So AOL Time Warner's accounting approach, while allowed, sets it up for a big revenue drop, even as some cable rivals continue to enjoy benefits on the cost side, analysts said.
Jessica Reif Cohen, an analyst at Merrill Lynch, estimates that such fees accounted for about US$230 million, or 3.5 percent, of the roughly US$7 billion in revenues for the AOL Time Warner cable systems unit last year. But the fees had a disproportionate impact on profits, analysts said, because with no offsetting costs, they went directly to the bottom line. With the big burst in new cable networks now long past, Rief estimates that such fees will account for only US$50 million in revenues this year.
After Wednesday's disclosures, some analysts reduced their estimates for cable revenue and cash flow growth at the company to as little as 7 percent from 12 percent. The company told analysts to expect "high single-digit to low double-digit growth."
Slowing growth in the cable systems business could be a blow to the company's planned spin off of a stake in the operation later this year. The spinoff is intended to raise money to make a US$2.1 billion payment to Comcast to complete the unwinding of a joint venture, and to reduce the company's US$26 billion debt, as well.
One analyst estimated that a spinoff of 10 percent of the cable systems unit, which might have raised about US$4.2 billion last year, would fetch about US$3 billion today.
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