TimeWarner

StrategicPlanReport
Team#2:ArthurAnderson,JohannaDelicana,SiannaKoleva, BrianSchneck,BlondellMcCoyCox

March15,2007

TableofContents
Context..........................................................................................................................................................3 Introduction...............................................................................................................................................3 Company History......................................................................................................................................3 Divisions...................................................................................................................................................4 AOL......................................................................................................................................................4 Time Warner Cable...............................................................................................................................5 Warner Brothers....................................................................................................................................6 New Line Cinema.................................................................................................................................7 Turner Broadcasting System.................................................................................................................7 Home Box Office (HBO)......................................................................................................................8 Time Inc................................................................................................................................................9 Industry.....................................................................................................................................................9 TheEconomy...........................................................................................................................................11 SLEPT Analysis (Social, Legal, Economic, Political, Technological factors)...........................................11 MissionStatementandStakeholders.........................................................................................................17 Mission....................................................................................................................................................17 Stakeholders...........................................................................................................................................17 Core Values.................................................................................................................................................18 Objectives: Quantitative and Qualitative....................................................................................................19 Analysis and Quantitative Forecast of Industry and Company...................................................................20 Adaptability, 3 Questions ...........................................................................................................................21 . Effectiveness Druckers Eight.................................................................................................................22 Efficiency....................................................................................................................................................25 SWOT Analysis..........................................................................................................................................27

Porters Analysis.........................................................................................................................................34 Share Analysis (see appendix A)................................................................................................................38 Recommendations.......................................................................................................................................38 Time Warner- Overall Objectives...........................................................................................................38 Time Warner- Overall Strategies............................................................................................................38 Time Inc..............................................................................................................................................39 AOL........................................................................................................................................................40 Filmed Entertainment Strategies.............................................................................................................41 Time Warner Cable.................................................................................................................................42 Networks.................................................................................................................................................45 Alternative Strategies..................................................................................................................................45 Appendices..................................................................................................................................................50 Share Analysis (Appendix A).................................................................................................................51 Cash Flow Statement (Appendix B).......................................................................................................56 Balance Sheet (Appendix C)...................................................................................................................57 Income Statement (Appendix D)............................................................................................................58 ScheduleofStrategyImplementation(AppendixE)..............................................................................60 (Schedulecontd)....................................................................................................................................62 Bibliography................................................................................................................................................64

Context Introduction Time Warner is a leading media and entertainment company with businesses that include interactive services, cable systems, filmed entertainment, television networks and publishing. The company is headquartered in New York, New York and is publicly traded on the New York Stock Exchange under the TWX ticker symbol. Time Warner is the worlds largest media conglomerate, employing over 92,000 employees, and operating worldwide through its seven divisions: America Online (AOL), Home Box Office (HBO), Turner Broadcasting System, Time Inc, New Line Cinema, and Warner Brothers Entertainment. The different divisions are among the leaders in their respective entertainment, broadcasting or publishing sub-industries. Each of the divisions consistently wins prestigious awards for excellence in the business, as well as awards for outstanding business management. Some of the awards won by Time Warners divisions include Turner Broadcasting System and HBO placing fifth and seventh on Diversity Inc.s Top 50 Companies for Diversity in 2006, Time Warners 10 Academy Awards in 2007, 3 Golden Globe awards for HBO in 2007, 2 Emmy Awards for Business and Financial Reporting for CNN in 2006, 40 Emmy Primetime Awards for Time Warner in 2006, and many more. Company History Time Warner, as we know it today, is the result of many mergers and acquisitions. The companys history can be traced back to 1922, when Warner Brothers was established. The company was later renamed to Warner Communications. Quantum Computer Services

launched what would become America Onlines services 1985. In 1991 Quantum Computer Services changed its name to America Online, and went public in 1992. Meanwhile, in 1990, Time Inc merged with Warner Communications to form Time Warner. Then in 1996 Time Warner acquired Ted Turners Turner Broadcasting System. America Online acquired CompuServe in 1998 and then Netscape Communications in 1999. Later on, in 2001, America Online acquired Time Warner to form AOL Time Warner. The name was shortened to Time Warner in 2002 in an effort to draw away attention from the enormous losses AOL was reporting. There have not been any more significant mergers or acquisitions since 2001; however Time Warner has been gradually selling off some of its business, such as Warner Music Group in 2002, and Time Warner Book Group in 2006. Divisions AOL AOL is a leader in the interactive services sub-industry. It operates a leading network of web brands such as AOL, AIM, ICQ, MapQuest, Netscape, and Moviefone. The AIM/ICQ instant messaging program is one of the biggest and most widely used in the world. In December 2006, there were over 1.7 billion instant messages sent through it. AOL has 13.2 million subscribers (as of December 2006). Even thought the division has been trying to shift revenue generation from subscription fees to advertising, monthly dial-up Internet subscriptions still account for the majority of AOLs revenue. AOL has recently started to offer many of its traditionally paid-for services for free to anyone who has Internet access, such as its email accounts. Some of the services which remain paid include online storage, as well as safety and security products and services. In 2006 AOL expanded its strategic

alliance with Google. According to the terms of the agreement, AOL issued a 5% indirect equity interest to Google for $1 billion in cash, and Google provided search services to the AOL network. In an effort to cut costs and improve its financial performance, AOL sold a lot of its European access businesses in 2006. Prior to 2006, AOL was a leading Internet access provider in the United Kingdom, Germany and France. Also, AOL has been trying to market its services in new, less traditional ways. The company has long-term agreements with personal computer manufacturers for the installment of free trials of some of its services and products on several brands of personal computers. AOL faces severe competition from many companies, including Viacom Inc, CBS Corp, News Corporation, The Walt Disney Company, NBC Universal, Yahoo!, Google, eBay, EarthLink, NetZero, as well as newer enterprises such as Facebook, MySpace, and YouTube. Time Warner Cable Time Warner Cable is the second largest cable operator in the U.S. after Comcast with services such as analogue and digital video, high-speed data and voice services, which are marketed and can be bought separately and as bundles. Because the market for basic video has matured, cable companies now offer many new services such as high definition television (HDTV), video on demand (VOD), digital video recorders (DVRs), high-speed Internet access, and digital phone. As of December 2006, Time Warner Cable has 13.4 million basic subscribers, 7.3 million digital subscribers, 6.6 million high-speed Internet subscribers, and 1.9 million digital phone subscribers. The companys subscriber base is highly concentrated in five geographic areas. Eighty-five percent of all of the companys subscribers are located in the state of New York, North and South Carolina, Ohio, Texas, and Southern California. Some of the services that Time Warner Cable offers include analogue and digital video plans,

