AOL TW poised to sell Comedy Central

Company originally asked $1.5 billion for cabler

Investors will get their first taste of 2003 vintage earnings this week as Viacom and AOL Time Warner line up to report first-quarter results and possibly offer up a meaty deal or two that may kick media shares out of their recent malaise.

Anticipation has been gathering on the Street that AOL Time Warner will polish off at least one asset sale in order to put a shine on its financial results announcement Wednesday.

That’s when AOL Time Warner is expected to announce that it has sold its 50% stake in cabler Comedy Central to co-owner Viacom for $1.22 billion.

AOL TW has been looking to unload its stake in Comedy Central for at least a year, originally asking for $1.5 billion.

Comedy Central was born in December 1990 after Time Warner agreed to merge its struggling Comedy Channel, which had been a part of HBO, with Viacom’s equally struggling MTV Networks outlet Ha!: The TV Comedy Network.

AOL TW operates an all-comedy digital pay service, HBO Comedy, but the decision to give up its stake in Comedy Central was met internally with some resistance, particularly from Ted Turner, who maintains a seat on the conglom’s board.

Laughs last

MTV Networks once again gains an all-comedy channel, taking on oversight of Comedy Central now that Viacom will own 100%.

Viacom had been anxious to acquire all of Comedy Central, given its age skew (under 40) and how it complements existing properties like MTV, Nick at Night, VH1 and TNN (soon to be renamed Spike TV). Insiders said Viacom is still hungry for acquiring other potentially available cable programming assets including USA Network’s Sci Fi Channel.

Comedy Central has been best known in recent years for series such as “South Park,” “The Man Show” and its signature daily “The Daily Show with Jon Stewart.” The cabler performs best among men 18-34 (where it placed fourth among all basic nets for the week ending April 13 with a 0.5 rating) and persons 12-34 (sixth place with a 0.4 rating).

With “South Park” no longer the phenom it once was, Comedy Central has seen some ratings erosion from those days. Still, the net has launched a line of made-for-TV movies and has high hopes for new entries including the Colin Quinn series “Tough Talk.”

Warner Communications originally launched MTV Networks (along with American Express), but it sold the cable nets to Viacom in 1986.

Meanwhile, AOL TW, which will announce its first-quarter report card Wednesday morning, is expected to meet its admittedly tempered earnings targets, thanks to vigilant cost-cutting and ad sales improvements on the publishing side. Soundview Technologies analyst Jordan Rohan expects first-quarter sales to be up 4% over last year to $9.8 billion, with earnings before tax, interest, depreciation and amortization of around $1.88 billion.

Stock improvement

Despite a rash of shareholder lawsuits against the company and its key managers, AOL TW shares are actually up 25% from February lows — though down 5% for the year.

Meanwhile, sector stalwart Viacom will announce financials this morning amid concerns of serious ad slowdowns in its radio division and other war-related ad sale penalties in its TV business. Like AOL TW, Viacom shares are off 5% for the year, though up 21% from its mid-March lows. With war jitters fast ebbing, investors are anxious for a catalyst that will kickstart some much-needed growth among media stocks.

Despite the ongoing legal and regulatory headaches and the painstaking process of turning around the America Online unit, AOL TW’s operations are healthy — only the AOL division and Warner Music are expected to show revenue falloffs compared with last year. Soundview’s Rohan is expecting revenues from filmed entertainment to be up 4% year on year to $2.2 billion for the quarter, though cash flow will likely shrink 10% to $163 million vs. last year.

Thomas Weisel Partners is one of several banks that is expecting a better-than-expected performance from the conglom Wednesday, thanks to healthy box office and publishing sector sales. The bank on Monday upped its March quarter and 2003 estimates for the company, citing better-than-expected foreign box office for Warner and New Line pics “Harry Potter,” “Two Weeks Notice” and the second “Lord of the Rings” installment. The bank also cited improved ad sales (up 17% year on year compared withoverall magazine industry growth of 12%) at Time Inc.

However, most investors will be focused on the ailing AOL online business, which the company has acknowledged will continue to lose subscribers this year. Analysts will be listening to see whether CEO Dick Parsons signals possible timing of its cable IPO.

Separately, AOL TW lost a high court appeal Monday of $257 million in damages awarded to Six Flags theme park investors. Time Warner Entertainment lost the final appeal of the decision ordering it to pay a limited partnership that provided initial investments to Six Flags Over Georgia. The partners won their claim that Time Warner mismanaged the park by failing to make improvements in the business. AOL TW said it has already reserved funds to cover the $257 million award and that the court decision would not impact earnings.

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