Story from the Wall Street Journal
Time Warner, Inc. gave the clearest sign yet that it plans to move beyond its disastrous 2001 merger with AOL, saying it expects to press ahead with a spinoff of all or part of the ailing Internet unit.
Jeff Bewkes, who took the CEO reins 15 months ago, has been pushing through a vision of the media company as a slimmed down parcel of mostly television and film businesses. The company has already spun off its cable-TV service business.Executives cautioned that an AOL spinoff isn't cemented, but a decision on AOL is expected "very soon."
Time Warner on Wednesday also posted a 14% drop in first-quarter profit. Deterioration at AOL and the Time Inc. magazine business offset improved movie studio and cable-TV profits.
"Advertising at AOL and Time Inc. especially is proving even tougher than expected," Mr. Bewkes said.
As the media conglomerate moves to jettison certain businesses, attention is turning to the future of Time Inc., where advertising sales swooned by 30% in the first quarter and ad declines are expected to continue for the rest of the year. Mr. Bewkes has said Time Inc. generates a steady stream of cash and contains important brands, but he also repeated Wednesday that its future within Time Warner hasn't been decided.
"Jeff Bewkes is the kind of CEO who's not sentimental; he's about putting things behind him and focusing on content" said Tom Eagan, an analyst with Collins Stewart.
Time Warner stressed that it is still exploring its options, but in a sign that it is preparing for a standalone AOL, the company last month hired Tim Armstrong, a well-regarded Google executive, as AOL's new chief. Time Warner also amended debt agreements to clear obstacles for an AOL spinoff. On Wednesday, Time Warner disclosed that it also plans to buy back Google Inc.'s 5% stake in AOL.
In 2006, Google paid $1 billion for the investment as part of a deal to handle searches on AOL's Web sites. Since then, Google has written down the value of its stake to just $274 million, or a $5.5 billion valuation for all of AOL. Some analysts have suggested AOL is worth far less.
For the quarter, Time Warner said net income fell to $661 million, or 55 cents a share, from $771 million, or 64 cents a share, a year earlier, adjusted for a reverse stock split. Revenue slid 7% to $6.95 billion, excluding Time Warner Cable.
If Time Warner sheds AOL, the cable networks -- which include CNN, TBS and HBO -- will be the company's primary profit driver. In the quarter, however, the company's ad-supported networks showed signs of strain as ad revenue fell 2%. The company said the weak economy will make it tough for the networks to increase ad revenue this year.
Time Warner's film division posted a 7% decline in revenue though operating income before depreciation and amortization rose 10% thanks to cost cuts.
