Strong Results Give Management Ammo Against Carl Icahn Cable Plan

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NEW YORK (AdAge.com) -- Time Warner’s third-quarter earnings, released today, were better than analysts expected, emboldening management to take a stand against billionaire investor Carl Icahn.

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Despite vocal pressure from Mr. Icahn to sell the entire cable division, not just the 16% slated for a public spinoff next year, company executives today said they would not budge.

'Strategic asset'
“There has been a good deal of discussion about how much and how little Time Warner should own of Time Warner Cable,” Richard D. Parsons, chairman-CEO, said in a conference call with investors and analysts. “We continue to view cable as a strategic asset for Time Warner.” If the company later decides to sell more of the cable unit, it will have the flexibility to do so, he added.

Mr. Parsons also briefly addressed the plans for Internet division AOL. Revenue at the much-discussed America Online fell to about $2 billion from $2.1 billion in the third quarter of 2004, reflecting a 28% increase in ad revenue that could not compensate for a 10% decline in subscription revenue.

Deal on the horizon?
Microsoft, Google, Comcast and Yahoo have reportedly entered early talks with Time Warner about strategic partnerships or stakes in AOL, but the company offered little illumination on the subject this morning.

“It is true that we are engaged in a series of exploratory discussions,” Mr. Parsons said. “Because the discussions are fluid, we don’t know if they will result in any transaction or what form any transaction would take.”

Time Warner third-quarter revenue was $10.5 billion, up 6% over the year-ago period, led by increases at the cable, network TV, filmed entertainment and publishing segments.

Net income for the quarter totaled $897 million, or 19 cents a share, up almost 80% from $499 million in net income in the third quarter last year. Analysts surveyed by Thomson Financial had expected average income of 17 cents per share.

Growth expected
Time Warner also reaffirmed its 2005 full-year business outlook, estimating that adjusted operating income before depreciation and amortization will grow by a figure in the high single-digits from $9.9 billion in 2004.

The cable division posted revenue of nearly $2.4 billion, up some 13% over the same period last year, built on a 13% rise in subscription revenue and a 4% uptick in ad revenue.

The unit sold 240,000 digital phone subscriptions during the quarter, bringing the total to 854,000. Although digital phone customers don’t become profitable for the company for two years, they and the packages of digital cable and broadband Web service that they often buy make them important to the company.

Also today Time Warner Cable -- in partnership with Comcast, Cox and Advance/Newhouse Communications -- announced a joint venture with Sprint Nextel that allows the cable operator to deliver cellphone service along with its digital phone service, video service and high-speed data. The deal allows Time Warner to turn its “triple-play” consumer marketing proposition into a “quadruple-play.”

Time Inc. revenues up
Revenue at Time Inc. edged up 3% to $1.4 billion, largely on the back of the Time Warner Book Group. The division’s magazines contributed increased revenue of $13 million from subscriptions (up 3%) and $7 million from ad sales (up 1%), which had a lot to do with the acquisition of Essence earlier this year and the vitality of titles like Real Simple. Core titles like Time and Sports Illustrated are faring less well, executives acknowledged.

Don Logan, chairman of the media and communications group, briefly addressed this summer’s federal subpoena of Time Inc. “They’re looking at public-place and some subscription agents,” Mr. Logan said in response to a question. “From an overall perspective we don’t think it’s significant and it’s not a big deal for us. We’re cooperating, and that’s about all we can say about it.”

The filmed entertainment division posted revenue of almost $2.7 billion, up 6% from the third quarter last year, while the networks unit reported revenue of $2.4 billion, up nearly 10% from the year-ago period.

The company also said it had increased its stock repurchase program to $12.5 billion from $5 billion.

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