WALL STREET TAKES STOCK
OF MEDIA DOWNTREND

Media stocks took a nosedive in trading today, with future partners Time Warner and AOL both experiencing losses due to worries about a drop in Net advertising and concern over AOL'sprojected lowered fiscal first quarter earnings, which will be announced tomorrow afternoon. Time Warner's third-quarter earnings will also be made public in the morning.

Time Warner lost $12.24, or 15.7%, to close at $65.56, while AOL lost $9.01, or 17%, sinking to a 52-week low of $43 a share. Lehman Bros' negative comments on Yahoo, citing a lack of confidence in online advertising, are affecting AOL, which had agreed to buy Time Warner in a deal just approved by the European regulatory commission. The purchase is expected to close this year, after approval by the U.S. FTC and FCC. Many of the smaller Internet companies that advertise on AOL are strapped for cash and cutting back on spending.

"The advertising crunch is going to have an impact on everyone with advertising exposure," CIBC World Markets analyst John Corcoran, who still rates AOL shares a"strong buy,"told Bloomberg.

AOL is expected to report profit of 13 cents a share for the quarter ending Sept. 30, up seven cents from a year earlier. Revenue rose to about $2 billion from $1.48 billion.

Larry Haverty, an analyst with Boston's State Street Research & Management, said the decline in Time Warner and AOL shares could threaten the company's planned $116 billion marriage. He says there's a 20% chance the acquisition won't be completed now htat the exercise of stock options won't be as lucrative for TW execs.

Other diversified media entertainment stocks also fell, including Walt Disney (down $2.81 to $35.44), Viacom (off $4.25 to $44.81) and News Corp. (lost $2.88 to $43.50).