Write-downs on upswing

Media titans pay big price in troubled economy

NEW YORK -- Big media and entertainment companies have written down the value of their assets in recent weeks to the tune of more than $40 billion.

It is the latest ripple effect of the declines in market value that sector biggies saw in 2008 and, for some, the ripple effect of past acquisitions that haven't worked out as hoped. The traditional year-end write-downs of key sector companies are fast approaching the $50 billion that disappeared in Bernard Madoff's alleged Ponzi scheme, some on Wall Street point out.

Under accounting rules, companies review their asset value generally at the end of their fiscal year. They test goodwill -- which signifies the difference between the cost of the acquisition of an entity and its estimated fair value -- and other intangible assets for possible impairment. An asset is generally described as impaired when its market value and built-in growth assumptions have come down.

Time Warner, for example, said Wednesday that its year-end review will lead it to take an impairment charge of about$25 billion, with an estimated$15 billion assigned to Time Warner Cable's franchises and the rest to AOL and the company's Time Inc. magazine unit.

Similarly, CBS Corp. in October took a noncash impairment charge of $14.12 billion because of "current market conditions" that have reduced the value of the firm's assets. CBS didn't break out details, but analysts suggested that the reduced market value of TV and radio stations likely played a key role.

Satellite radio giant Sirius XM in November also took a $4.8 billion impairment charge on the reduced value of assets following the merger that created the company.

In a much smaller and different case of impairment, Viacom in early December took an unspecified write-down on "programming and other assets" whose value has declined. That charge was lumped into a larger one that Viacom estimated at the time was $400 million-$450 million. But based on management comments, the program-impairment portion of the charge looks to be worth $135 million at the most.

That unspecified portion "relates to program abandonment as we look at our programming strategy going forward, particularly at some of the networks where we have reoriented our programming strategy," Viacom CEO Philippe Dauman said at an investor conference after the announcement.

The big impairment charges worth billions of dollars "indicate errors in judgment and failed acquisition policies," said industry analyst and Vogel Capital Management president Hal Vogel, who expects more sector companies could announce write-downs before or when they report their latest quarterly financials. ∂

He warns that such write-downs raise the cost of borrowing for companies at a time when access to credit already is limited and expensive.

Miller Tabak analyst David Joyce said the write-down wave is likely the largest the industry has seen since Time Warner's big AOL charge a few years ago after their much-maligned merger.

But "pure radio and TV broadcasters wrote down in the second quarter (of 2008), so I don't expect any more write-downs in the fourth quarter," Joyce said.

Meanwhile, News Corp. and Disney already reported their latest fiscal-year financials without major asset value worries.

Disney only took a charge of $39 million related to ESPN Radio and Radio Disney FCC licenses after taking a $26 million charge for the assets a year earlier.

"These impairment charges reflected overall market declines in certain radio markets in which we operate," the company said in its annual report. Analysts said they had no concerns about the move and felt Disney remains in better shape than many of its peers.

But News Corp. has seen declines in at least one asset value since its fiscal year ended in mid-2008. In its recent fiscal first-quarter earnings report, it said it took a $447 million write-down of its stake in publicly traded German pay TV firm Premiere, whose stock has been declining. A News Corp. spokesman declined comment on the likelihood of further write-downs.
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