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NEW YORK-Despite a fistful of kudos ranging from blockbuster TV hits "ER" and "Friends" to a National Magazine Award for Entertainment Weekly, the stock of Time Warner remains depressed and stockholders remain anxious.

The restiveness occurred despite a first quarter that produced record cash flow for all the major divisions of the diversified media/entertainment giant.

For most companies, such upbeat performances would be enough to earn high praise for Chairman-CEO Gerald Levin, who played a key role in the 1989-90 merger of Time Inc. and Warner Communications and after the ouster of Nick Nicholas rose to become chairman of the combined company.

But it hasn't been easy sailing in the two years since he rose to the top spot, primarily because the company is wrestling with a mountain of debt, estimated at $18 billion, that remains from the merger.

In a bid to quiet some of the discontent at last week's stockholder meeting, Mr. Levin revealed the company was selling 15 cable systems-primarily in smaller markets scattered across seven states-for $263.7 million. That brings this year's asset sales to $1.3 billion, with the bulk coming from last month's spinoff of a 51% stake in the Six Flags Amusement Parks for $1 billion. In February, the company pledged to sell $2 billion to $3 billion in non-core assets and Mr. Levin reiterated that promise at the meeting.

But despite the successful divestments, Wall Street remains concerned and the stock price remains depressed. After the May 18 meeting, the company's stock dropped $1 to $39.25. Recently the stock hasn't shown much movement, and analysts think the value should be much higher. In 1994, the stock underperformed both the Standard & Poor's 500 and other media stocks.

At a news conference after the meeting, Mr. Levin offered few specifics regarding talks with AT&T about using Time Warner cable networks to provide the long-distance carrier with local telephony access. The news this month that Rupert Murdoch's News Corp. would receive up to $2 billion from MCI as part of a new partnership prompted many Wall Street observers to speculate AT&T is seeking a similar alliance.

"Murdoch and [MCI CEO] Bert Roberts have really put the cat among the pigeons," said Porter Bibb, a managing director at Ladenburg, Thalmann & Co., New York.

One of the hottest rumors of the day involved cosmetics/publishing financier Ron Perelman's alleged interest in buying out the 14.9% share of Time Warner common stock currently held by Seagram Co.

"I'd prefer not to comment on that," said Mr. Levin afterward. But when asked if there had been any direct contact between Mr. Perelman and Time Warner, Mr. Levin seemed to nod assent. But he made no further comment.

Executives familiar with Mr. Perelman's modus operandi say he has grown gun-shy about venturing into hostile situations and was unlikely to go after even the Seagram's minority stake unless given a green light by the Time Warner board.

A contentious mood governed the meeting. Mr. Levin, after fielding a number of sharp questions from stockholder John Gilbert, ordered his microphone shut off. Mr. Gilbert was especially critical of new-media ventures and the board's handling of the Seagram stake. "I think we've been hypnotized here ...... it's ridiculous. I think we should get a new chairman who can run a meeting properly."

Other criticisms ranged from Time Warner magazines accepting cigarette ads to what were labeled anti-social lyrics by some Warner recording stars.

As if to deflect some of the criticism, nearly the entire first hour of the meeting was devoted to showcasing some of the company's new-media ventures, including a live demonstration of the World Wide Web site Pathfinder.

In contrast to past meetings, Mr. Levin seemed to take steps to showcase magazine and book unit Time Inc.; newly appointed editor in chief of magazines, Norman Pearlstine; and Don Logan, the unit's chairman-CEO.

The group-which includes the four dominant weeklies, Time, People, Sports Illustrated and Entertainment Weekly, plus other magazines and books-posted revenues of $3.4 billion, up 3%. Earnings before interest, taxes, depreciation and amortization were $430 million, up 16%.

On the down side, despite the honors accorded Entertainment Weekly, the title is still a year or more away from profitability and most of the units new-media ventures are still in the developmental stages.

The company's largest unit is filmed entertainment, which last year generated $5 billion in revenues and $565 million in earnings before interest, taxes, depreciation and amortization.

On the new-media front, Mr. Levin said Time Warner Cable and Time Inc. are embarking on what they hope will be a ground-breaking online and Internet service that will deliver Internet services for personal computers over cable lines rather than through the traditional telephone lines, which are much slower.

So far, Wall Street seems to be taking a wait and see attitude on the stock.

Noted Lauren Fine, a media analyst at Merrill Lynch & Co.: "The fundamental performance is excellent, but they have a lot of debt that they have to deleverage. The stock is not a table pounder."

The reason is the long-term debt problem and uncertainty about many of the new-media moves the company is taking, such as the Full Service Network in Orlando. That effort has been delayed several times; 4,000 homes online were supposed to be online by the end of last year but currently fewer than 60 are.

"What is going on now is a lot of deep picture issues," Ms. Fine said. "Depending on how they are resolved, it could be either very favorable or it could be very negative."




Headquarters: New York

1994 revenue: $15.9 billion. Net loss $91 million. Combined earnings before interest, taxes, depreciation and amortization $2.96 billion.

Measured ad spending: $676,036,900 in 1994, according to Competitive

Media Reporting.

Agencies: Fallon McElligott, Minneapolis (Time); Grey Advertising, New York and Los Angeles (Warner Bros.); BBDO, New York (Home Box Office);

Grey Advertising and Young & Rubicam, both New York (People); Mullen, Wenham, Mass. (Money); Ogilvy & Mather, New York, and Larry & Sons, Dallas (Sports Illustrated).

Recent successes: "Friends" and "ER," produced by Warner Bros. Television, are the top-rated new comedy and drama, respectively, of the '94-95 season. Entertainment Weekly won a National Magazine Award for General Excellence in April. Sports Illustrated named Magazine of the Year by Advertising Age in March. Since February, the company has sold off $1.3 billion in assets under debt reduction plan, including a $1 billion sale

of 51% interest in Six Flags Amusement Parks.

Challenges for 1995 and beyond: Must work off a mountain of debt and try to place the right bets on the electronic media of the future by

leveraging its powerful brand names in print, music and movies. Much-talked-about Full Service Network in Orlando still seems far from

ever seeing a profit. Internet projects such as Pathfinder interesting but no real revenue streams.

Source: Advertising Age and company reports

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