Start Over, HDTV, DVRs, high-speed data services, Road Runner high-speed Internet access for residential customers, Time Warner Cable Business Class high-speed Internet access for commercial customers, and digital phone. Start Over is a new service to be offered in 2007 which would allow digital cable subscribers to start watching from the beginning television shows which have already started, as well as pause, go back, and fast forward them. In order to keep the revenue from advertising contracts, Start Over will not allow subscribers to fast forward or skip any commercials. Time Warner Cable also has agreements with Verizon Communications Inc and Sprint Nextel Corporation for traffic carriage and enhanced 911 service for its digital phone service. The company faces strong competition from Comcast, Dish Network, and DirecTV for its cable and high-speed data services, as well as Vonage for its digital phone service. Warner Brothers Warner Brothers is a leading producer and distributor of feature films. Its films are produced under Warner Brothers Pictures, Castle Rock and Warner Independent Pictures banners. It also distributes feature films to over 125 international locations. During the 2006/2007 season Warner Brothers released over 20 television series which were produced by Warner Brothers Television Group. Titles of some recent full-length movies and TV series include Superman Returns, March of the Penguins, Nip/Tuck, The O.C., Harry Potter and the Goblet of Fire, Happy Feet, Batman Begins, ER, Lady in the Water, Poseidon, as well as Charlie and the Chocolate Factory. In 2006 Warner Brothers released twenty-eight original motion pictures, four of which were financed entirely by Warner Brothers, with the rest being financed by or with others. Because the costs associated with producing and distributing feature films has gone up significantly in recent years, and

because the filming industry has traditionally been characterized by a lot of volatility in revenues and uncertainty regarding profits, many filming companies have started to enter into co-sponsorship agreements with other companies. Warner Brothers has such cosponsoring agreements with Village Roadshow Pictures, Legendary Pictures, and Virtual Studios. Warner Home Video is a division of Warner Brothers Home Entertainment. It produces and distributes DVDs for home use with content material produced by various divisions of Time Warner, such as Warner Brothers, New Line Cinema, HBO, and Turner Broadcasting System. Warner Brothers is also a leading supplier of television programming, which is distributed in over 200 countries and in over 45 languages. New Line Cinema New Line Cinema is a leading independent producer and distributor of theatrical motion pictures. In 2006 it released eleven feature films. Just like Warner Brothers, New Line Cinema also has co-financing agreements, most notably with the Royal Bank of Scotland. One of New Line Cinemas biggest successes to date is the Lord of the Rings trilogy which generated $2.9 billion in worldwide box office receipts. Other than the Lord of the Rings trilogy, New Line Cinema also recently produced Wedding Crashers, Monster-In-Law, Final Destination 3, and The Number 23. Turner Broadcasting System Turner Broadcasting System is a leading U.S. network operator, provider, and producer. It operates TBS, TNT, Cartoon Network, Turner Classic Movies, as well as Boomerang, CNN, Headline News, and CNN International. Many of these networks are watched by over 70 million households and CNN International is broadcast in over 200 countries. The

company generates its revenues by a mixture of advertising and monthly subscriber fees paid by cable system operators, hotels or other affiliates which have contracts to receive its services. Turner Classic Movies is an exception because it is commercial-free and therefore all revenues from this network come from subscription fees by the affiliates. Turner Broadcasting Systems networks are some of the most-watched among different age groups in the U.S. TNT was advertising-supported cables number 1 network in prime time with adult viewers in 2005. Also, in the same year TBS was number 1 with younger adults and Cartoon Network was number 1 in prime time with children. Furthermore, CNN aggregates about 2 billion audience impressions a day worldwide, which makes Turner Broadcasting System a leading network provider worldwide. Home Box Office (HBO) Home Box Office (HBO) is Americas most widely distributed pay television service. As of December 2006, the company had over 40.5 million subscriptions for HBO and sister service Cinemax in the U.S. The majority of the programming HBO offers consists of recently released, uncut, uncensored motion pictures. Some of the services HBO offers include high definition TV (HDTV) channels, as well as video-on-demand (VOD). HBO also produces and distributes award-winning drama and comedy series, movies, and mini-series. Titles of some of the recent popular HBO programs include Curb Your Enthusiasm, The Sopranos, Rome, and Entourage. HBO generates revenue mainly by subscription fees from the affiliates for the delivery of its services. It also licenses its original production to basic cable channels. Examples of that include the very popular Sex and the City and The Sopranos series. HBO has a strong international presence as its programming is sold in over 150 countries. Furthermore, HBO-branded services are available in over 50 countries in Asia,

Europe, and South America. HBOs production has consistently been recognized for its excellence and innovation. Some of the more recent awards won by HBO include twenty-six Emmy Primetime Awards in 2006 (more than any other network), seven Emmy Sports Awards in 2006, and three Golden Globe Awards in 2006. Time Inc. Time Inc. is a leading publishing company which publishes over 145 titles worldwide which are sold in over 100 countries. The company targets a very broad consumer market, from sports fans to business professionals. Some of its more popular magazine titles include Time, People, Sports Illustrated, Popular Science, Essence, InStyle, Fortune, Money, Life, Now, Real Simple, and Entertainment Weekly. It also operates several very popular websites, such as CnnMoney.com, SI.com, and People.com. Time Inc.s magazine production and distribution tend to be centralized. For example, most of the U.S. magazine activities are administered from Tampa, Florida. In terms of revenues, People generated about 15% of Time Incs revenue in 2006 and is the companys biggest single revenue source. Industry Time Warner is classified as being in the diversified entertainment industry. More specifically, it operates in the media, publishing, cable services, high-speed data services, and filmed entertainment. All of these industries are characterized by severe competition from a variety of companies, such as Viacom Inc, CBS Corp, News Corporation, The Walt Disney Company, NBC Universal, Yahoo!, Google, eBay, EarthLink, NetZero, Facebook, MySpace, YouTube, Vonage, Comcast, and Microsoft. Also, because of the nature of the industry,

competition also comes from a variety of websites, motion picture producers, and publishing companies which all compete for the consumers attention and money. The industrys performance is positively correlated to the general economic conditions. When the economy is strong, people have more disposable income and tend to spend more money on entertainment, media and communications products and services. And vice versa, when the economic conditions are weak, people tend to spend less on this type of products and services. Overall, the industry environment that Time Warner operates in is highly competitive and very volatile. In recent years, the companys returns (TWX) have been lagging behind market averages, as illustrated in the graph below which shows the companys returns plotted against those of the S & P 500 (^GSPC), the Dow Jones Industrial Average Index(^DJI), and the NASDAQ Index (^IXIC) (http://finance.yahoo.com):

TheEconomy

The U.S. economy for the next few years is extended to be strong, with steady unemployment and interest rates. Furthermore, the consumer confidence expectations and forecasts for 2007 are high, which would further translate into a healthy economy. This should act favorably for Time Warners future performance, as the company does better when the general economic conditions are strong.

SLEPT Analysis (Social, Legal, Economic, Political, Technological factors) Social

As consumers have become increasingly exposed to a wider variety of media, entertainment and communications outlets, their demands of such goods and services have grown as well. Media companies have began consolidating their service and product offerings, and society is shifting for towards a demand for an all-in-one service provider; in the near future consumers will be able to do far more than simply watch TV with their remote control.

The U.S. population's demographics are changing and so are its needs. As the baby-boomers, which constitute a big proportion of the U.S. population, are reaching retirement age, they would have more free time and a much higher demand for entertainment. This would position the entertainment and media

industries well for their future performance and should help companies in these industries experience increased revenues.

Legal

Media and communications industries have always faced substantial regulation, from the FCC to consumer protection legislature. As a diversified media and entertainment conglomerate, Time Warner faces much of this burden; more specifically, a company that provides its customers internet, cable, and phone services must avoid antitrust lawsuits by being careful in how they tie their products in. In addition, accounting practices are heavily regulated by the Securities and Exchange Commission. There was recent incident with Time Warner having to settle a $105 million lawsuit to the California State Teachers Retirement System and $405 million lawsuit brought on by its shareholders concerning accounting problems at AOL. T.W. just paid out $260m in the last of AOL lawsuits to Univ. of California.

According to the most recent annual report, during the fourth quarter of 2006, the company established an additional reserve of $600 million, bringing the total reserve for unresolved claims to approximately $620 million as of Dec. 31, 2006. During February 2007, Time Warner reached agreements in principle to pay approximately $405 million to settle certain of the remaining claims. As of February 22, 2007, the remaining reserve of approximately $215 million reflects the company's best estimate, based on the many related securities litigation

matters that it has resolved to date, of its financial exposure in the remaining lawsuits (which it plans to defend itself against).

