Key questions and answers from the second quarter fiscal 2008 earnings call conducted by TimeWarner Inc. on August 6, 2008.

Jason Bazinet (Citigroup): You have completed the economic split between the access and audience business opening you up to strategic options. Could you articulate any alternative to that strategic path that the street is focused on as the most likely outcome?

Jeffrey L. Bewkes: We will assess all of the options and all of you have written or read about every conceivable one. One that ought to be thought about as a benchmark against any kind of strategic change in our position in access would just be operating it and seeing if the cash flow from that operation is superior to any yield we can get putting it into alignment with some of the usual suspects that get mentioned.
We’re going to view it objectively as a business question and what we are really trying to say is that we have now organized it from an operational point of view to provide the best competitive results out of the access business assuming it operates under its current structure. Secondly, we have organized it to give us the flexibility to do whatever is in the best interest to maximize the value.

Jessica Reif Cohen (Merrill Lynch): Given your balance sheet, what areas of interest on a global basis would you have for acquisitions? A lot of cable networks will come up for sale domestically but how hungry are you for something outside the U.S.?

Jeffrey L. Bewkes: We’re already one of the leading branded content distributors in the world. A lot of that is seen if you are living outside the United States in our branded television or online networks.
However, we do have a fairly large film business that supplies a lot of networks everywhere. If you look at the weight of Time Warner right now, that’s the weight of most of our international business. There are television network, online network and content production, branded content production capabilities that are at scale all over the world. We will look at those from not just a financial point of view but think of those areas in which it can put us in a superior competitive position.
We can’t really be more specific than that. We’re fairly large and fairly global and anything that comes up, you’ll hear us in a disciplined way looking at it. That doesn’t mean we’re going to necessarily go and do any particular thing that comes up.

Benjamin Swinburne (Morgan Stanley): On the home video and electronic delivery business, you gave a decent amount of disclosure in the quarter. For the first half of the year, both on the television and the theatrical side, that business is growing in the teens and you disclosed also your DVD units, which are down globally year-over-year, so obviously there’s a lot of stuff going on in that revenue line, which is I believe a very high margin line in the film segment, beyond just DVD units. Could you talk about the revenue and margin issues pertaining to the business and the growth drivers?

Jeffrey L. Bewkes: Year-to-date, our home video sales overall are up about 6%. The overall industry is about flat year-to-date. We think the industry will be flat or slightly up. Between the combination of standard definition and Blu-Ray sell-through, the market will be up modestly next year.
On the DVD shelf space question, if this is part of what you are thinking, many of the major retailers have increased the shelf space for DVD and they have added incremental shelf space for Blu-Ray high def at the expense of music and accessories. If you take high-def and combine it with standard-def, you may want to ask something about international but that’s our overall look.
If you then go off packaged home video into VOD, the margins are quite a bit better and so we think those are secular reasons why the margins can go up and the earnings can go up over time in home video. If you add the final point which we were making in our organized remarks, our relative competitive position out-indexes for any given level of slates how everyone else does. We essentially plan and design our operations to outperform.

Tuna Amobi (Standard & Poor’s): You seem to be squarely focused on the event film strategy yet you are planning down on the specialty form. How do the New Line and Warner Independent and Picture House restructuring tie together into your film strategy in terms of number of films, et cetera?

Jeffrey L. Bewkes: Most of the other studios have pursued directionally the same strategy. At Warner New Line, we have consolidated our operations. That’s why we put New Line together with Warners. We do it to essentially be more efficient in a cost sense and we didn’t have dual infrastructures. Secondly, to be more efficient in driving revenue by taking the New Line films and keeping international rights and by putting the New Line films through the Warner distribution internationally.
To your specific question on film output, we basically have focused the release slates to about 40 or so films. It will be aiming more in the 20 to 25 side. Much of it Warners, with a very big focus for the economic reasons we told you on tent-poles because those are fairly economically powerful and efficient. We know how to do them and we’ve set up both the production pipeline, the intellectual property of titles in the pipeline and the distribution position to maximize what we do.
However, we also have a full film company in terms of all the types of genres of films and what we are going to do with New Line is essentially have that focus on the genres that it has been successful with over time.

