Parsons: ’05 Looks Great

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New York— Citing a turnaround in his company’s financial fortunes, Time Warner Inc. chairman and CEO Richard Parsons vowed to make 2005 better than 2004, and hinted at returning some profits to shareholders.

Speaking at the UBS Warburg Media Week Conference on Dec. 6, Parsons recalled that he had promised Time Warner would finish 2004 stronger than it began.

That done, the new corporate focus will be to decide how to deploy newfound financial capacity.

That, he said, could take the form of continued investment in its businesses, as well as strategic acquisitions.

RETURNING CAPITAL

While Parsons said the company will also be reviewing programs to return some of that capital to shareholders in the coming months, he did not elaborate.

Time Warner made several moves to pare debt, simplify operations and sell nonstrategic assets in late 2003 and early 2004.

“We’ve turned the company around,” Parsons said. “We are headed in the right direction now.”

All of Time Warner’s businesses are either first or second in their respective industries, said Parsons. In addition, he said, the company is uniquely positioned to take advantage of the boom in Internet advertising.

Calling the Internet a “huge source of growth,” Parsons said consumer spending on that medium has tripled over the past five years. This year, advertising revenue has grown 30%, he said.

America Online alone is expected to generate about $1 billion in ad revenue this year, he said.

Parsons said Time Warner’s ownership of AOL puts it in a unique position among its peers: “Online advertising is one of this country’s most exciting opportunities, and with AOL in our portfolio, I expect Time Warner to grow advertising faster than any of the other diversified media and entertainment companies next year.”

On the cable front, Parsons touted the positioning of Time Warner Cable, the No. 2 U.S. MSO with 10.9 million subscribers. The operator has capitalized on new technologies and Parsons sees even greater opportunity with digital phone service.

“Within our footprint, the video, data and voice industries today account for about $25 billion in consumer spending,” Parsons said. “That’s important, because approximately half of these revenues are from residential phone of which we get almost none today.”

He said Time Warner Cable is on track to deploy digital phone service in 30 of its 31 markets by the end of this year.

At the Credit Suisse First Boston Media & Telecom Week conference on Dec. 7, Time Warner Cable chairman and CEO Glenn Britt said the MSO is approaching 10,000 weekly net VoIP customer additions, and the MSO expects to end the year with about 200,000 digital phone subscribers.

VoIP isn’t the only new product that has exceeded demand.

VOD ON THE RISE

In the third quarter, video-on-demand revenue grew 60% over the same period last year, Britt said. In October, about 40% of digital customers used VOD, accounting for 42 million streams during the month, or an average of 23 streams per household.

That is on par with VOD market leader Comcast Corp., which had about 58 million VOD streams in October, or about 23 streams per household.

What’s more impressive: Comcast’s VOD service is largely free, while Time Warner Cable has stuck to a pay model for most on-demand offerings.

Usage is even stronger in markets that have had the service for a while, Britt added. In Raleigh, N.C., VOD users have increased 75% over last year and VOD buys have doubled. And customers are paying for it. Britt said 48% of usage in Raleigh was for subscription video on demand services (such as Time Warner-owned HBO On Demand), 13% for free on demand, 21% for music on demand and 18% for movies on demand.

Time Warner Cable also has pushed HDTV and digital video recorders hard in the last year, and the results show it.

HDTV customers rose from just 34,000 in the third quarter of 2002 to 389,000 in the third quarter this year. DVR customers, at just 3,000 in the third quarter of 2002, numbered 709,000 in the third quarter of this year.

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