Time Warner is currently under litigation investigation by the SEC following the putative class action and shareholder derivate lawsuits which alleged violations of federal and state securities laws and regulations and breaches of fiduciary duties by some of its current and former top executives.

Piracy of any of the Time Warner's content productions is associated with decreased revenues. Some countries in which the company operates have weaker/inefficient laws regarding protection of intellectual property, which exposes the company to an increased risk of losses due to piracy.

Economic

Media and entertainment companies' performance tends to be positively related to the general conditions in the economy. This is so because as people have more disposable income, their demand for media and entertainment services and products increases. 2007 is expected to be a year with a strong domestic economy and the forecasts for the next few years are also suggestive of strong economic conditions. This would position companies in the media and entertainment industries to perform very well in the next few years.

As recent innovations in the media/entertainment industry (such as digital cable, HDTV, TiVo, etc.) become more commonplace in consumer households, the demand for lower costs increases. However to stay ahead of the curve, firms must invest substantial amounts of capital into the infrastructure, research and development, and integration of the communication and media technology of the

future. While people seem to be bracing new media (blogs, podcasts, self-made videos, YouTube, MySpace, iTunes, online technology), old media like radio, television, newspapers, and magazines seem to be on the downward slope. However, thats not to say that a media meshing of these cant be done. Media meshing is a good way for a company to allocate its resources to save initial costs and promote communication within its businesses, and levering on their strengths. There are many opportunities to mesh new media and old media together that would be economically successful on Time Warners part. An example of this includes AOLs IN2TV.com, where television shows and films copyrighted by Warner Bros. could be seen for free online instead of buying them on DVDs or other forms of media.

Political

Time Warner faces significant political risk associates with the sovereignty of the countries where it operates. Political instability and volatility in one or more of the countries where Time Warner operates could mean large financial losses in lost revenues.

Time Warner is a U.S. based public company and as such it is required to disclose a lot of financial and operational information to the public. This puts the company under a lot of scrutiny and pressure to meet the expected returns calculated by analysts. This pressure could lead the company to focus on meeting short-term goals, such as achieving certain short-term profitability ratios, instead of focusing on its long-term goals.

Technological

Several of Time Warner's divisions operate in highly competitive, consumer-driven environments characterized by rapid technological change. In order to remain competitive, the company needs to keep up with the ever-changing technology. The success of the company depends significantly on its ability to exploit and implement new technologies in a timely manner so that it distinguishes its products and services from those of its competitors.

Firms such as Time Warner have had extreme technological advantages, as their existing infrastructure has allowed them to easily roll-out newer technologies such as digital video and voice transmissions over existing lines. However, new technologies such as fiber optics prove to be a difficult obstacle, as firms must find feasible ways of implementing a new technology. Even worse, with todays dynamic and quicklyevolving marketplace, it becomes even more difficult to discern which technologies will revolutionize the company and/or industry, and which will simply be fads. With the recent spin off of Time Warner Cable, Time Warner may be able to put their focuses on this company as innovative technologies for the cable industry is great. In addition, these new technological innovations provide many opportunities for acquiring companies that bring success to these new fads. Technological advances online has also great changed the advertising, customer usage, and production of online content and entertainment.

New websites with high entertainment value are being creating that attract millions and millions of users. Time Warner is not keeping up with this new standard in entertainment. Their online portal, AOL.com, is losing viewership every month.

MissionStatementandStakeholders
Mission
Increase shareholder value Stay ahead of the technology curve Continually strive to improve the various segments of our businesses Look for opportunities in new and emerging diversified media and entertainment markets Provide an environment for employees that fosters creativity and problem solving

Be socially responsible by giving back to communities in which we operate.

Stakeholders

Internal o Employees: Employees are the backbone of any business, and with Time Warner having 92,700 they are no exception. One of their core values is diversity in their workforce, and they try to attract and develop the best talent in the world. o Investors: As with any business, investors require a certain rate of return from their investment. If management is not doing what investors feel is in the best interest of the company, then management will hear about it. This was case On February 7, 2006, a group led by corporate raider Carl Icahn and Bruce Wasserstein unveiled a 343-page proposal calling for the breakup of Time Warner into four companies and stock buybacks totaling approximately $20 billion. On February 17, 2006, the Icahn-lead group agreed with Time Warner to not contest

the re-election of TW's slate of board members at the 2006 shareholders meeting. In exchange for the Icahn group's cooperation, Time Warner will buy back up to $20 billion of stock, nominate more independent members to the board of directors, cut $1 billion of costs by 2007, and continue discussions with the Icahn group over their proposal. Influential o Society: The needs of society are ever changing, and Time Warner has to stay abreast of these needs. Also, the reputation of the company in the eyes of society can either help or hurt the company. Transactional o Customers: Through Time Warners various business segments, there are many different types of customers. These range from consumers buying products such as magazines and dvds, to subscribers of their cable, internet, and phone services, to businesses licensing their various movie and television products. By having so many different types of customers, Time Warner has to make sure they determine the various needs of each type of customer and figure out how to solve those needs.

Core Values Creativity o We thrive on innovation and originality, encouraging risk-taking and divergent voices. Customer Focus

o We value our customers, putting their needs and interests at the center of everything we do. Agility o We move quickly, embracing change and seizing new opportunities. Teamwork o We treat one another with respectcreating value by working together within and across our businesses. Integrity o We rigorously uphold editorial independence and artistic expression, earning the trust of our readers, viewers, listeners, members and subscribers. Diversity o We attract and develop the world's best talent, seeking to include the broadest range of people and perspectives. Responsibility o We work to improve our communities, taking pride in serving the public interest as well as the interests of our shareholders.

Objectives: Quantitative and Qualitative

Qualitative: remain the biggest media conglomerate in the world, increase market share for Time Warner Cable; improve quality of service for digital phone and cable; Quantative: increase revenues for Time Inc, Warner Brothers and New Line Cinema by at least 10% for next year; increase market share for Time Warner Cable by 5%;

Analysis and Quantitative Forecast of Industry and Company 2007 and next couple of years the United States are expected to see a strong economy. Entertainment and communications companies usually do perform very well during such economic conditions. This is mostly due to the fact that as people have more disposable income and therefore can afford to spend more on entertainment and communications products and services, which are not considered basic needs. Therefore, the projected average annual sales and net income growth rate for the entertainment industry would be between 5 and 10 %. Because Time Warner has diversifies divisions, some of them could actually perform better then the industry average, which would give Time Warner a combined growth rate of above 10%, pushing Time Warner ahead of the industry average. If 2007 actually turns out to be a year with normal economic conditions, Time Warner and the entertainment industry would not perform as well, but it would be unlikely that they would be making losses. During normal economic conditions, the growth rate for the entertainment industry would probably be around 5%. Because Time Warner has the benefit of diversified divisions, it would expect a growth rate of about 7%, slightly above industry average. Finally, if 2007 turns out to be a year with weak economic condition, or a recession, the entertainment and communications companies are very likely to experience a much harder time generating growth. Under such economic conditions, the industry would probably have changes in revenues of about negative 5 to 10%, depending on the severity of the recession, and profits would probably change by about negative 5%. Under such conditions, we would expect Time Warner to report a decrease in combined net sales of about 5%, and no change or a slight dip in profits, because the company has diversified divisions which could offset the harsh economic

conditions (for example, Time Inc would probably still be profitable under weak economic conditions).

