WMG EBITDA PROJECTED
TO RISE 8%

While projecting an 8% growth from its music group and gains in publishing and cable, investment counselor Merrill Lynch is reducing its third quarter EBITDA estimate for Time Warner by nearly $70 million from $1.33 billion to $1.26 billion.

The $1.26 billion projection still, however, represents a 12% gain when compared to $1.12 billion last year, Merrill Lynch First VP Jessica Reif Cohen and VP Andrew Slabin said in their report.

The report, released last week, said TW's Warner Music Group "continues to improve its operating trends with a strengthened release schedule and greater product carryover." The investment counselors said WMG's domestic marketshare of the top 50 current albums will come in at about 23%, ranking second behind Universal Music Group and tied with BMG.

They estimate music's Q3 EBITDA will increase 8% to $85 million vs. $79 million last year, $5 million above previous estimates. Merrill Lynch cites Kid Rock, matchbox twenty, Eric Clapton and B.B. King, Busta Rhymes, Lil' Kim, Faith Hill, Red Hot Chili Peppers and the soundtrack to "Coyote Ugly," as keys to driving results up in the quarter.

Due to these adjustments, the company has raised its full year WMG EBITDA estimate by $5 million to $475 million vs. $449 million last year, representing growth of 6%.

The company's overall projections for the year were amended as well, saying Time Warner is on track to achieve pro forma CY00 EBITDA growth of 13% to $5.48 billion, versus Merrill Lynch's previous $5.5 billion estimate or 14% growth.

In the report, Cohen and Slabin said they were reducing TW's cable networks EBITDA estimate to $380 million vs. $328 million last year, $15 million below the previous $395 million estimate. "We estimate HBO and TBS will achieve 16% EBITDA growth, a slowdown for TBS due to ‘World Championship Wrestling,' which continues to negatively weigh on results by as much as 3%," the report said.

The monetary advisors are also lowering their filmed entertainment EBITDA estimate to $200 millions vs. $218 million last year, $50 million below the previous estimate, citing tough comparisons due to the syndication sales of "The Drew Carey Show."

In conclusion, the report states that a merged AOL Time Warner is well positioned to benefit from the ongoing impact of the Internet on the global media and communications industries and the development of consumer interactive services.

Specifically, the reports said the merger could facilitate operating synergies (marketing, revenue, back office); the transformation of existing businesses (music, data delivery); and the launch of new businesses (interactive television).

Its estimated five-year EBITDA for the combined AOL Time Warner is 22%.

Now, if you understand that, good luck with your investments.