1105705--2/27/2006--TIME_WARNER

related topics

{capital, credit, financial}

{product, market, service}

{regulation, change, law}

{property, intellectual, protect}

{acquisition, growth, future}

{regulation, government, change}

{system, service, information}

{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 is, 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 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, disasters, accidental releases of information or similar events, may disrupt the Company s businesses. RISKS RELATING TO TIME WARNER S AOL BUSINESS The Company s AOL business faces significant competition. Declines in subscribers to the AOL service are expected to continue, and are expected to continue to adversely affect AOL s subscription and advertising revenue. If AOL is unsuccessful in increasing its advertising revenue, AOL s results of operations and cash flows could be adversely affected. The Company s AOL business may not be able to increase its revenue from the sale of premium digital services. If the Company s AOL business is unable to acquire or offer compelling search functionality, content, features, services, applications and tools 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. The AOL segment may not be able to continue to reduce costs. 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. RISKS RELATING TO TIME WARNER S CABLE BUSINESS If the proposed Adelphia acquisition and/or related transactions with Comcast close, TWC Inc. will face certain challenges regarding the integration of the newly acquired systems into its existing managed systems. If the proposed Adelphia acquisition and/or related transactions with Comcast close, TWC Inc. may not realize the anticipated benefits of such transactions. In introducing voice services over its cable systems, TWC Inc. faces risks inherent to entering into a new line of business. Increases in programming costs could adversely affect TWC Inc. s operations, business or financial results. TWC Inc. faces a wide range of competition, which could affect the future results of operations of TWC Inc. TWC Inc. s business is subject to extensive governmental regulation, which could adversely affect its business. 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 Box office receipts and the growth rate of DVD sales have recently 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 increases in paper costs and postal rates. 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 print to other media could adversely affect the Publishing segment s results of operations. 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--2/27/2006--TIME_WARNER_INC