Adaptability, 3 Questions What business are we in? Time Warner Inc. is in the media conglomerate industry. Its businesses involve anything that has to do with entertainment. This includes television, film, internet, and printing. Its businesses are spread apart to cover any aspects that would entertain people. Its film and television networks businesses are doing very well and they are the top of their industry. However, their internet and publishing entertainment has been struggling due to their late start-up and fledging business coming from AOL and uncontrollable consumer trends with the Time Inc. business.

What business will be in? Time Warner Inc. will most likely continue to stay with its current businesses. They have so many products per business that it would be hard to divestiture many of them. Media conglomerates tend to stay with media. Since, Time Warner has covered all of the aspects of media, then they are most likely to stay with what they have, disposing of only some fledging products. The focus of the type of media might differ as consumer trends tend to influence what is shown on television, film, internet, and magazines. Other than that, there really is no reason for Time Warner to divert to another type of business.

What business should we be in? Time Warner has been at the top 5 of media conglomerates in the world. They've been successful

with what entertainment they've produced. Time Warner is where they should be. Although their AOL business has not been doing well (disposing of AOL access in Europe and China), Time Warner has done considerably well in leveraging its strengths to offset AOL's weaknesses. They should continue to do this and focus on other things that could turn its AOL business into a bigger success than when they had bought it. While Time Warner's CEO is soon to be replaced (his contract is expiring), the change in management should not deter Time Warner from its current businesses. If anything, it should bring them up to where they should be. Jeffrey Bewkes, the President of Time Warner, is next in line, and as he's known to bring in his entertainment background, he should be able to raise Time Warner's quality of entertainment to a higher degree that could bring in more customers and revenues to its businesses.

Effectiveness Druckers Eight

Market To increase the # of subscribers for TWC, Time Warner should improve its current Triple Play bundle Internationally, AOL as a content and e-mail provider still has the opportunity in foreign markets to focus on and increase the children and teenager as well as families markets Other international markets that havent be reached could expand by way of joint ventures in its Turner Broadcasting Inc., HBO, Warner Bros. Entertainment, and New Line Cinema Corporation Time Warner should anticipate Time Inc. to shed magazine titles as the market for the publishing industry is decreasing

Innovation Innovation through technology could be added to its current products from AOL and Time Warner Cable Capitalizing on innovations from small media companies, whove had a successful track record or show a promise for increasing growth, can be done by acquisitions, partnerships, and joint ventures Prioritize on innovations that are in the initial stages of development Time Warner Cable should implement its successful video on demand feature, interactive TV, and new-value added services for high speed data within the next couple of years

Profit Continue to decrease costs by $1 billion across businesses in 2006 and 2007 to increase profits Revenues rose 4% over 2005 to $44.2 billion, reflecting increases at the Companys Cable and Networks segments ; add on to these increases by 5-10% yearly

Societal Increase its contributions to its employees through workshops and work development programs

Increase in cash and in-kind contributions to support their community by implementing socially responsible programming, achieving journalistic integrity, and encouraging diversity in its investments by 25% within the next 5 years

Human Resources Reshuffling of employees may be needed if Time Inc. sheds some magazine titles that would create more jobs in the online industry market Other online technology jobs for website development, programming, site maintenance, and support would be created to create online sites Time Warner, CEO, Dick Parsons contract will expect on 2008 which spur on rumblings of his successor, many believe its Time Warners President and COO, Jeffrey Bewkes which could change the organizations structure, somewhat

Financial Resources Discontinued operations can contribute to Time Warners ability to provide cash for other financing activities. It is recommended for Time Warner to do this in the upcoming years, mainly in the Time Inc. business

Material Resources Shedding off material resources from AOL and/or Time Inc. that could gain some capital should be done to allocate resources elsewhere throughout the company Time Warners film segments will need to deal with the challenges coming from the evolving environment of digital distribution

Businesses should collaborate with Time Warner Cable to a find more opportunities and types of entertainment that would be beneficial to its markets

Productivity Increasing productivity by 15% in the film and television industries would be merited based on viewership, advertising dollars, and quality not quantity TWC should aim to increase productivity by spreading to new geographic locations Time Inc.s productivity in their online version of its magazines should increase by having up-to-date information

Efficiency

To address Time Warners efficiency standards for its future objectives, Time Warner should be able to efficiently produce television shows and films, producing more top quality shows and films, while spending less for its production and marketing. They could decrease the costs of production and salary expenses and increase the benefits by improving consumer spending on its products and gaining advertising revenues from those products. In terms of its future divestitures, they should be able to compute the costs and benefits of them, making sure those divestitures benefited the company in the long term. This can presently be seen through its divestitures of AOL accesses in Europe and Asia. While they brought on some losses (of nonoperable expenses) brought on in the short term, the benefits of cutting these and avoiding expending valuable resources for these products in the long term could greatly outweigh the

costs. Time Warner should continue to efficiently focus its resources and guide them to the right direction.

SWOT Analysis Strengths AOL Advertising o Revenues increased 41% for the year. o AOL is transitioning from a subscriber-based revenue model to an advertisingbased revenue model. o Reflected strong growth in display advertising, advertising run on third-party Web sites generated by Advertising.com and paid-search advertising. Time Warner Cable o Revenues increased 34% ($3.0 billion) for the year. o Adelphia Acquisition On July 31, 2006 Time Warner and Comcast completed their acquisitions of the assets of Adelphia Communications Corporation. This transaction resulted in a net increase of 3.2 million basic video subscribers served by Time Warners cable systems. o The year-over-year growth reflects the addition of the Acquired Systems, which contributed revenues of 1.7 billion. There was 15% growth in the Legacy Systems, which are the cable systems that Time Warner owned before the acquisitions. Subscription revenues rose 34%, led by video revenue growth of 26%. There was also an increase in high-speed data revenues, up 38%, as well as an increase in Digital Phone revenues of 16.3%. AOL-Google Alliance

o Google paid $1 billion in cash for a 5% indirect equity interest in AOL. Under the alliance, Google will continue to provide search services to AOLs network of Internet properties worldwide and will provide AOL with a greater share of revenues generated through searches conducted on the AOL network. The alliance gives AOL the opportunity to sell search advertising directly to advertisers on AOL-owned properties. Diversification of Businesses o Time Warner has businesses that can be classified into five different segments: AOL, Cable, Filmed Entertainment, Networks, and Publishing. Through these different segments they provide internet access, cable television, digital phone, an online web portal, two movie production companies, multiple cable and pay television channels, and a wide variety of magazines and publications. What this diversity in business holdings does for the company is decrease the risk of any one of their business divisions or businesses in having an overall negative effect on the company. If for some reason their publishing division took a negative loss, or the whole publishing industry took a negative loss, Time Warner still has other various businesses to rely on to make up for those losses. Digital Phone o With the Digital Phone service, Time Warner can offer customers a combined, easy-to-use package of video, high-speed data and voice services, allowing them to compete effectively against similarly bundled products offered by competitors. o Digital Phone is delivered over the same system facilities used by Time Warner Cable to provide video and high-speed data service. Unlike internet service

