Newhouse Talks Persist, No Resolution Seen Yet


AOL Time Warner Inc. is still in negotiations with Advance/Newhouse Corp. — its partner in the Time Warner Entertainment-Advance/Newhouse partnership — and no resolution is expected anytime soon, according to sources.

April 1 was the day that Advance/Newhouse could tell AOL of its intentions for the partnership. A/N could either leave the arrangement as it is, or opt out — taking either 2 million subscribers, cash or stock. Most analysts estimate A/N's interest in the partnership to be worth about $8 billion.

An AOL spokeswoman declined to comment on the Newhouse situation, but added the companies were still in negotiations.

The Newhouse family, which controls the New York-based newspaper and magazine publishing giant Advance Publications Inc., has been in negotiations with AOL Time Warner concerning the TWE-A/N partnership for weeks. A/N owns 33.3 percent of the partnership, which controls about 7 million cable subscribers. It could opt out of the partnership and take about 2 million cable subscribers with it.

According to SEC documents, AOL said although it could not guarantee any outcome, one possible scenario could involve AOL purchasing Newhouse's interest in the Road Runner high-speed cable modem venture as part of a TWE-A/N restructuring or in a separate transaction.


If Newhouse 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. Newhouse would then get to choose which pool it would like to take.

If Newhouse does 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.

Although it's currently the No. 2 MSO in the country with 12.8 million subscribers, losing the Newhouse subscribers would drop AOL Time Warner to 10.8 million customers — well behind the 22 million subscribers AT&T Comcast Corp. would have if the merger is approved later this year.

Those 2 million subscribers represent about $1.1 billion in annual revenue and $600 million in annual cash flow for AOL Time Warner, which the company will be hard-pressed to make up through its other operations.

According to one analyst who asked not to be named, the April 1 deadline was just a date by which Newhouse had to express its intentions. There is no timeframe in which the negotiations must conclude.

"It starts on April 1 and could go on for infinity," the analyst said.