Time Warner succumbs

Happy (double) anniversary, Mr Bewkes. One year after Jeff Bewkes took the helm of Time Warner, and about a month after he gained the chairmanship, the media company succumbed to the inevitable. A collection of charges – including a $25bn non-cash impairment of goodwill and intangibles – will help push the group to a loss for 2008 when it reports next month. Time Warner’s shares slumped about 9 per cent, dragging down sector peers, before recovering slightly.

The impairment charge, while eye-catching, is not unexpected given the economic malaise. Time Warner, with $89.6bn of goodwill and non-amortised intangibles on its books at the end of September, must test those assets’ value each fourth quarter. Writing down the value of AOL, Time Warner’s longstanding problem child, is now de rigueur. The bulk of the charges, about $15bn, relate to Time Warner Cable’s franchise rights. Its impending separation will end that exposure. Other cable operators may need to follow suit. Comcast, for example values its franchises at $1.18 per home potentially served against Time Warner’s revised $0.89.

A smaller line item is more alarming. Advertising at AOL and print titles has continued to deteriorate, shaving 1 percentage point from expected growth in Time Warner’s 2008 adjusted operating income before depreciation and amortisation. But yesterday’s sector-wide sell-off reflects uncertainty over whether this year’s advertising market will be very bad, dismal or catastrophic. Automotive, retail and financial services account for about a third of US advertising. With forecasts ranging from down a couple of percentage points to minus 10 per cent, investors should be reluctant to add the prefix “worst-case” to any of their scenarios.

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