 30 cents per share, a year earlier, when the company booked a big gain from the sale of AOL's Internet access business in Germany and the unwinding of its cable partnership with Comcast .
Excluding an impairment charge for an investment in video game developer SCi Entertainment Group, profit was 22 cents per share, a penny below Wall Street forecasts compiled by Reuters Estimates.
A restructuring charge at New Line, which was folded into the company's Warner Bros studio, cut another $116 million from profits, or about 2 cents per share.
Revenue rose 2 percent to $11.42 billion, matching analysts' estimates.
Adjusted operating income before depreciation and amortization, or OIBDA, fell 1 percent to $3.1 billion.
AOL's quarterly revenue fell 23 percent to $1.1 billion, and adjusted OIBDA fell 25 percent to $405 million, due to lower subscription revenue.
Online advertising rose 1 percent.
Cable services revenue rose 8 percent to $4.2 billion, while OIBDA rose 7 percent to $1.4 billion.
The division added 55,000 net additional new basic video subscribers in the quarter.
Overall, Marangi said, Time Warner had a "decent" first quarter.
Time Warner stock has lost a third of its value since the beginning of 2007 as AOL's future continues to worry investors, who have also sent shares in the entire media-sector lower on fears of an advertising recession.
News Corp stock has fallen about 19 percent over the same period.
For the full year, Time Warner affirmed an earlier earnings forecast of $1.07 to $1.11 per share from continuing operations.
It also still expects adjusted OIBDA to rise 7 percent to 9 percent from a base of $12.9 billion in 2007.