1105705--2/23/2007--TIME_WARNER

related topics

{capital, credit, financial}

{product, market, service}

{regulation, change, law}

{system, service, information}

{property, intellectual, protect}

{acquisition, growth, future}

{regulation, government, change}

{operation, natural, condition}

{cost, regulation, environmental}

Several of the Company s businesses are characterized by rapid technological change, and if Time Warner does not respond appropriately to technological changes, its competitive position may be harmed. 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. The Company has been, and may be in the future, subject to intellectual property infringement claims, which could have an adverse impact on the Company s business or operating results due to a disruption in its business operations, the incurrence of significant costs and other factors. Time Warner s businesses may suffer if it cannot continue to license or enforce the intellectual property rights on which its businesses depend. Time Warner s international operations are subject to increased risks that could adversely affect its business and operating results. Weakening economic conditions or other factors could reduce the Company s advertising or other revenues or hinder its ability to increase such revenues. 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. 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. 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. RISKS RELATING TO TIME WARNER S AOL BUSINESS If AOL s business strategy does not succeed in sustaining current levels of activity generated on AOL s interactive properties by current AOL subscribers and increasing the number of other Internet users and the level of activity they generate on AOL s interactive properties, AOL s business, results of operations and financial condition may be adversely impacted. AOL faces intense competition in its global web services business, its Internet access business and in the distribution of its products and services, and must compete successfully in order to improve its financial performance. If the Company s AOL business is unable to acquire, develop or offer compelling applications, features, services, tools and content at reasonable costs, the size or value of its audience may not increase as anticipated, which could adversely affect its subscription and advertising revenue. More individuals are using non-PC devices to access the Internet, and AOL must be able to secure placement of its services, applications and features on such devices, must ensure that they are compatible with the devices and must ensure that the AOL Network is accessible by users of non-PC devices. Changes in international, federal, state and local tax laws and regulations, or interpretations of international, federal, state and local tax laws and regulations, could adversely affect AOL s operating results. New or changing federal, state or international privacy legislation or regulation could hinder the growth of AOL s business. RISKS RELATING TO TIME WARNER S CABLE BUSINESS TWC faces certain challenges relating to the integration of the systems acquired in the Adelphia acquisition and related transactions with Comcast into its existing systems. TWC may not realize the anticipated benefits of the Adelphia acquisition and/or related transactions with Comcast. TWC faces risks inherent to its voice services business. Increases in programming costs could adversely affect TWC s operations, business or financial results. TWC faces a wide range of competition, which could affect its future results of operations. The Internal Revenue Service and state and local 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 Internal Revenue Service or state or local 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 s business is subject to extensive governmental regulation, which could adversely affect its business. la carte Video Services. Net neutrality legislation or regulation could limit TWC s ability to operate its high-speed data business profitably, to manage its broadband facilities efficiently and to make upgrades to those facilities sufficient to respond to growing bandwidth usage by its high-speed data customers. The FCC s set-top box rules could impose significant additional costs on TWC. 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 to remain competitive and continue to increase their revenue. The Networks and Filmed Entertainment segments operate in highly competitive industries. The popularity of the Company s television programs and films and other factors is difficult to predict and could lead to fluctuations in the revenue of the Networks and Filmed Entertainment segments. The Networks and Filmed Entertainment segments are subject to potential labor interruption. 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 and television programming. 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. 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. A decrease in demand for television product could adversely affect Warner Bros. revenues. 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 continued decline in the growth rate of U.S. basic cable and DTH satellite households, 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. RISKS RELATING TO TIME WARNER S PUBLISHING BUSINESS The Publishing segment s operating income could decrease as a result of rising paper costs and postal rates, and its business could be negatively impacted by a significant disruption in postal service. The Publishing segment faces risks relating to various regulatory and legislative matters, including changes in Audit Bureau of Circulations rules and possible changes in regulation of direct marketing.

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1105705--2/23/2007--TIME_WARNER_INC