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Time Warner swings to loss on hefty writedown

February 05, 2009|Meg James

Time Warner Inc. said Wednesday that it swung to a fourth-quarter loss because of the diminished value of its cable television and AOL operations and a weaker performance by its film and magazine units.

The company took $24.2 billion in write-downs, with nearly two-thirds coming from Time Warner Cable, which is expected to become a stand-alone company this quarter. Separately, Time Warner Cable said it planned to lay off 1,250 workers because of a slowdown in sign-ups brought on by the weak economy.

Parent company Time Warner said it lost $16 billion, or $4.47 a share, for the quarter ended Dec. 31. Its net loss compared with net income of $1.03 billion, or 28 cents a share, for the fourth quarter of 2007. Revenue slipped 3% to $12.3 billion.

The company was hampered by lower revenue at the Warner Bros. movie and television studios in Burbank and softening advertising sales at AOL and the publishing division that features Time and People magazines.

"Film contributed to most of the shortfall in revenue," said Chris Marangi, an analyst for Gabelli & Co., whose affiliate, Gamco Investors Inc., owns Time Warner shares. "Looks like it was the same trend we saw at Disney with the softening DVD sales."

On Tuesday, Walt Disney Co. reported a 32% drop in quarterly net income with weakness at its film studio, ABC television network and theme parks. On Wednesday, Standard & Poor's changed Disney's outlook to negative from stable although it affirmed the company's A credit rating.

Analysts were alarmed by Disney's plummeting sales of DVDs, which have been a longtime media cash cow.

"We remain cautious regarding current DVD trends and we expect the industry to stay challenged as long as there is broader softness in consumer spending and retail," Time Warner Chief Financial Officer John Martin told analysts Wednesday.

Barclays Capital media analyst Anthony DiClemente said he was surprised Time Warner blamed the slowdown in DVD purchases on "cyclical trends" rather than a shift in consumer behavior. In contrast, Disney Chief Executive Bob Iger told analysts that sluggish DVD sales also suggested that people were looking elsewhere for their entertainment, including the Internet.

Not even strong DVD sales of "The Dark Knight" could rescue Warner Bros. Fourth-quarter revenue at the filmed entertainment division dropped 11% to $3.1 billion, although operating income climbed 7% to $271 million. Martin warned that the first quarter would be difficult because it had only five DVD releases compared with 13 for the first quarter of 2008.

Time Warner's television networks largely dodged the advertising ad-recession bullet that has wounded its competitors. Credit strong ratings at TNT, TBS and CNN. The cable news channel's audience swelled because of the intense interest in November's historic presidential election.

Revenue to the company's TV networks, including HBO, increased 9% to $2.9 billion. In another bit of good news, consumers appear to be holding on to their HBO subscriptions. The premium channel ended 2008 with about 29 million subscribers -- the most ever.

The company disclosed last month that it would be taking the write-downs, including a $14.8-billion noncash charge to better reflect the diminished value of Time Warner Cable's franchise rights.

The publishing unit, which has seen a steep decline in ad revenue, was reduced by $7.1 billion, and the value of AOL, which the company has been trying to sell, was lowered by $2.2 billion.

Time Warner executives predicted that earnings would be flat this year. The company must absorb several restructuring charges, including $100 million at Warner Bros. from the elimination of 800 jobs.

For the year, the company reported a loss of $13.4 billion, or $3.74 a share, compared with profit of $4.39 billion, or $1.17 a share, in 2007.

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meg.james@latimes.com

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Bloomberg News contributed to this report.

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