providers, such as Vonage and Lingo, which utilize the Internet to transport telephone calls, TWCs Digital Phone service uses only TWCs managed network and the public switched telephone network to route calls, which Time Warner believes allows it to better monitor and maintain call and service quality. o Time Warner has agreements with Verizon Communications, Inc. and Sprint Nextel Corporation under which these companies assist it in providing Digital Phone service, delivering enhanced 911 service and assisting in local number portability and long distance traffic carriage. Intellectual Property o Labeled as their most valuable asset, much of their profit generation comes from copyrights and ideas rather than physical sales. Because of all the different media that Time Warner owns and has the rights to, they are able to license this content to generate revenue. Weaknesses AOL Subscription service o Revenues decreased 14% for the year. o AOL is transitioning from a subscriber-based revenue model to an advertisingbased revenue model. o This resulted mainly from a decline in domestic AOL brand subscribers, which related partially to AOLs strategy, implemented in 2006, of offering its e-mail, certain software and other products free of charge to internet users. AOL-Time Warner Merger

o Time Warner is still being affected by the merger between AOL and Time Warner. Post-merger, a goodwill write down was forced, causing AOL Time Warner to report a loss of $99 billion in 2002 - at the time, the largest loss ever reported by a company. Since then, the company has been trying to revive the AOL brand as well as the company as a whole. Branding of Cable, Internet, and Digital Phone services o Unlike rival Comcast, Time Warner has only begun to offer the three combined services to their customers. They have had little marketing efforts thus far to find new customers. Adverse effects resulting from litigation o During the Summer and Fall of 2002, 30 shareholder class action lawsuits were filed naming as defendants the Company, and certain current and former executives of the Company. The complaints alleged that the Company made material misrepresentations and/or omissions of material fact in violation of the Securities Exchange Act of 1934 claiming that the company failed to disclose AOLs declining advertising revenues and that the Company and AOL inappropriately inflated advertising revenues in a series of transactions. Also, certain lawsuits alleged that certain individual insiders at the Company improperly sold their personal holdings of Time Warner stock, that the company failed to disclose that the AOL-Time Warner merger was not generating anticipated synergies, and that the company delayed writing down more than $50 billion of goodwill.

o What this meant for the company thereafter and even today is that there is still a loss of confidence in the management of the company. If they are able to fail to disclose information, what else are they capable of doing. Opportunities Sell their Internet and Digital Phone services to current Cable customers o Time Warner has approximately 11 million cable customers. Out of those customers, 5.2 million use their internet service. Also, out of those 11 million cable subscribers, only 1.4 million use their digital phone service. So as you can see, there is a real opportunity for growth among current Time Warner cable customers to sell them these other services. Time Warner to have New CEO o This could either be an opportunity or weakness o However in the case of Time Warner, it really means that they have an opportunity for change. By replacing Richard Parsons with someone different who can bring New Life so to speak to the company, this person should be able to make significant changes, which the old CEO could not have made. New and increased popularity of alternative technologies for the distribution of news and entertainment o Internet With Myspace, Facebook, and Youtube becoming so popular, Time Warner really as to start developing similar content to stay with the current trend.

Bring current traditional Time Warner news and entertainment to the Internet. This will be shown later in our strategies section. o Mobile Devices Look to develop partnerships to gain entry into this market. New and emerging markets o Technology Digital Phone is a new and emerging market with lots of growth opportunity o International International expansion for Time Warner through their many different publications, movies, and television channels has endless possibilities. Threats Comcast o Comcast is identified as a threat because of the way they have already branded their three services, cable, internet, and phone, and have had a huge success selling them. Also, they have advertised well to generate new business. The Internet and New Technologies o New websites such as Myspace.com, Youtube.com, and Ziddio.com, just to name a few, are providing new types of entertainment that were not available before. This is posing a threat on the traditional types of entertainment, such as print publications, movies, and television. Time Warner predominantly consists of

traditional media, whereas what is becoming increasingly popular is these new internet websites. Copyrights and Piracy Issues o Because much of Time Warners profit generating comes form copyrights and ideas rather than physical sales, they face a large risk of pirating and copyright infringement issues. Their movie division is a large target and revenue lost due to piracy issues can have a negative impact on the divisions bottom line. Pending Securities Litigation and Consent Order with the SEC o In connection with the Companys settlement with the SEC, the Company consented to the entry of a Consent Order requiring it to comply with federal securities laws and regulations and the terms of an earlier order. If the Company is found to be in violation of the Consent Order, it may be subject to increased penalties and consequences as a result of the prior actions. o During 2002 and 2003, many putative class action and shareholder derivative lawsuits alleging violations of federal and state securities laws and ERISA, as well as purported breaches of fiduciary duties, were filed against Time Warner, and the results of these lawsuits are still being seen. In 2005, the Company established a reserve aggregating $3 billion to settle future lawsuits, and of this amount, only $215 million is left. Economy with regards to Advertising-based Revenue o AOL's transition from subscription based revenue to advertising increases their risk if the online advertising market declines. Expenditures by advertisers tend to be cyclical, reflecting general economic conditions, as well as budgeting and

buying patterns. If the economy became weak for one reason or another, this could really threaten AOLs advertising revenue. International operations o Many multinational companies face these same international risk: Import or export restrictions and changes in trade regulations Staffing problems Stringent local labor laws and/or regulations Political or social unrest Longer payment cycles Economic unstability Seasonal volatility associated with business cycles Currency exchange rate fluctuations

Porters Analysis Barriers to Entry In the world of telecommunications, an immense amount of time, capital, and equipment (among many others) are required to establish a sufficient infrastructure and network. New entrants can expect long lag times before becoming profitable, as it takes a substantial amount of time before a subscriber base can be built to offset the costs of building and advertising a new telecommunications service. Even worse, many non-cable competitors already have their products installed on personal computers through manufacturer relationshipswhich makes it even more difficult to reach the consumer.

Internationally, reduced purchasing power means that hi-tech telecommunications devices are more impractical, despite the growing use of the internet. Where many countries have few television sets and stations, it would be hard to imagine consumers paying more for cable services. In addition, many providers have had extreme difficulties penetrating foreign markets, as government regulations and a lack of the local knowledge required to launch any form of media has ultimately caused the competition to pull out of foreign markets. Despite these unfavorable conditions many firms have experienced success when entering, mostly in niche markets; this has recently been accomplished through massive advertising campaigns from companies that traditionally have no physical infrastructures (like a cell-phone network, or VoIP services) and that compete by offering services or support that existing competitors are perceived as doing poorly in. Barriers to Exit With such massive infrastructures that consist of expensive technological equipment, one can imagine that this is quite difficult to dispose of. Because this equipment is valuable even if the company that owns it is failing, many exits are characterized by divisions and/or acquisitions. Internationally, an exit in one foreign country may have an extremely adverse effect on brand image and reputation when trying to enter similar neighboring countries. Rivalry among Competitors Rivalry in the telecommunications industry is extremely intense and consumer-driven. However, recent increases in the competitive, regulatory and technological environment have altered the landscape, especially now that there is an increasingly abundant amount of alternative

and interactive media sources; nowadays the internet isnt just for computers, the television isnt just for watching TV, and phones certainly arent just for calling people anymore. While joint projects between competitors (mainly between cable providers and wireless providers) have changed rivalry, competition in the industry is still largely dependent on each companys ability to develop, adopt, acquire and exploit new and existing technologiesbut with the dynamic and ever-changing environment, there is no guarantee that the invested technology will remain or become the prevailing standard. Power of Buyers Traditionally the power of buyers has been extremely lowfew competitors, relatively high demand, locked-in contracts, and high cancellation and switching costs have all led to favorable advantages for existing competition. In addition, new technologies have tied-in costs for consumersfor example if you buy a PC, you probably need the internet; likewise if you buy and HDTV, youll need to buy HD cable. However, buyer options have been expanding though government deregulation and an increase in competitors throughout all technological industries and media sources. With consumers and audiences experiencing more leisure and entertainment time (and have found sources outside a magazine, newspaper, or TV), competitors have had to alter their strategies to remain competitive and accommodate such changes, which ultimately boosts buyer power. Power of Suppliers As mentioned above, the dominance of a few suppliers in the market has historically reduced the power of buyers significantly. In addition to the relative control over buyers, few

