Citi Media: Time Warner's Martin On AOL: Don't Expect Any Strategic Deals Soon
This story was written by David Kaplan.
Asked what Time Warner's plans for the AOL business and all its discordant partsfrom access service to content and ad salesCFO John Martin, in a Q&A the 2009 Citigroup Global Entertainment, Media & Telecommunications Conference in Phoenix, said that the company is still enthusiastic about exploring "strategic relationships." However, to be realistic, this is not the kind economic environment conducive to quick action. The comments were somewhat in contrast to what CEO Jeff Bewkes said last month at the UBS Media Week event, when he told attendees "I'd like to get it resolved, meaning clear so AOL can be seen and valued We need to do it fairly soon and we've been working hard on it."
Still exploring alternatives: Martin: "We look at the company in three buckets, the cable, the content companies and AOL. With AOL, you have at least two big businesses in there. The access business has surpassed expectations in terms of cash flow. It's declining, but it's doing so at a predictable rate. The access business, though, is not strategic to Time Warner (NYSE: TWX). So we would be open to different options, but in this environment, we appreciate the free cash flow. As for audience size, AOL doesn't have the industry scale that some of other businesses do. So we've been in talks with with other companies about creating alternative structures and seeing what we could do. But this is a tough environment to do any strategic relationships. We just completed 22 months of considerable growth in usage on the vertical channels and there is still reason to be optimistic."
Separately, Martin didn't shed any further light on Time Warner's negative financial forecast, which it released this morning. The company said it would report a net loss for 2008 ranging from $1.04 to $1.07 a share profit, instead of 5 percent growth, which it predicted back in November. More after the jump.
No relief from poor ad picture: Martin noted that the company would experience a $125 million impact related to poor ad sales at AOL and its publishing unit. "AOL has meaningful exposure to troubled categories, like autos and finance, and less demand for branded inventory. Looking at publishing, mag ad was trending down 20 percent in Q3 and looking to Q1, it's still a challenging ad environment. No one is willing to make early commitments to advertise."
On TWC: Martin: "We remain optimistic that the regulatory approval for the spin-off "is a Q1 event," though I can't predict that. They have $13 billion in cash and debt availability. There are no considerations for changing the size of the $11 billion dividend, which will take its leverage up to 3.75 terms. In the last three months, it has reduced leverage by half-a-term. We still believe this is a transaction that's in the best interest of both companies."
Mag business better than newspapers: All print is not created equal, Martin stressed. "80 percent of adults still read mags, less than half read newspapers. In 2007, mag ads were up, newspapers were down. Last year, both were down, but newspapers were down more. We don't have the exposure to classifieds that newspapers do, and that is a major difference. In any case, readership is up. But we are not sitting on our hands. The publishing unit recently reorganized around verticals and cut the global workforce 7 percent."
By David Kaplan