Rich Greenfield (Pali Capital): In the first quarter, you said that AOL advertising revenues would improve as we go through the year. That didn’t happen in Q2. Why do you feel so comfortable about restating that it’s going to improve from here?

Jeffrey L. Bewkes: The general reason why we think it will improve is that we look at usage as the leading indicator and we were given some of the usage patterns in the key areas; AOL owned and operated content sites, third-party and how that is trending in economic pricing and so on.

John K. Martin Jr: With respect to the advertising, you’re right. We did expect them to improve and frankly Q2 versus Q1 it did improve, albeit the improvement was modest. Looking ahead, there are a few things to think about on the advertising side. We also will benefit from easier comparisons and that underscores our confidence there.

Rich Greenfield (Pali Capital): You’ve made somewhere around $2 billion plus of acquisitions on the Internet front, supporting AOL. Could you give us some sense of what your ROI looks like on those investments that you’ve made over those 18 months?

Jeffrey L. Bewkes: On the ROI on acquisitions, it’s a fairly complicated thing. Most of the acquisitions were to fill out the ad platform or platform A. We think that that is still coming on-stream in terms of current dollar yield but has made platform A a very successful competitor and a very strong asset in terms of the valuation of platform A.
On Bebo, we have a lot of plans and we are going to integrate it and take advantage of the traffic that we have in AIM and ICQ.

John K. Martin Jr: With respect to the ROI, Bebo just closed in the middle of May so we’re in the very early stages of our integration plans and development plans.
As it relates to the platform, assembling platform A with just under $1 billion of acquisitions a year-and-a-half ago and putting that around ad.com, which was acquired for almost $500 million in 2004, we would submit that the ROI in terms of the value of what platform A is worth right now in today’s marketplace is very significant. There is the operating side of it which is still coming online and we are integrating and we’re putting all those assets together.

Michael Morris (UBS): Can you talk about where you are right now in terms of your ability to develop or produce videogames with respect to staffing and capacity versus where you would like to be? Is it something that you can grow organically or something you’d make small or large acquisitions on? What do you see the existing Time Warner Company bringing to the videogame business?

Jeffrey L. Bewkes: We’re pursuing basically two significant changes in the games business. Firstly, we’re going to push to establish ourselves as a third-party distributor which we’ve already done fairly successfully in the home video business for other people’s product. However, it’s less common right now in gaming.
Secondly, we are using some felt type financing to manage the risks, some of which we got, for example, out of Abu Dhabi. However, what we are doing strategically is we are leveraging our own IP, the titles coming out of Warners. We’re developing some new IP in partnerships with other games companies, some of whom we have either distribution arrangements with or some we have minority equity positions with. Some we have majority interest.
We acquired TT Games, which was the maker of Lego Indiana Jones and Lego Star Wars and Batman is coming up. We got the North American distribution rights for Code Masters which is a U.K. based videogames publisher. We have a small interest in something called Brash Entertainment, which is a videogames publisher and we have the arrangement with our strategic partner in Abu Dhabi who is funding up to $250 million to co-finance the development of up to 75 games over the next seven years. We also have an investment in Syidos, which is a U.K. games developer and we distribute all of these.
Thus there’s co-development, there are game companies that we have different degrees of ownership in, all of it focused on getting the scale and distribution.

Concerning your question of whether we have what we need in terms of human talent in our organization inside the company, it’s something we work on all the time. We are developing at a pace with the size of our distribution presence and we feel that we are in reasonably good shape. If you are asking whether we can attract talent that we need, we think we can.

Doug Mitchelson (Deutsche Bank): On the mix shift at AOL display from guaranteed to non-guaranteed, how far along are we in this mix shift and how much do you think it impacted display advertising sales in the quarter?

John K. Martin Jr: It is tough to tell and it’s in part because we have so much going on at AOL and there was so much organizationally happening at platform A this quarter that it’s difficult for us to ascertain how much of it is being driven by the market versus how much of it was happening just as a result of the organizational progress that we are making. We are going to be looking closely at this in the back part of the year and trying to understand better the organic trends and trying to improve our overall sell-through rates on the guaranteed part of the inventory.

Doug Mitchelson (Deutsche Bank): Are there concerns about the pace of TAC expense increase?