The Time Warner’s Challenge

While Time Warner Inc.’s individual businesses are profitable and reported record post-merger profits in the latest quarter, the company has racked up losses in the last three years because of the high cost of servicing its $15-billion debt. To reduce that expense, the company is trying to shed some assets, such as its stake in Turner Broadcasting. Wall Street is dubious about investments in cable at a time of regulatory uncertainty and a possible challenge from telephone companies. That has helped drive down the stock of Time Warner, which, in a bid to rival Tele-Communications Inc. as the country’s largest cable operator, has agreed to $3 billion in cable acquisitions. Some details:

Time Inc.

Rumors that the company may shed its stable of 24 magazines have circulated since the merger, although Chairman Gerald Levin’s appointment of respected outsider Norman Pearlstine from the Wall Street Journal signaled his commitment to the group, which publishes best-selling books such as “The Celestine Prophecy” and magazines including Time, Fortune, People, Sports Illustrated and Life.

Warner Music Group

Management infighting since the summer at the world’s largest record company has driven out three of the most respected music executives in the business and reshuffled the leadership at Warner Bros. Records, Atlantic Group and Elektra Entertainment Group. Still, Warner Music, which through its Warner Music International operates in more than 65 countries, is the most profitable unit in the Time Warner family--the cash cow for paying down its debt. Its superstars include Anita Baker, Eric Clapton, R.E.M., Madonna, Stone Temple Pilots and Green Day.

Filmed Entertainment

Includes Warner Bros. and partial ownership in Six Flags theme parks. With one of the most stable management teams in Hollywood, the studio is also among its most successful. Warner Bros., run by Robert Daly and Terry Semel, has a summer slate includes “Batman Forever,” Clint Eastwood’s “Bridges of Madison County” and sequels to “Free Willy” and”Under Siege.” Its past successes have included such blockbusters as the “Lethal Weapon” and “Batman” series and “Interview With the Vampire.” Produces the top-rated television drama “ER” and other popular shows such as “Friends” and “Murphy Brown.”

Home Box Office

After building HBO into the world’s largest pay TV service, Michael Fuchs has been tapped to straighten out the turmoil in the music group. Fuchs has feuded in the past with Warner Bros. executives, but all parties say that rift has been mended.

Time Warner Cable

While Levin vows to cut debt, he has led a relentless and expensive drive into cable--despite Wall Street’s disapproval of the high cost of such an endeavor. Division entered the telephone business in 1994 and launched the Full Service Network--offering video on demand, video games and interactive home shopping and program guide.

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The Earnings Pie

Although Time Warner’s profit suffers from its massive debt, operating earnings have been strong for individual units. Percentage of total operating earnings by unit (actual operating earnings in billions of dollars):

Music (720): 24%

Publishing (430): 14%

Cable (989): 33%

HBO (257): 19%

Filmed entertainment (565): 19%