TW delivers mixed earnings report

Jeff Bewkes addresses Wall Street

By DADE HAYES

Time Warner posted mixed fourth-quarter results Wednesday, but the focus was on new chief exec Jeff Bewkes, who delivered newsy New Line items in an otherwise close-to-the-vest overview of the conglom's strategic direction.

Bewkes, the longtime company vet who took the helm Jan. 1, tackled a range of topics during an hourlong conference call with Wall Street analysts. Among the highlights:

Bewkes said New Line will be the focus of budget cuts and layoffs. The company expects the move to save $50 million a year.

The specific microscope on New Line within the context of a $50 billion media conglom raised some eyebrows.

"There's real value in New Line as an independent label and brand with its own slate of movies, and New Line's had great success with certain genres of films that are not historically in the sweet spot of large studios," Bewkes said. "But with the recent trend toward fewer movie releases across the industry and given the greater importance of overseas revenues, there's the obvious question about whether it still makes sense for us to have two completely separate studio infrastructures and Warner and New Line."

One New Liner said while "nobody is jumping up and down" in response to the news, the sense is that cuts could resemble those undertaken in 2000 when about one-quarter of the staff was let go. That pullback came amid the doldrums of "Town & Country" and "Little Nicky" and preceded the bullish run that kicked off in earnest with the first "Lord of the Rings" pic in 2001.

New Line toppers Bob Shaye and Michael Lynne have had talks with Bewkes in recent weeks as they reach the end of their contracts, and have met with deep-pocketed investors to explore their options should they want to leave the conglom. But Wednesday's earnings call did nothing to support rumors of their setting up a new company, and even the folding in of certain New Line ops into Warners remains, for the moment at least, a theoretical scenario.

"The only thing they're asking for is that the movie operation overall make more money and be more efficient," noted the New Line insider. "That leaves open a lot of possibilities."

Asked by one analyst whether the New Line cuts were focused on improving profits just at New Line or throughout the company, chief financial officer John Martin -- also on his first earnings call since taking over Jan. 1 -- said Warner Bros. offers a model.

Other notes from Bewkes speech:

n AOL will be split into two businesses, one for ad-driven general traffic and the other for the traditional access biz. Some analysts said this could set the stage for a sale of one of the parts. Several Wall Street analysts have said the access business -- which has slipped below 10 million subscribers from a historical high of almost 27 million -- could fetch at least a couple of billion dollars in a sale. The ad-driven side of AOL could then be spun off or taken public a la Time Warner Cable.

n Talks are under way with the management and board of Time Warner Cable about changes in the parent company's 84% ownership stake. The likely scenario is a spinoff, but Bewkes did not rule out a buy-in given weak valuations in the cable biz. A resolution to the talks is expected by April.

n Amid talk of a spinoff of publishing, Bewkes affirmed a commitment to Time Inc., echoing past regimes' predictions of growth coming from the Web.

Investors seemed pleased with the day's happenings, as shares perked up almost 2% to $15.68. They have been stuck in the mid-teens for most of the past five years.

Filmed entertainment revenues climbed 13% to $3.5 billion and operating income soared 63% to $253 million thanks to "I Am Legend" and the latest "Harry Potter" installment.

Comparisons were difficult between the current quarter and a year ago, given the year-ago sale of AOL access businesses in the U.K. and France that netted $769 million. Counting that item, profit fell 41%.

Without it, adjusted operating net gained 16% to $3.5 billion. Revenue was up 2% to $12.64 billion.

For the full year ended Dec. 31, net income of $4.4 billion was off 33% from $6.6 billion, though again there were uneven comparisons. Revenues rose 6% to $46.5 billion.

The company lowered its 2008 growth forecast to the 7% to 9% range.

AOL continues to dominate the news about Time Warner, though the latest quarter showed its revenue making up less than 10% of the company's total for the first period since the ill-fated merger in 2000.

Bewkes also addressed the news of the week regarding Microsoft and Yahoo, saying the deal only underscores the value of AOL. He also said the company is in regular contact with Google, and said the split of AOL into two units would not be any "cause for concern" in regard to Google's 5% stake in AOL.

Google has a put option on the stake that is set to come due in the summer. Time Warner could also buy back their stake at fair market value at that time.