Newhouse Response Due Today

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The Newhouse family was expected on Monday to inform AOL Time Warner Inc. whether it will remain in the Time Warner Entertainment-Advance/Newhouse cable-system partnership.

Such a departure could potentially put 2 million subscribers into the hands of the publishing family.

The Newhouses, who control the New York-based newspaper and magazine publishing giant Advance Publications Inc., have been negotiating with AOL Time Warner concerning the TWE-A/N partnership. Advance/Newhouse owns 33.3 percent of the partnership, which controls about 7 million cable subscribers.

A/N could opt out of the partnership on April 1, taking about 2 million cable subscribers with it. Although AOL said it could not guarantee any outcome, under one possible scenario, the media conglomerate could buy A/N's interest in the Road Runner high-speed cable modem venture as part of a TWE-A/N restructuring, or in a separate transaction.

According to the SEC document, if the Newhouse family decides to unwind the partnership, AOL will place the assets and liabilities within the entity — mainly cable systems — into three separate "pools" of equal value. A/N would then get to choose which pool it would like to take.

If the Newhouses do decide to take cable subscribers, it could be a major blow to AOL Time Warner, which has been trying to boost its cable presence after losing out to Comcast Corp. in the bidding for AT&T Broadband in December.

Those 2 million subscribers — out of about 12.8 million AOL Time Warner subs — represent about $1.1 billion in annual revenue and $600 million in annual cash flow.

Some of those cable systems are rather large, including Time Warner Cable properties in Orlando, Fla. (543,000 subscribers); Tampa/St. Petersburg, Fla. (337,000 subscribers); Raleigh/Fayetteville, N.C. (449,000 subscribers); and Syracuse, N.Y. (334,000 subscribers).

Also in the 10-K, filed March 25, AOL revealed that Liberty Media Corp. — which has a 4 percent nonvoting interest in AOL Time Warner — asked the Federal Trade Commission on March 19 to eliminate the voting restriction on its AOL Time Warner stake, according to the SEC document.

That would put Liberty on par with AOL Time Warner vice chairman and board member Ted Turner, who owns 3.6 percent of the company's stock, or about 155 million shares.

Liberty was a big shareholder in Turner Broadcasting System Inc. and received its stake as part of Turner's merger with Time Warner Inc. in 1996. But because Liberty was part of the largest cable operator at the time — Tele-Communications Inc. — the FTC prohibited it from having voting rights.

After A&T Corp. acquired TCI, Liberty was spun off as a separate programming entity, eliminating any conflict of interest with AOL Time Warner.

Most analysts believe that Liberty is making its request for a seat on AOL Time Warner's board on behalf of its chairman, John Malone.

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