1105705--2/20/2009--TIME_WARNER

related topics

{capital, credit, financial}

{product, market, service}

{regulation, change, law}

{system, service, information}

{property, intellectual, protect}

{debt, indebtedness, cash}

{cost, operation, labor}

{regulation, government, change}

Time Warner faces risks relating to doing business internationally that could adversely affect its business and operating results. The introduction and increased popularity of alternative technologies for the distribution of news, entertainment and other information and the resulting shift in consumer habits and/or advertising expenditures from traditional to online media could adversely affect the revenues of the Company s Publishing, Networks and Filmed Entertainment segments. Several of the Company s businesses operate in industries that are subject to rapid technological change, and if Time Warner does not respond appropriately to technological changes, its competitive position may be harmed. The Company faces risks relating to competition for the leisure and entertainment time of audiences, which has intensified in part due to advances in technology. Piracy of the Company s feature films, television programming and other content may decrease the revenues received from the exploitation of the Company s entertainment content and adversely affect its business and profitability. Time Warner s businesses may suffer if it cannot continue to license or enforce the intellectual property rights on which its businesses depend. The Company has been, and may be in the future, subject to claims of intellectual property infringement, which could have an adverse impact on the Company s businesses or operating results due to a disruption in its business operations, the incurrence of significant costs and other factors. Several of the Company s businesses rely heavily on network and information systems or other technology, and a disruption or failure of such networks, systems or technology as a result of computer viruses, misappropriation of data or other malfeasance, as well as outages, natural disasters, accidental releases of information or similar events, may disrupt the Company s businesses. The Company s Internet and advertising businesses are subject to regulation in the U.S. and internationally, which could cause these businesses to incur additional costs or liabilities or disrupt their business practices. RISKS RELATING TO TIME WARNER S AOL BUSINESS AOL s business model involves significant risks. Demand and pricing for, and volume sold of, online advertising may face downward pressure. Uncertainty about a possible sale or other disposition of AOL is having an adverse impact on AOL s workforce that could negatively affect AOL s business. AOL s lack of a proprietary search service may have an adverse impact on AOL s advertising revenues. AOL faces risks associated with its dependence upon Google for search services. AOL faces intense competition in all aspects of its business. Following the sales of AOL s Access Services businesses in Europe, AOL depends on third parties for advertising revenues in Europe, and actions taken by such third parties could adversely impact AOL s advertising revenues. Changes to third-party software made by the third-party providers or by consumers could have an adverse impact on AOL s advertising business. AOL faces risks associated with the fragmentation of the Internet audience. If AOL does not continue to develop and offer compelling and differentiated content, products and services, AOL s advertising revenues could be adversely affected. If AOL cannot effectively distribute its content, products and services, AOL may not be able to attract new Internet consumers or maintain or increase the engagement of Internet consumers and may not be able to increase advertising revenues. Unless AOL increases the number of visitors to the AOL Network and maintains or increases their activity in areas where advertising revenues are generated, and even if it succeeds in doing so, AOL may not be able to increase advertising revenues associated with the AOL Network. More individuals are using devices other than personal and laptop computers to access and use the Internet, and if AOL cannot make its content, products and services available and attractive to consumers via these alternative devices, AOL s advertising revenues could be adversely affected. Acquisitions of other companies could have an adverse impact on AOL s operations and result in unanticipated liabilities. New or changing federal, state or international privacy legislation or regulation could hinder the growth of AOL s business. RISKS RELATING TO THE TWC SEPARATION AND TIME WARNER S CABLE BUSINESS The Company may not achieve some or all of the benefits that it expects from the Separation. After the Separation, Time Warner s businesses will be less diversified, which may adversely affect its business and operating results. TWC has incurred a substantial amount of debt, which may limit its flexibility or prevent it from taking advantage of business opportunities. If the TWC Separation Transactions are determined to be taxable for income tax purposes, Time Warner and Time Warner s stockholders that are subject to U.S. federal, state or local income tax could incur significant income tax liabilities. The Tax Authorities may challenge the tax characterizations of the Adelphia Acquisition, the Redemptions or the Exchange, or related valuations, and any successful challenge by the Tax Authorities could materially adversely affect Time Warner s tax profile, significantly increase its future cash tax payments and significantly reduce its future earnings and cash flow. TWC faces a wide range of competition, which could negatively affect its business and financial results. Significant unanticipated increases in the use of bandwidth-intensive Internet-based services could negatively impact customer demand for TWC s video services and increase TWC s costs. TWC s business is subject to extensive governmental regulation, which could adversely affect its business. Net neutrality legislation or regulation could limit TWC s ability to operate its high-speed data business profitably and manage its broadband facilities efficiently to respond to growing bandwidth usage by its high-speed data customers. If TWC is prohibited by regulation from using SDV technology, it may be forced to make costly upgrades to its system in order to remain competitive. Increases in programming or retransmission costs or an inability to obtain popular programming could adversely affect TWC s operations, business or financial results. TWC may encounter unforeseen difficulties as it increases the scale of its offerings to commercial customers. RISKS RELATING TO BOTH THE TIME WARNER NETWORKS AND FILMED ENTERTAINMENT BUSINESSES The Networks and Filmed Entertainment segments must respond to recent and future changes in technology, services and standards and changes in consumer behavior to remain competitive and continue to increase their revenue. The Networks and Filmed Entertainment segments operate in highly competitive industries. Although piracy poses risks to several of Time Warner s businesses, such risks are especially significant for the Networks and Filmed Entertainment segments due to the prevalence of piracy of feature films, television programming and interactive videogames. The Networks and Filmed Entertainment segments are subject to labor interruption. The popularity of the Company s television programs, films and interactive videogames and other factors are difficult to predict and could lead to fluctuations in the revenue of the Networks and Filmed Entertainment segments. RISKS RELATING TO TIME WARNER S FILMED ENTERTAINMENT BUSINESS DVD sales have been declining, which may adversely affect the Filmed Entertainment segment s growth prospects and results of operations. The Filmed Entertainment segment s strategy includes the release of a limited number of event films each year, and the underperformance of one or more of these films could have an adverse effect on the Filmed Entertainment segment s results of operations and financial condition. A decrease in demand for television product could adversely affect Warner Bros. revenues. The costs of producing and marketing feature films have increased and may increase in the future, which may make it more difficult for a film to generate a profit. Changes in estimates of future revenues from feature films could result in the write-off or the acceleration of the amortization of film production costs. RISKS RELATING TO TIME WARNER S NETWORKS BUSINESS The loss of affiliation agreements could cause the revenue of the Networks segment to decline in any given period, and further consolidation of multichannel video programming distributors could adversely affect the segment. The inability of the Networks segment to license rights to popular programming or create popular original programming could adversely affect the segment s revenue. Increases in the costs of programming licenses and other significant costs may adversely affect the gross margins of the Networks segment. The maturity of the U.S. video services business, together with rising retail rates, distributors focus on selling alternative products and other factors, could adversely affect the future revenue growth of the Networks segment. Changes in U.S. or foreign communications laws or other regulations may have an adverse effect on the business of the Networks segment. Declining DVD sales poses risks to the Networks segment. RISKS RELATING TO TIME WARNER S PUBLISHING BUSINESS Although weakening economic conditions pose risks to several of the Company s businesses, such risks are particularly significant for the Company s Publishing segment because a substantial portion of the segment s revenue is derived from the sale of print and digital advertising, both of which have been negatively affected by such conditions.

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1105705--2/20/2009--TIME_WARNER_INC.