companies truly have the required and necessary capital, technology, infrastructure and knowledge to compete, which has strengthened the power of existing media suppliers. However, several forecasted changes may sway the power into the hands of the buyer: the abovementioned changing consumer habits, more demanding customers, the possibility of stricter regulation, and the perils of piracy and intellectual property infringement. Availability of Substitutes The availability of substitutes is extremely high, and will only continue to grow. The prevalence of alternative media forms has been growing exponentially via the internet and other digital and interactive media sources. This is even seen in other industry segments, mainly due to the fact that the internet is becoming accessibly through a growing amount of non-PC devices. As new technologies enter the market, we can expect to see even more new competitors. Looking into the cable industry specifically, while there are relatively few competitors, alternatives such as satellite cable have become more attractive as licensing agreements have allowed them to offer far more exclusive programming (most notably in sports). But to the cable companies credit, competitive alternatives have remained relatively low due to the face that most regions only offer one exclusive cable provider. Government Action Domestically, the communications industry faces extremely stringent regulations from the Federal Communications Commission. While local laws are less applicable, franchising fees and state government also play a large role. While it seems that FCC regulation has been extremely tight recently, analysts are worried that certain deregulations may completely change

the landscape and open the flood gates for tons of new competition. Internationally, government action takes on an especially important role as there are varying international standards regarding media content and free speech, as well as many host governments playing favorites when it comes to their own domestic providers.

Share Analysis (see appendix A)

Recommendations Time Warner- Overall Objectives Maintain or expend the audience to the AOL Network and increase their activity Increased ad revenues to balance out subscriber losses Solidify domestic positions before entering to new foreign markets Identifying prevailing new technology opportunities Increase revenue by 20% yearly Increase net income by 10% yearly Increase profits by 12% yearly

Time Warner- Overall Strategies These overall strategies could be used by many of its businesses. Some examples are listed below. Then, specifically we cover strategies for each businesses.

Market Penetration- Time Warner should increase its market share for present products in present markets through great marketing efforts. An example of this could be sponsoring some sports celebrities to appear on their behalf.

Market Development- Time Warner should introduce present products or services into new geographic areas. Its Time Warner Cable businesses should continue to expand to geographic locations that they have not yet tapped.

Product Development- Time Warner could increase is sales by improving present products or developing new ones. This could be taken by any of its businesses, mainly the developing of new products for Time Warner Cable, as well as integrating them with its AOL, television, and film businesses.

Joint Venture- Time Warner has been known for its joint ventures historically. They could continue using this strategy in businesses where its appropriate.

Divestiture- It already started this strategy with AOL. Time Warner should continue to use this strategy specifically with its Time Inc. business.

Time Inc. As mentioned previously, Time Inc. needs to get rid of some of its unfocused and unsuccessful magazine titles Those that are in the borderline or are producing so-so numbers could be integrated online as online magazines

AOL Leverage and integrate new content from Time Warners other segments into the AOL web portal o Integrate current content owned by Time Warner such as movies, print publications, and television into the AOL web portal. By increasing the offerings of AOL, their main online web presence, an increase in unique visitors as well as an increase in advertising impressions per visitor should follow. Transition current AOL subscribers to Time Warner high speed internet o As of December 31, 2006 AOL had 13.2 million access subscribers in the U.S. AOL is transitioning from a primarily subscription-based business to an advertising supported global web services business. This can be seen by their recent agreements to sell much of their international subscriber businesses. For this reason AOL should help the transition by offering its high speed internet to current AOL subscribers. Increase AOL Networks offerings o The AOL Network currently consists of AOL.com, AIM, Mapquest, Moviefone, ICQ, and Netscape. AOL should continue to develop and offer a variety of other premium content, services and applications that appeal to high-speed and mobile users. Also, acquisitions of other internet properties that could add value to AOLs current content offerings would be a good investment. Create new partnerships with Computer and Mobile device companies o Enter into new and extended deals to secure placement of AOL offerings on new computers and mobile devices to distribute and promote its current products and

services. The new trend is accessing the internet and entertainment through mobile devices, so AOL has to make sure it stays on top of this. Increase International Web Presence o AOL faces much competition from other international web portals. They should look to acquire internet properties with an international presence to not only increase their user-base, but also increase AOL brand awareness overseas.

Filmed Entertainment Strategies Continue to enter into increased film co-financing arrangements o Of the total 2006 WB films released, four were wholly financed by Warner Bros. and 24 were financed with or by others. By having their films co-financed, they are alleviating much of the risk involved in the creation of films. o Also, by having their films co-financed, Warner Bros. has extra money available to create more and larger films. Continue to pre-sell the international rights to film releases o New Line Cinema typically does this, but could even pre-sell more of their films to decrease their risk. Also Warner Bros. should look to this strategy in order to decrease their risk as well. Continue to find and enter into exclusive distribution arrangements with other film companies.

o This enables an increase in revenue as well as the ability to provide a wider variety of movies through its television and home video offerings. Provide film content as well as television programming content through the AOL web portal and other online properties. o Since the sales of DVDs have been decreasing, providing their available Filmed Entertainment content through another medium should provide increased revenue. Continue to look for new licensing agreements for the digital delivery of Time Warners movies and television programming to consumers via online and wireless services. o Currently they are seeking agreements with Apples iTunes, Wal-Mart, Amazon, Best Buy, and Microsofts Xbox 360 just to name a few. o Television and DVDs are slowly becoming a thing of the past. With the internet becoming what it is and new entertainment websites becoming available every day, Time Warner needs to stay competitive by offering its content online and through wireless services.

Time Warner Cable For Time Warners Cable unit as a whole, we have several recommendations that we beleive will bring substantial growth and profit. While we are making sure we remain the leader in the nations two largest markets (New York and Los Angeles), we strive to be the leader in every market that we serve. To accomplish this we have proposed three general strategies aside from those specific to the Video and Data/Voice Units.

To encourage and foster such growth, Time Warner must first increase its branding and awareness for its Quadruple Play packaging, as competitors such as Comcast have had the firstmover advantage in terms of advertising. However, we feel that the added services we provide will set us ahead of the pack, where other competitors advertise a less advanced Triple Play package. Second, our strategy will focus on continuing the development of wireless joint ventures in entertainment. We see the future of communications as one where consumers use their cellular phones for much more than talking (same as what has happened in Japan), and we want to be involved in this phenomenon that has already begun to take off. We can capitalize on this not only by gaining a new outlet to advertise in and gain advertising revenues from, but by using these relationships to integrate our other segments products (such as popular movies, news services and TV shows) into mobile technologies as well. Lastly, Time Warners cable unit must reduce the risks and costs involved with the Adelphia/Comcast transaction, as we dont want to stumble in the new markets that the acquisition has provided us with. While most of the acquisitions problems are in the past, there are still a great deal of Adelphias acquired systems that are not yet up to Time Warners technological standards, which will cost a substantial amount of time and money to revamp. For Time Warner Cables video unit, we have also proposed several strategies to further promote our growth opportunities. To do this, Time Warner must first increase its product exposure and presence but capitalizing on wireless, interactive, and Video-On-Demand promotional tie-ins. This additional roll-out of two-way digital interactive cable services will help differentiate the firm from competitors, continue to open doors for further promotional partnerships, as well as further integrate Time Warners product profile into a more cohesive and encompassing package. Most importantly, the Video division plans to change the way viewers

