March 30, 1999
Time Warner Weighs Public Offer
Of Some of Its Internet Holdings
By EBEN SHAPIRO
Staff Reporter of THE WALL STREET JOURNAL
Time Warner Inc. is joining the ranks of big media companies weighing a
plan to turn some of its Internet holdings into a separate public company.
The strategy has been the subject of considerable internal debate, and an
offering isn't imminent, company officials said. But Time Warner Chairman
Gerald Levin addressed the issue of a possible stock offering on the
company's own CNNfn business-news cable network last week.
Speaking of the Web operations (cnnfn.com), he said, "At some point,
there may be opportunities for a public piece of paper."
Monday, the company's chief financial officer, Richard Bressler, played
down Mr. Levin's comments, and said an Internet stock offering "is not
being actively considered right now." He said that before any offering
would be considered, Time Warner would first build several "vertical
portals," far-reaching Web sites that take advantage of the company's
abundance of content.
CNNfn.com and Road Runner
But people inside the company said CNNfn.com itself is considered the
site most suitable for a public offering. Time Warner executives are also
considering an offering pegged to its stake in Road Runner, a high-speed
Internet service, the company insiders said. Analysts say both operations
are evidence that Time Warner is finally starting to move in the right
direction after spending years and tens of millions of dollars on its
Pathfinder service (www.pathfinder.com), which never developed into a
viable business. Merrill Lynch & Co. analyst Jessica Reif Cohen expects
Time Warner to contribute its music-retailing assets, which include 50% of
Columbia House record club, into a "new music online retailer, thereby
creating a publicly traded vehicle, which we view as a strategic
imperative."
Time Warner insiders say that CNNfn.com is profitable, a rarity for an
Internet business and a factor that would add considerable allure to any
offering. The Web site has annual revenue of about $25 million and profit
of $5 million, according to Time Warner executives. Time Warner
internally values the business at more than $2 billion, using the recent public
offering of MarketWatch.com, an online financial-news service, as a
baseline. MarketWatch, after its first day of trading in January, had a
market capitalization of more than $1 billion.
CNNfn staffers are racing to expand the site, adding key features such as
e-mail and a powerful search engine. Lou Dobbs, president of CNN
financial news, confirmed that a far more extensive site will be introduced
in 60 days.
Rivals' Strategy
Mr. Dobbs, in addition to being the anchor of CNNfn's lead newscast, has
emerged as one of the most active new-media executives inside Time
Warner, based on the success of the financial site. Mr. Dobbs bristles at
criticism of Time Warner's Internet strategy and says, "The world does not
need another Yahoo!"
Mr. Dobbs is referring to the strategy of Walt Disney Co. and General
Electric Co.'s NBC unit, both of which have linked themselves to Internet
portals, the Web sites that serve as the point of departure for Web surfers.
Mr. Dobbs argues that it makes far more sense for Time Warner to
develop the content-rich vertical portals that take advantage of the
company's tremendous store of content produced by the people at Time
Inc., Warner Bros. movie studio and CNN. Mr. Dobbs declined to
discuss the issue of a public offering.
Figuring out how to sell and distribute products over the Internet has
become Mr. Levin's overriding concern these days, according to Time
Warner executives. But in new-media circles, some executives say Time
Warner has been slow to capitalize on the Internet compared with rivals
Disney and NBC.
In recent weeks, Time Warner's internal Web-development efforts have
accelerated as various divisions are racing to beef up their Web sites. Time
Warner just launched Entertaindom, a Warner Bros. site
(Entertaindom.com), and it is planning a news site.
Time Warner weighed investments in Internet portals Lycos Inc. and
Compaq Computer Corp.'s AltaVista, but rejected them as too expensive,
given the current astronomical prices Internet companies are commanding.
Mr. Levin has said repeatedly that Time Warner isn't interested in big
acquisitions.
In considering an Internet-stock offering, Time Warner is following in the
path of CBS Corp., which elicited a favorable buzz by announcing that it is
considering selling to the public a portion of its Web assets, including its
stakes in MarketWatch.com and SportsLine USA Inc. NBC is pursuing a
similar strategy.
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