Parsons: New Time Warner CEO Must Review Company’s Structure
Time Warner may have to consider spinning off its cable unit, Chairman Richard Parsons told analysts during the company’s Q3 earnings teleconference Wednesday. Parsons will step down as Time Warner’s CEO at year-end. His successor, President Jeff Bewkes, will have to monitor how Time Warner Cable fits in with the company’s programming assets, Parsons said. “Cable is migrating in a direction to become a fully robust telecommunication platform,” Parsons said. “At some point in time the requirements of the balance sheet of that kind of business might require us to separate the two” because of potential conflicts with a telecom operator’s needs and a content company’s needs, he said: “This is obviously a dynamic world, and Jeff is going to have to figure out how to play the cards as the events unfold.”
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Executives gave few additional hints about how the company might restructure under Bewkes’ leadership. “We of course are looking at everything, as we have been, both on a long term strategic operation basis and on a structure of the company basis,” Bewkes said, replying to one of several questions from analysts on the topic. “We'll certainly explain it as we make key decisions, but we're not going to telegraph it in advance.”
Some analysts expect wholesale changes in Time Warner’s structure. Spinning off Time Warner Cable is probably the first step the company would take before assessing its AOL and publishing units, wrote Bank of America analyst Jonathan Jacoby. “At AOL, we believe the company will look to sell its dial-up assets,” he said. “Afterwards it will assess strategic/merger opportunities for AOL or perhaps IPO the segment.” The fate of Time Warner’s publishing unit may depend on the company’s online success. It may need to hold onto its publishing businesses, and their stable cash-flow generation, to help pay the company’s quarterly dividend, he said.
Time Warner Cable lost 83,000 basic cable subscribers during the quarter, mainly in the systems it acquired in the Adelphia merger. The company added 224,000 broadband customers and 275,000 phone subscribers in the quarter. About half of its subscribers buy at least two products, the company said. Cable revenue increased 25 percent from last year to $4 billion, mainly because of the systems it picked through transactions with Adelphia and Comcast.
AOL continued to struggle as revenue for the unit fell 38 percent from a year earlier to $1.2 billion. Changes in AOL content should pay off the next three months, Bewkes said. “We're pretty confident that we should see page views starting to go up a little in the fourth quarter,” he said. Total Time Warner Q3 sales increased 9 percent from a year earlier to $11.7 billion. Profit fell 30 percent to $3.3 billion. Shares fell 2 percent.