watch TV and use the cable box by getting rid of the box altogether! Currently, no set-top cable box is capable of providing all of Time Warner Cables services on top of other inherent technological problems that they possess. On top of this, new regulatory legislation in the works will effect taxation on set-top boxes, making them not only more expensive for Time Warner to provide, but more expensive for consumers to use. That said, we dont want to wait for a box that is capable of all of TWCs serviceswe see the future dominated by CableCards, which are smart-cards that hold all of a customers relevant information that practically eliminate the need for a box altogether. Our analysis has also yielded several strategies in regards to Time Warner Cables respective data and voice units. While we have mentioned that we would like to eventually transfer AOLs dial-up subscribers to TWC high-speed data services, our primary objective is to maximize the efficiency of Adelphias acquired systems and make sure that the networks are integrated so that all of our customers have a full array of options and capabilitiesand that they dont confuse our service in the new region with that of Adelphias (possibly a reason why they are now defunct). We hope we can use the internet and advertising revenue experience (as well as learn from their mistakes) that AOL, CompuServ and our other past and present online ventures as leverage into our high-speed data services. For Time Warner Cables new voice services, we should begin to diversify by offering more service and price optionswhile an allinclusive, single rate, low cost voice service is appealing, Time Warner can gain further penetration by offering different bare-bones packages at bargain prices to gain consumer loyalty and beat out existing VoIP and even standard phone providers. Lastly, Time Warner Cables voice unit can exploit the success of its data services in the commercial market by launching a commercial version of its current voice service offering instead of just a residential one.

Networks Increase number of exclusive contracts with motion picture studios and independent motion picture distributors in order to gain competitive advantages over other networks. Utilize the synergies created by the merger of all divisions of the companies better so that networks would have a competitive advantage when searching for quality producers, authors, directors and actors. Increase spending on advertising and improve its quality in order to increase the likelihood the productions of the networks will be well-accepted by the audience, thus increasing the likelihood of larger revenues. Launch local network shows/productions in the foreign markets with highest profit prospects so that these shows/productions meet the unique needs of the local markets.

Alternative Strategies

Focused Differentiation o This strategy would not work because the markets that Time Warner operates in are not narrow market niches where buyer needs and preferences are distinctively different. Follow a Global Strategy to Enter and Compete in Foreign Markets o The reason this strategy will not work is because if Time Warner essentially uses the same competitive strategy approach in all country markets where the company has a presence, and doesnt tailor their strategy to the specific culture and

environment of each individual country, then they will face many hurdles in entering and sustaining business in these countries. An example of this can be seen by other companies such as Wal-Mart who tried to use the same strategy in every country and failed. Franchising Strategy to Enter and Compete in Foreign Markets o This strategy would not work because franchising is often better suited to the global expansion efforts of service and retailing enterprises. In the instance of Time Warner, they have their cable, Internet, and phone business, which takes a lot of infrastructure to setup. Also, they have their publishing, television and movie segments, which require a lot of capital and industry relationships. So franchising any of their operations really is not a viable option for them. Pursue Multinational Diversification o Even though Time Warner as a company is always looking to expand internationally, we feel that before they begin their full international expansion plan, Time Warner really needs to have everything within the United States in order. They have just begun offering and branding their three services, digital cable, high speed internet, and digital voice. They have a long way to go before they reach their full potential in this market and should focus domestically before beginning their international expansion process. Unrelated Diversification o Within the last few years Time Warner has been divesting some of its unrelated businesses, such as the professional wrestling company WCW, and the Atlanta Hawks basketball team. Going along with this trend, we feel they should

continue to stay with related businesses and focus on their core competencies. Unrelated diversification for Time Warner would only lead to the increasing of demanding managerial requirements and limited competitive advantage potential.

Projected Pro Formas Cash Flow Statement (see appendix B) Given Time Warners recent transactions, estimating future cash flows is an especially difficult task. That said, changes in capital expenditures and net working capital are near impossible to calculate on a timely basis, mostly due to timing issues in production and programming schedules. Interestingly, the only numbers that have stayed constant over time (and that will continue to do so) are amortization and depreciation. While cash from operating activities is expected to continue to rise at steady growth rates for the foreseeable future, the rest of the cash flow sheet has been extremely volatile. Cash losses from investing activities was at an all time high after 2006 with -$12,472 million due to the Adelphia acquisition, and it is estimated that these numbers will slowly taper off over the next five years, eventually returning to their usual numbers. However such cash from investing activities has historically changed frequentlywhile acquisition costs have been somewhat offset as Time Warner sells off most of its less-than-profitable business lines, the company realistically only has companies to acquire (instead of shed) now that it has trimmed all the fat. While cash from financing activities has traditionally been negative and increasing, 2006 was a unique year in the fact that Time Warner not only borrowed a large amount in reference to the

Adelphia transaction, but by the fact that it sponsored one of the largest stock buyback programs in history. So while this year actually showed a positive figure for cash from financing, we can expect that this number will continue to grow negatively in the near future. While much of this years numbers have been out of the ordinary, our strategies and objectives have positioned Time Warner in a way that they can recover from such deep investments and return to steady increases in cash flows in the near future. Balance Sheet (see appendix C) Increase in Cash of approximately $2.5 billion in 2007 o This is due to AOL finalizing the deals for the sale of their overseas subscription Internet businesses. Number of Shares Outstanding decrease from 2006 to 2007 o The number of Shares Outstanding of Time Warner stock decreased from 3,864,000,000 in 2006, to 3,230,000,000 in 2007. The reason for this decrease is that Time Warner management agreed to buy back $20 billion stock during 2007. Income Statement (see appendix D) Revenue increases 10% yearly o This steady increase in revenue is a result of Time Warners strategy implementation. The increase in revenue year-after-year will be attributed to their increase in sales from their branding and sale of their triple-play package: digital cable, high-speed internet, and digital voice. o Also, increased revenues from their AOL Network will help increase the companies overall revenue yearly. The AOL segments strategies to utilize

current Time Warner content to attract and retain new and current visitors will increase AOLs advertising revenue. o As long as the company continues to expand its operations through its current business segments, or through acquisitions, this 10% level of yearly growth is sustainable through our projection period. Cost of Goods Sold as a percentage of revenue is decreasing by 1% yearly o This decrease each year by 1% in Cost of Goods Sold is due in part by each of the segments of Time Warner focusing more on their core competencies and really increasing their revenues without having to expand their cost base. o Time Warner Cable will use their strategy to focus their sales of digital voice and high-speed Internet on current digital cable customers. Since Time Warner has 11 million cable customers, but only 5.2 million internet customers and 1.4 million digital phone customers, there is a large opportunity for them to cross-sell their services. Because the entire infrastructure is already in place for these current customers using digital cable, this added revenue would come at a cheaper cost. o As AOL transitions from being primarily subscription-based to advertising-based, this division should see a decrease in overall cost margins dues to the lack of infrastructure costs associated with running an Internet Service Provider. Also, the cost of providing advertising versus the cost of Internet service is cheaper. Operating Margin is increasing at a slightly decreasing rate (around 9%) o During our projection period, the Operating Margin increases each year by approximately 9%. Even though the margin is increasing each year, it is increasing at a decreasing amount. The reason for this slowing down of growth is

because as the company continues to expand and evolve, it needs time to solidify its different operations and segments. Certain of the companys segments may be expanding into new regions and countries, but then take time to fully integrate them into Time Warner. If different operations of the company might not be fully integrated into Time Warner, what would follow are increased selling, general, and administration costs until this integration can be accomplished. Net income increases 10% yearly o The 10% increase yearly of Net Income is a combination of all of Time Warners strategies as well as their effects mentioned above. o The 10% increase in revenue yearly really had a large effect on the increase in Net Income. o If Time Warner can continue to grow while keeping costs low with their economies of scale, they should their Net Income grow year-after-year.

