Time Warners Results Boost Cable Group

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Time Warner Inc.'s cash-flow machine keeps humming along,
even as the company promised last week to moderate its cable-rate increases in 1999.

Chairman and CEO Gerald Levin said rate hikes will fall one
or two percentage points below the increases of the past couple of years, which he
declined to detail.

Levin was effusive in a meeting with reporters last week.

"We're trying to make this point that we now have a
guaranteed kind of structure in this business, so I can stand up in a financial forum and
say that for the next several years, the [Warner Bros.] studio is going to grow [in the]
high teens," he said. "It's never grown [in the] high teens before."

The company's third-quarter results seemed to bear him out.
Powered by cable systems, cable networks and television-syndication businesses, Time
Warner and the Time Warner Entertainment partnership (with MediaOne Group) posted a
combined cash-flow increase of 18 percent and revenue growth of 12 percent.

Cash flow rose to $1.1 billion from $920 million in the
same period a year ago, while revenue rose to $6.8 billion from $6.1 billion. Time Warner
reported net income of $39 million, compared with a loss of $28 million a year ago.

Time Warner's share price rose by $3.53, or 4 percent, on
the news last Wednesday.

Levin said the performance was more than just a record: It
was an "all-time record," meaning that the company had never, in any quarterly
period, generated 18 percent growth in what it calls earnings before amortization of
intangible assets, or EBITA.

Time Warner Cable generated $417 million in quarterly cash
flow, up 16 percent from $364 million a year ago, on a pro forma basis.

"That performance is superior to any other cable
operator by a significant margin," Levin said, adding that the fourth quarter, too,
should be "generally in that range."

Internal subscriber growth was about 1.8 percent, slightly
below the 2 percent industry average. Basic-cable rates and local advertising revenue both
drove growth, Levin said.

He added that Time Warner can moderate its rate increases
partly because low inflation reduced the allowable increase, and partly because the
company wants to be more "restrained" as the March 1999 sunset on basic-cable
regulation approaches.

He wouldn't say whether Time Warner would hit the 5 percent
target advocated by some operators, adding that the actual amount is still being
calculated. He also wouldn't say what Time Warner's average rate increase has been, but
company officials disputed one estimate of 9.5 percent or higher. The report, and Levin's
upbeat forecast for a "very strong" fourth quarter, boosted Time Warner shares
and helped other cable stocks, too. Levin said cash-flow growth for the full year should
be in the "mid-teens," up from 13 percent for the first nine months.

Gerard Klauer Mattison Inc. analyst Alan Gould said,
"The point that I got out of [Levin] is that they'll do better than the average
company, even if we go into a recession." He added, "It seems reasonable to me,
given the growth in their businesses."

Even the Time Inc. publishing unit — which Gould
figured will only see revenue growth of about 5 percent this year — generated 13
percent more cash flow in the quarter. The company continues to expand margins in its
businesses, partly by cutting costs.

Although Levin underplayed cost-cutting measures to
reporters, analysts said the company told them that it expects to achieve $750 million in
cost savings over the three-year period ending next year.

The Turner Broadcasting System Inc. cable networks, led by
TBS Superstation and Turner Network Television, generated 20 percent higher cash flow in
the quarter, rising to $154 million from $128 million a year ago. Through nine months,
cash flow was up 24 percent, to $505 million from $407 million a year ago.

Gould said he projects a 17 percent cash-flow increase next
year, in line with Time Warner's forecast of 15 percent to 20 percent.

Levin said Cable News Network, which enjoyed 20 percent
higher ratings in the quarter, contributed, and he thinks that the nation is now "in
a sustained high-news period."

Talks between CNN and more than one broadcast network
continue, he said, adding that they were driven by the broadcasters, and that he couldn't
predict how they would end up (see story, page 30).

Home Box Office, which also includes 50 percent of Comedy
Central, generated 15 percent higher cash flow, at $117 million, compared with $102
million a year ago. Its fourth-quarter figures should show similar growth, company
officials said.

Warner Bros.' cash flow rose 53 percent, to $162 million
from $106 million a year ago, driven by revenue from syndicating Friends and ER
for off-network distribution. The theatrical-studio performance was down slightly, the
company said, but it wouldn't spell out by how much.

Warner Music Group reported 10 percent cash-flow gains, to
$99 million from $90 million a year ago, and Levin said its cash flow should be up on the
year even though it stood at $288 million through nine months, down from $314 million.

The WB Television Network lost $17 million in the quarter,
down from $21 million a year ago. MCN

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