TWE Control Gives Time Warner an Edge

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With full management control of Time Warner Entertainment,
Time Warner Inc. appears to be in the driver's seat regarding a restructuring of the
joint venture with MediaOne Group Inc.

According to a report in TheWall Street Journal,
Time Warner chairman Gerald Levin told analysts and reporters last week that with
management control over TWE, which was obtained in August, MediaOne's interest in the
partnership is "worth less and our interest … worth more."

MediaOne had an equal share of management control of the
TWE partnership -- which includes Warner Bros. Studios; cable channels Home Box Office and
Cinemax; and the majority of Time Warner Cable's systems -- and Levin characterized
MediaOne's management rights as "very valuable."

Time Warner confirmed Levin's statements as reported.
Despite requests from Multichannel News, the company no longer invites a Multichannel
representative to quarterly briefings for selected reporters.

Time Warner's new stance could mean that AT&T
Corp. -- which might need to separate the cable and content assets of TWE for its proposed
$58 billion merger with MediaOne to win regulators' approval -- ends up with little
or no control of the partnership's cable operations.

Time Warner finds itself in an enviable bargaining
position: It retains management control of the TWE partnership even if the
MediaOne/AT&T deal collapses and it has a partner that neither wants to nor is allowed
to share in control of the content assets.

Time Warner spokesman Scott Miller said that although
published reports of Levin's comments were essentially accurate, "as far as what
the future holds, we're not going to comment."

AT&T spokeswoman Eileen Connolly declined to comment on
Levin's statements, but she said, "We consider the partnership to be valuable to
both companies."

Jefferies & Co. Inc. analyst Fred Moran said
Levin's comments pointed to a change in strategy for the restructuring of TWE.

"Now they are in a more competitive position to
dictate the terms," Moran said. "They will look to reconsolidate all of HBO and
the movie-studio assets and continue with some kind of [cable] partnership with AT&T,
but managed by Time Warner."

Although that strategy has been talked about in the past,
Moran said, MediaOne had resisted it, using its managerial control to block a

The cable operations had big gains in the third quarter,
with cash flow more than doubling to $894 million. But there were one-time gains of about
$477 million from the sale or exchange of cable systems and investments.

The cable networks fared well, with cash flow rising 21
percent and revenue rising 11 percent.

The third quarter was the first one since the partnership
was formed during which Time Warner was able to consolidate its 75 percent TWE stake into
its own financial results.