Time Warner Has 2008 Operating Loss on
$15 Billion Cable Charge

Jan 7, 2009  •  Post A Comment

Time Warner Inc. said today that it had a 2008 operating loss, compared with a 2007 gain of $8.9 billion, on $25 billion worth of fourth-quarter impairment charges. The charges were primarily related to franchise rights of Time Warner Cable, which TW spun off two years ago and whose shares it plans to sell.
Time Warner, whose operating income was $6.23 billion for the first three quarters of 2008, also will take charges related to its publishing and AOL units, the company said in a statement today. Time Warner, whose divisions include Turner Broadcasting and HBO, reports 2008 earnings next month.
Time Warner Cable, which has about 14 million cable subscribers, will record a fourth-quarter impairment charge of $15 billion related to the cable franchise rights, or about 40% of its stated third-quarter value, the company said in a separate statement today. That’s in addition to a $350 million charge related to its investment in wireless broadband service provider Clearwire Corp.
The No. 2 U.S. cable company, whose net income through the first three quarters of 2008 was $820 million, said it may further adjust impairment charges when it releases its 2008 financial results next month.
“Historically, franchise impairments have been taken primarily when the probability of renewal is in doubt,” wrote Craig Moffett, analyst for Sanford C. Bernstein, in a note to clients today. “In this case, however, the writedown appears to be purely an acknowledgement of prevailing market values.”
Moffett added that Time Warner Cable’s writedown may cause Comcast, the largest U.S. cable company with about 24 million subscribers, to do the same.
In November, Time Warner Cable cut its 2008 revenue growth forecast to 8% from 9%, though maintained its August forecast of 2008 earnings of as much as $1.15 a share. That month, Time Warner Cable said third-quarter earnings rose 21% to $301 million as an increase in telephone and high-speed Internet customers more than offset a loss in cable subscribers to satellite and telecommunications services. Time Warner Cable’s third-quarter revenue from video subscriptions dropped 4% from a year earlier, compared with an 8% increase in companywide sales.
More recently, Time Warner Cable narrowly avoided the blackout of 19 channels owned by Viacom last week after the companies tussled over carriage fees. They reached a New Year’s Day agreement, preventing the blackout.
Time Warner, which spun off Time Warner Cable in a January 2007 initial public offering but still owns about 84% of it, said in April that it would sell its stake in the cable company. Time Warner also said today that 2008 earnings would be cut by about $280 million because of a judgment last month against its Turner Broadcasting division stemming from the sale of its winter sports teams.
Time Warner shares fell 6.3% today while Time Warner Cable’s stock dropped 4.8%.


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