Time Warner takes a tumble

Conglomerate, cable unit lose combined $24 billion in fourth quarter

Time Warner and Time Warner Cable, which trade as separate stocks but maintain ownership ties, reported a stunning $24.2 billion in combined fourth-quarter red ink Wednesday.

Their dismal quarterly results surely will raise Wall Street concerns about myriad challenges facing media companies.

During a conference call, TW brass warned that first-quarter film unit results will be "significantly" weaker because of fewer new DVD titles, softness in disc sales and reduced consumer spending. But chairman and CEO Jeffrey Bewkes also predicted TW will outperform other media conglomerates.

During a separate call, TW Cable chief Glenn Britt warned that Internet streaming of TV shows is eating into his unit's core business.

"We are starting to see the beginnings of cord- cutting, where people — particularly young people — are saying, 'All I need is broadband.'"

The trend is likely to continue, eroding the fiscal health of cable networks and studios, he added.

Bewkes stressed that he still likes the TV production business — unsurprisingly as his company's studio generally is the second go-to provider for TV networks after their own sister studios.

The big quarterly losses at TW and TW Cable owed mostly to broad writedowns of various assets, moves signaled in the companies' recent earnings warning.

TW posted a fourth-quarter loss of $16.03 billion, compared with a year-ago profit of $1.03 billion.

Revenue fell more than expected, almost 3% to $12.31 billion.

Quarterly operating profit at TW's film unit rose 7%, despite an 11% revenue decline. The TV unit showed opposing trends as operating profit declined 24% in the quarter despite a 9% revenue gain fueled by a 10% advertising spurt.

TW Cable swung to a fourth-quarter loss of $8.2 billion, compared with a year-ago profit of $327 million.

The cable giant's revenue climbed almost 8% to $4.4 billion as subscriber gains slowed.

TW and TWC shares headed in opposite directions after the financial results were announced. TW shares closed down 3.7% at $9.42; TWC rose 3.4% to $18.97.

"We were somewhat surprised that TW management continues to attribute an industrywide DVD slowdown to cyclical effects, as opposed to the apparent secular changes that the Disney management team acknowledged," Barclays Capital analyst Anthony DiClemente said.

On Tuesday, Disney CEO Robert Iger warned that consumers have so many entertainment choices many won't buy DVDs even when the economy strengthens.

In another issue that grabbed Wall Street's attention, TW said Google last week notified the company that it wants to cash in on its 5% stake in TW's AOL that it had taken in 2005. TW CFO John Martin said TW's options include taking AOL public, buying back the stake at a now-reduced price or delaying a decision.

TW expects to complete its spin off of TW Cable soon. (partialdiff)