Disorder in TW’s court

Sinking subs can't torpedo AOL's quarter

Time Warner is poised to take full ownership of Court TV from John Malone’s Liberty Media, shifting network topper Henry Schleiff to another position within Time Warner.

Schleiff, who helped build up Court TV and serves as CEO and chairman of the board, is leaving his job as CEO when the integration happens for what insiders say could be a larger role within Time Warner. He’s expected to stay as chairman of the cabler for a short time.

His new job will be located within Time Warner, but it hasn’t been decided where he will go, leaving open the possibility he could take an exec role at CNN. It’s long been expected that Time Warner would take full control of the cable net, and Schleiff has been viewed as the driving force of a profitable performer for the mothership.

Schleiff will not be replaced in the foreseeable future. Court prexy-chief operating officer Art Bell and general manager Marc Juris will stay on and run the channel.

News came after a frenetic day in which Time Warner reported first-quarter profit jumped nearly 60% on cable gains, homevid revenues boosted the film division and AOL provided drag on the bottom line.

Something of a social gadfly, Schleiff is credited with building Court TV from a small network of 35 million subs to a fully distributed destination for gavel-to-gavel cover. Among his successes is Court’s partnership with popular Web site SmokingGun.com, and recruitment of big personalities like Nancy Grace and Catherine Crier.

Schleiff, a former lawyer, also has top pedigree having run HBO Enterprises and Viacom’s Broadcast and Entertainment groups before moving over to become CEO of Court TV.

Court TV has done well since separating its trial coverage into Court TV News, the daytime element anchored by Crier and Grace, whose shows posted solid gains with viewers.

But the primetime block of Court TV, “Seriously Entertaining,” has faltered with its crime-related doc programming. Despite attempts at sexier marketing campaigns, including one for “Impossible Heists,” and higher-profile reruns like “NYPD Blue” and “Fastlane,” a watercooler program hasn’t emerged. Year-end ratings sank from 2004 in every key demo. News is better in the first quarter, with 18-49 numbers up 5%.

A Court TV rep declined comment.

On a call with analysts earlier in the day, TW chief Dick Parsons said the company was in talks to purchase Liberty’s 50% stake in Court TV, but didn’t give a timeline for completion of the deal. Insiders later said the deal was in fact done, and the Schleiff news followed.

According to terms of the original pact between Liberty and TW, either company was permitted to buy out the other’s stake beginning this year.

Court TV gets relatively small ratings but is considered a profitable, well-run enterprise that likely wouldn’t require a major overhaul under TW’s full ownership.

TW chief operating officer Jeff Bewkes chose his words carefully when asked by analysts how the company would integrate the net. “We think we’ve built a strong programming and brand and marketing capability,” he said. “Clearly we will keep that.”

But he noted the possibility of “improvements in the business” that the company could effect once integration was complete, in areas like back office and affiliate agreements.

Parsons also said TW was negotiating a separate swap with Malone that would see Liberty exchange a major piece of its 4% stake in TW for cash and ownership of pro baseball’s Atlanta Braves.

TW wants the swap as part of its broader plan of reacquiring stock — and because it is intent on extracting shares from Malone to prevent him from making inroads at the company. TW has also said it wants to sell the team as part of its goal of shedding non-strategic assets.

But that deal is far from complete, insiders said, particularly because of Malone’s reputation as a wild card.

Overall, Time Warner saw big profit jump, to $1.46 billion, in the first quarter, a significant hike over the $915 million in the same frame last year. Part of the profits came from the sale of its book unit in the quarter to French media firm Lagardere, which rang in $206 million for the conglom.

But gain was also powered by strong cable numbers, where company saw a $334 million increase in revenue and 25% spike in operating income to $501 million.

The cable unit has broken the 50% barrier for digital cable among all subs, TW disclosed, and has hit the 9% mark in subscribers who receive the bundle of cable, broadband and telephone services.

But AOL offset some of the gains. While TW reported a 26% increase in ad revenues at the Web division, AOL lost about 835,000 subscribers and saw a 7% revenue decline, to $2 billion, and a 14% operating income decrease, to $269 million. Inability to convert dial-up subs to broadband was seen as main culprit.

On film, despite revenue dropping from $3 billion to $2.78 billion, operating income jumped 22% to $368 million in the frame. The increase was driven by the DVD releases of “Wedding Crashers” and the recent Harry Potter pic.

Execs endorsed studio performance even as they cautioned about slower DVD sales. Company is also expecting a big summer, when “Superman Returns” will be released.

Time Inc. revenues were flat in the quarter and operating income slid 13%, with Parsons calling the division “less robust than we had expected.”

(Denise Martin in Los Angeles contributed to this report.)

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