The gloom surrounding the media sector deepened further on Wednesday when Time Warner slashed its forecasts for 2008 profits and took a $25bn writedown on the value of its empire of old media properties, such as Time Inc magazines, and new media brands, including AOL.
The group revealed an accelerated deterioration of its magazine and internet divisions in the fourth quarter, reinforcing the company’s plan to pare down or shed non-content assets.
The company, which owns Time Inc, Warner Bros and CNN, joins its media peers, including Viacom which has cast a dour outlook for the fourth quarter, hurt by a severe decline in advertising spending. News Corp’s Rupert Murdoch has gone further by cutting the company’s profit outlook for its fiscal 2009.
Time Warner expects just 1 per cent growth in adjusted operating income before depreciation and amortisation for 2008. As late as November 5, the company expected growth of 5 per cent.
A decline in the value of Time Warner Cable’s franchise rights, or exclusive permits to operate in a specific region, triggered by a fall in the company’s stock price, was largely responsible for the charges, the cable operator said.
A string of other charges will lead to a full-year net loss rather than a previously expected profit per share of between $1.04 and $1.07.
Time Warner incurred charges related to a court ruling over the sale of its sports teams, the bankruptcy of Lehman Brothers – a tenant in its Time Life Building – and other exposures to recently bankrupted customers.
The $25bn writedown, while large, is dwarfed by the nearly $100bn write-down Time Warner reported in 2002 to reflect the decline in AOL’s value.
“The economic environment has proved somewhat more challenging than the company previously expected, particularly for the advertising businesses at the AOL and [Time Inc] Publishing segments,” Time Warner said. It pointed out that fourth quarter operating shortfalls accounted for only 1 per cent of the 4 per cent decline in operating cash flow growth.
Time Warner continues to expect full year 2008 free cash flow of $5.5bn the company said in a statement.
Jeffrey Bewkes, who this month celebrates his first anniversary as Time Warner chief executive, has said the company was mulling myriad options to improve AOL or merge it with a rival. Discussions with Yahoo continue.