Jan. 7 (Bloomberg) — Time Warner Inc., the owner of HBO and AOL, will report its first annual loss in six years after writing down the value of its cable-system, publishing and Internet assets by about $25 billion in the fourth quarter.
The shrinking U.S. economy hurt advertising at the AOL and publishing units more than anticipated, the world’s largest media company said today in a statement. A $281 million verdict against its Turner Broadcasting System and the bankruptcy of Lehman Brothers Holdings Inc., a tenant in the Time & Life building, also hurt results.
“It’s a little startling they didn’t have a handle on this decline in advertising,” said Fred Moran, an analyst at Stanford Financial Group in Boca Raton, Florida. “The trends were readily available, so this downward adjustment is definitely surprising.”
The recession and falling consumer confidence have compelled companies to cut marketing. TNS Media Intelligence issued a report Dec. 11 saying U.S. ad spending fell 1.7 percent through September. Even as the Internet unit is attracting more users, advertising sales are “disappointing,” Chief Executive Officer Jeffrey Bewkes said last month at a conference in New York.
The ad decline “probably continued to accelerate in November and December,” said David Joyce, an analyst at Miller Tabak & Co. in New York. “Maybe they were still hoping that there would be some last-minute salvage around the holiday selling season.”
2008 Loss
New York-based Time Warner now anticipates a loss for 2008 after forecasting a profit from continuing operations of as much as $1.07 a share in November. The November projection was a reduction of a previous earnings outlook of as much as $1.11. Analysts in a Bloomberg survey expected profit of $1.06.
The company last reported an annual net loss in 2002, when it posted a shortfall of $98.7 billion, at the time the biggest in U.S. history. The loss stemmed from a charge to reflect the declining value of AOL and the cable systems, a year after America Online Inc. bought Time Warner Inc.
Time Warner fell 73 cents, or 6.7 percent, to $10.25 at 11:45 a.m. in New York Stock Exchange composite trading after earlier slipping as low as $9.97. The stock lost 39 percent of their value last year.
Excluding depreciation and amortization, adjusted operating income rose about 2 percent last year from a 2007 base of $12.9 billion, compared with the company’s previous projection of 5 percent. The revised forecast comes a month after Bewkes was named chairman, replacing Richard Parsons.
AOL Deals
Since becoming CEO a year ago, Bewkes has explored possible deals for AOL with Yahoo! Inc., Microsoft Corp. and Google Inc. Last month he said talks were still under way. In 2007, AOL accounted for 11 percent of revenue at Time Warner, down from 17 percent the year before.
On Dec. 9 jurors found that Turner Broadcasting System broke a 2003 oral agreement to sell the National Basketball Association’s Atlanta Hawks and the National Hockey League’s Atlanta Thrashers to Texas businessman David McDavid. TBS has asked a state court judge to throw out the $281 million award.
Time Warner is increasing its reserves by $40 million to cover potential losses from bankrupt customers, including Circuit City Stores Inc. and Woolworths Group Plc in the U.K., spokesman Ed Adler said in an interview.
Cable Growth
Time Warner Cable Inc. said today that it expects to record a pretax charge of about $15 billion and a loss for last year.
The second-biggest U.S. cable operator wrote down the value of its investment in Clearwire Corp. by $350 million. Chipmaker Intel Corp. today wrote down its stake in Clearwire, which is building a wireless mobile-phone and Internet network, by $950 million. Intel also reported fourth-quarter sales that trailed forecasts.
Time Warner Cable CEO Glenn Britt said in December that customer growth had slowed “dramatically” and demand for premium services continued to decline. In November, the company cut its 2008 sales forecast, citing slower subscriber growth and less revenue from pay-per-view services, premium channels and digital-video recording rentals.
Time Warner Inc. is disposing of its 84 percent stake in the cable unit because it no longer needs in-house distribution for CNN, HBO and its other networks. Time Warner Cable fell $1.20, or 5.3 percent, to $21.45 in New York.
Time Warner Inc. is scheduled to report its financial results Feb. 4. Chief Financial Officer John K. Martin is scheduled to address a Citigroup Inc. conference at 4:40 p.m. in Phoenix.
To contact the reporters responsible for this story: Greg Bensinger in New York at [email protected]; Sarah Rabil in New York at [email protected]
Last Updated: January 7, 2009 11:59 EST
By Greg Bensinger and Sarah Rabil
Source: Bloomberg