Appendices

Share Analysis (Appendix A)

Number of Shares James L. Barksdale Jeffrey L. Bewkes Stephen F. Bollenbach Paul T. Cappuccio Frank J. Caufield Robert C. Clark Jessica P. Einhorn Miles R. Gilburne Carla A. Hills 96,470 222,507 7,988 0 259,537 25,576 495,619 1,045,368 14,224

Option Shares 88,000 5,193,750 106,000

% of class * * *

2,793,750 968,000 4,000 0 2,008,000 110,500

* * * * * *

Don Logan Reuben Mark Michael A. Miles Kenneth J. Novack Wayne H. Pace Richard D. Parsons R.E. Turner Francis T Vincent Jr. Deborah C. Wright All current Directors and Executive Officers as a group (21persons)

425,486 1,047,776 53,317 34,329 173,045 638,742 32,272,578 79,472

5,283,754 110,500 110,500 5,859,602 1,416,213 7,212,500 8,906,000 101,500

* * * * * * * *

1000 36,628,919

0 36,949,084

* 1.63%

Note: * denotes ownership less than once percent of issued and outstanding stock

Price Year High Year Low P/E Ratio

$19.45 $23.15 $15.70 12.39

Beta Shares Outs. Market Cap. Cash Flow Statement EPS Dec 05 Dec 06

1.36 4,001,800,000 $86.6 BB 1.57 Dec 07 Dec 08 (Appendix B)

Cash Flow

Dec 04

Dec 09

Dec 10

Dec 11

Dec 12

Cash from Operating Activities Cash from Investing Activities Cash from Financing Activities Net Change in Cash $3,099 ($1,919) ($2,671) $750 $2,500 $3,300 $4,000 $3,750 $3,200 ($3,016) ($4,388) $1,203 ($500) ($1,250 ($3,000 ($4,500 ($5,000 ($6,000 ) ) ) ) ) ($503) ($2,496) ($12,472) ($7,000 ($5,000 ($3,000 ($1,000 ($1,500 ($1,500 ) ) ) ) ) ) $6,618 $4,965 $8,598 $8,250 $8,750 $9,300 $9,500 $10,25 0 $10,70 0

Balance Sheet (Appendix C)

Time Warner - Balance Sheet (in millions) Dec 04 ASSETS Current Assets Cash Net Receivables Inventories Other Current Assets Total Current Assets Net Fixed Assets Other Noncurrent Assets Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts Payable Short-Term Debt Other Current Liabilities Total Current Liabilities Long-Term Debt Other Noncurrent Liabilities Total Liabilities SHAREHOLDERS' EQUITY Preferred Stock Equity Common Stock Equity Total Equity Total Liabilities and Shareholders' Equity 1,500.00 60,771.00 62,271.00 123,339.00 0.00 62,679.00 62,679.00 122,476.00 300.00 60,389.00 60,689.00 131,669.00 300.00 61,579.67 61,879.67 125,828.00 300.00 61,449.22 61,749.22 126,657.67 300.00 61,139.30 61,439.30 128,051.56 300.00 61,389.40 61,689.40 126,845.74 300.00 61,325.97 61,625.97 127,184.99 300.00 61,284.89 61,584.89 127,360.76 5,091.00 1,672.00 7,861.00 14,624.00 20,703.00 25,741.00 61,068.00 4,901.00 92.00 7,615.00 12,608.00 20,238.00 26,951.00 59,797.00 11,188.00 64.00 1,528.00 12,780.00 34,933.00 23,267.00 70,980.00 7,060.00 609.33 5,668.00 13,337.33 25,291.33 25,319.67 63,948.33 7,716.33 255.11 4,937.00 12,908.44 26,820.78 25,179.22 64,908.44 8,654.78 309.48 4,044.33 13,008.59 29,015.04 24,588.63 66,612.26 7,810.37 391.31 4,883.11 13,084.79 27,042.38 25,029.17 65,156.35 8,060.49 318.63 4,621.48 13,000.61 27,626.07 24,932.34 65,559.02 8,175.21 339.81 4,516.31 13,031.33 27,894.50 24,850.05 65,775.87 6,289.00 5,512.00 1,737.00 1,101.00 14,639.00 17,509.00 91,191.00 123,339.00 4,220.00 6,411.00 1,806.00 1,026.00 13,463.00 13,659.00 95,354.00 122,476.00 1,578.00 4,029.00 6,151.00 1,913.00 1,209.00 10,851.00 22,169.00 98,649.00 131,669.00 6,024.67 1,818.67 1,112.00 12,984.33 17,779.00 95,064.67 125,828.00 3,275.67 6,195.56 1,845.89 1,115.67 12,432.78 17,869.00 96,355.89 126,657.67 2,960.89 6,123.74 1,859.19 1,145.56 12,089.37 19,272.33 96,689.85 128,051.56 3,421.85 6,114.65 1,841.25 1,124.41 12,502.16 18,306.78 96,036.80 126,845.74 3,219.47 6,144.65 1,848.77 1,128.54 12,341.44 18,482.70 96,360.85 127,184.99 3,200.74 6,127.68 1,849.74 1,132.84 12,310.99 18,687.27 96,362.50 127,360.76 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

Shares Outstanding (mil.)

4,483.00

4,498.00

3,864.00

3,230.00

3,230.00

3,230.00

3,230.00

3,230.00

3,230.00

Income Statement (Appendix D)

Dec 05 Revenue Costs of Goods Sold Gross Profit 43,652.0 Dec 06 44,224.0 Dec 07 48,646.4 Dec 08 53,511.0 Dec 09 58,862.1 Dec 10 64,748.4 Dec 11 71,223.2 Dec 12 78,345.5

25,046.0 18,606.0

25,175.0 19,049.0

27,189.0 21,457.4

29,364.1 24,146.9

31,713.2 27,148.9

34,250.3 30,498.0

36,990.3 34,232.9

39,949.6 38,396.0

Gross Profit Margin 42.60% SG&A Expense 7,277.0

43.10% 4,734.0

44.11% 5,207.4

45.13% 5,728.1

46.12% 6,301.0

47.10% 6,931.0

48.06% 7,624.2

49.01% 8,386.6

Depreciation & Amortization

6,781.0

6,953.0

7,125.0

7,297.0

7,469.0

7,641.0

7,813.0

7,985.0

Operating Income

4,548.0

7,362.0

9,125.0

11,121.8

13,378.9

15,926.0

18,795.7

22,024.4

Operating Margin Net Income After Taxes

10.40%

16.60%

18.76%

20.78%

22.73%

24.60%

26.39%

28.11%

2,921.0

5,114.0

5,594.3

6,207.3

6,916.3

7,711.5

8,546.8

9,472.0

Total Net Income

2,921.0

6,552.0

7,207.2

7,927.9

8,720.7

9,592.8

10,552.1

11,607.3

Net Profit Margin

6.70%

14.80%

11.50%

11.60%

11.75%

11.91%

12.00%

12.09%

ScheduleofStrategyImplementation(AppendixE)

(Schedulecontd)

Bibliography

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