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New Time Warner Chief Focuses on Consolidation

By Frank Ahrens
Washington Post Staff Writer
Thursday, February 7, 2008

In the first five minutes of his first address as head of the world's largest media company yesterday, Time Warner chief executive Jeffrey L. Bewkes said:

¿ The company is looking to fold its New Line Cinema movie studio into the larger Warner Bros.

¿ AOL's declining Internet-access business will be split from its growing advertising business.

¿ Time Warner is working on an ownership change at Time Warner Cable, possibly completing the spinoff of the cable unit.

Then, Bewkes got on to the more prosaic news of discussing Time Warner's fourth-quarter and full-year 2007 earnings, released yesterday.

And then he took a breath.

HBO veteran Bewkes, 55, took over for Time Warner Chairman Richard D. Parsons, who stepped down as chief executive Jan. 1. Bewkes charged out of the gate yesterday, saying his remarks are "the start of a straightforward, ongoing dialogue," and adding that "I will tell you as much as I can."

He takes over a $57 billion media and entertainment company, the result of a troubled merger with AOL in 2001 that resulted in company stock losing as much as 80 percent of its value. Time Warner shares have fallen 7 percent in the past year.

Bewkes addressed the stock slide right off the bat yesterday, saying he is working to "increase the value of the company and the stock price."

Wall Street responded favorably to Bewkes's remarks, pushing Time Warner stock up nearly 10 percent in midday trading before it closed up 31 cents, to $15.71, despite the report of a year-over-year drop in earnings.

For the fourth quarter of 2007, the company reported a profit of $1.03 billion (28 cents a share) on $12.64 billion in revenue, compared with a profit of $1.75 billion (44 cents) on $12.34 billion in revenue in the fourth quarter of 2006.

For all of 2007, Time Warner reported $4.39 billion in profit ($1.17) on $46.48 billion in revenue, compared with $6.55 billion in profit ($1.55) on $43.69 billion in revenue for all of 2006.

In addition to Time Warner Cable, AOL and the movie studios, Time Warner owns the 125 titles of its Time Inc. publishing arm, HBO and the cable networks of Turner Broadcasting System, such as CNN.

Bewkes confirmed yesterday what has been hinted at for months: Time Warner will split AOL into two pieces, which he labeled "access" and "audience," a process he said will take several months.

The access piece is AOL's dial-up business, which has been losing subscribers by the millions as they switch to high-speed Internet access. The audience piece includes AOL's extensive Web operations and its advertising business. AOL's ad revenue rose 18 percent last year, to $345 million.

Bewkes said Time Warner would run the two parts of AOL separately, but industry analysts think AOL's Internet-access business will be put up for sale after the split.

Time Warner Cable became publicly traded last year, though only 16 percent of the company is open to general shareholders. Time Warner holds 84 percent of the industry's second-largest cable company.

Bewkes said yesterday that the boards of Time Warner and Time Warner Cable are negotiating to determine a "change in ownership" of Time Warner's interest in the cable company, a process that he said would conclude by the end of the first quarter.

Though Bewkes did not explicitly state that Time Warner would divest its cable asset, he did say that it has a "different business profile from our other businesses."

Bewkes comes from the content side of Time Warner and said the company will push ahead on offering video on demand, aimed at television sets, not just computers. He said the company would outpace its rivals in video on demand to demonstrate that it's a good value.

Bewkes added that Time Warner would undergo extensive cost-cutting, beginning with the corporate office, which will cut its annual expenses by $50 million a year.

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