The new company will have its own board and management so it can develop ''distinct strategies" apart from Fairfax Media's traditional news and publishing business. Shareholders will receive shares in the new company and no new capital will be raised.

"The time is right for Domain to consider taking this next step," chief executive Greg Hywood said in a statement to the market on Wednesday.

"It has achieved the scale in revenue, earnings and audience needed to operate as a standalone listed entity."

Fairfax shares are up 7.5 per cent on Wednesday following the announcement.

Analysts value Domain itself at about $3 billion on current earnings trajectory. 

Fairfax chairman Nick Falloon said separating into two companies will potentially attract new shareholders to Domain who have "different investment criteria".

"This strategic initiative arises from the Board's determination to maximise returns for Fairfax shareholders from Domain Group, which is positions for strong long-term growth."

Domain's costs are expected to increase by up to $10 million annually after the separation as it funds its own board and listing costs and takes responsibility for "corporate costs currently borne by Fairfax but attributable to Domain, and commercial agreements with Fairfax for certain services".

Meanwhile Fairfax's half year accounts show the company experienced a 4.7 per cent decline in revenue to $913 million, but increased post tax profit by 6 per cent to $85 million.

It will pay an interim dividend of 2 cents franked at 70 per cent.

The company revealed it now has 226,000 digital subscribers to its news products and saw a 22 per cent increase in digital subscription revenues.

Metropolitan media division, which includes newspapers like The Age, The Sydney Morning Herald and The Australian Financial Review, experienced a 16 per cent decline in advertising revenue to $124 million. Circulation revenue improved slightly to $115 million. A decline in expenses means the metro newspapers increased their pre-tax earnings by 42 per cent to $24 million.

Subscription video on demand service Stan, which Fairfax co-owns with Nine Entertainment Company, now has more than 700,000 subscribers. Stan is now expected to break even during the next financial year.

And the major radio stations in which Fairfax has a majority stake - 3AW in Melbourne and 2GB in Sydney - saw a slight improvement in advertising revenue to deliver pre-tax earnings of nearly $12 million.

Shareholders are also keen on the Domain sale, with manager of Thorney Opportunities, Alex Waislitz, saying "it makes complete sense to list Domain separately and allow the market to assign a proper value to both Domain and the group's remaining media assets".  His listed investment fund owns about 50 million shares in Fairfax.

In November 2016 management warned Domain's earnings in the first half of 2016-17 will be "slightly below the prior corresponding period due to listings softness". There was a 'temporary blockage' in listings as vendors held off selling their home until the lengthy Federal election finished and the government settled its superannuation policies.

Fairfax advised it has seen improvements in listings in February following the weak performance in the second half of last year.

More to come