Q. I’m not quite sure what to make of all that has been happening at Time Warner Inc. How does the future look?
–K.V., via the Internet
A. Here’s one blessing: Millions of trial discs for its AOL service are no longer found in magazines and mailboxes everywhere.
The world’s largest media company has shifted strategy and made most of the AOL online services free to anyone with a broadband connection. It claims this advertising-based revenue model is already attracting many new users. Google, which has a 5 percent interest in AOL, now has its search feature on the AOL site as well.
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With a long-term goal of becoming a full-service entertainment destination, AOL also has significantly expanded its subscription online music service and is selling movies and television shows through a new video portal.
Time Warner (TWX) shares are up 9 percent this year after last year’s 10 percent decline; shares were up 8 percent in 2004 and nearly 12 percent in 2003. The company plans to buy back $20 billion of its stock through 2007.
It intends to reduce its global online workforce by 5,000 and is selling off non-core assets. Its German Internet access business is being sold for $870 million to an Italian telecommunications firm and its French online business for $365 million to a French telecom.
Similarly, it plans to sell 18 of its magazines, including Popular Mechanics, Parenting and Field & Stream. Many of these came from its acquisition of Times Mirror Magazines in 2000. It wants to focus on its larger titles such as Time, Sports Illustrated and People; it currently has about 150 magazines.
The consensus recommendation on shares of Time Warner among Wall Street analysts is a “buy,” according to Thomson Financial, consisting of eight “strong buys,” eight “buys,” 10 “holds” and one “underperform.”
Time Warner derives solid revenue from an impressive subscription base, has upgraded its cable assets, grinds out hit programs on HBO and owns a large film library. Nonetheless, its operating units haven’t fit together well and it has encountered other problems.
For instance, it must restate financial results for transactions in 2000 and 2001 that primarily involved online advertising. This follows settlements made with the Securities and Exchange Commission and in federal court. It has also been sued by AOL subscribers for a July data breach in which personal search histories were released and made available for download.
Time Warner earnings are expected to rise 9 percent this year compared to the 17 percent expected for the diversified entertainment industry. Next year’s projected 17 percent increase compares to 25 percent forecast industrywide. The company’s five-year annualized return is expected to be 14 percent.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].