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Time Warner, the media giant whose businesses include Time magazine, CNN, AOL, HBO and the Warner Bros film studio, will plunge to its first annual loss in six years, it warned yesterday.
A string of misfortunes brought about by the credit crisis and the gathering recession will lead to a US$25 billion ($43 billion) charge against its 2008 results, the company said. The main culprit is a plunge in advertising revenues across its publishing, television and online arms, which has reduced the value of these businesses.
But it will also take a hit of US$281 million from a court ruling that it breached an oral agreement to sell two sports teams, and of US$60 million from the bankruptcy of Lehman Brothers, which was a tenant in its Time & Life building in Manhattan's Rockefeller Centre. There is also going to be a loss at its majority-owned cable TV subsidiary, Time Warner Cable, which accounts for US$15 billion of the US$25 billion charges.
Less than two months after saying it was heading for a profit of at least US$3.7 billion from continuing operations, it admitted yesterday that "the economic environment has proved somewhat more challenging than the company previously expected". It said it now expected to post a loss for the year but did not say exactly how much.
Time Warner shares slipped 7 per cent in New York. They are down 40 per cent since the start of the US recession a little over a year ago.
The company last reported a loss in 2002, when it had to write down the value of AOL, the internet service provider it had bought at the peak of the dotcom bubble. That US$98.7 billion loss was, at the time, the largest in US corporate history. AOL is again proving a headache, as it switched last year from being a subscription service to a business reliant on advertising.
The collapse of Woolworths in the UK and the electronics retailer Circuit City in the US has hit advertising revenues across Time Warner's businesses. It will set aside US$40 million to cover money it is owed by these and other bankrupt customers.
At the Time Warner Cable subsidiary - which is being spun off, but currently is 85 per cent-owned by Time Warner - subscriber growth is slowing and customers are increasingly shunning premium channels in favour of more basic television services. The company has also had to write down the value of its stake in Clearwire, a company building a wireless internet and phone network in the US, by US$350 million.
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