NEW YORK -- For the first time in years, Time Warner Inc.'s AOL unit looks to end 2006 with as many users as it started with as a recent strategic switch to a free service continues to attract users, president and chief operating Jeffrey Bewkes said here Wednesday.

Speaking at the UBS Global Media and Communications Conference, he also said that Warner Bros. again will be the most profitable Hollywood studio for 2006 -- even though it will leave the top couple of boxoffice ranks to competitors -- and that the studio looks toward a strong 2007.

"We had three dogs" this summer, Bewkes said when asked about this year's sluggish performance, joking that he can't mention names because film directors would otherwise call with complaints. But he drew more laughs when he added: "You have to ask for yourself: Would you have made the 'Poseidon Adventure' again?"

Despite some boxoffice flops, home entertainment and TV momentum has remained solid, and 2007 should get a boost from the DVD release of "Happy Feet" and new releases like the latest "Harry Potter" installment, Bewkes said.

TW president Bewkes said business momentum at AOL after its recent move to a free model based on advertising remains in line with management expectations.

Online ad momentum also continues to be strong for the unit. "We are still outpacing the industry" in terms of online ad growth, which should lead to another strong set of figures for the current fourth quarter, he told investors.

More than 5 million users have signed up for the newly free AOL since the start of August, with the figure likely to rise to more than 6 million by year's end, Bewkes said. "We are likely to end this year with as many (users) as we started with for the first time in four or five years," he said. As of the end of 2005, AOL reported 19.5 million users. As of Sept. 30, the figure stood at 15.2 million.

Social networking and community features are growth and focus areas for AOL, Bewkes also told conference attendees, echoing chairman and CEO Richard Parsons, who a day earlier said that AOL could build new service but also make more acquisitions to achieve its goals (HR 12/6). "There's no reason we shouldn't be a leader in social networking," Bewkes said without providing more details.

Asked about key priorities for TW next year, Bewkes cited the continuing AOL transformation, the integration of the Adelphia Communications cable deal and digital initiatives.

Pointing to legal limitations, Bewkes declined comment on the likely timing of a spinoff of Time Warner Cable. But he again signaled that "in a couple of years," the spun-off cable operation could use its position for strategic moves, such as an increase in debt leverage or acquisitions. Bewkes emphasized that any deals would have to be at an "accretive return" and not come at "a stupid price." Cablevision Systems has long been considered a logical takeover target for TWC.

Bewkes declined comment on whether TWC could bid for Cablevision later or even now in an offer that would compete with a bid by the Dolan family to take Cablevision private.

However, he signaled that TWC is unlikely to sell more shares next year after its spinoff of a 16% stake, which is expected to happen in the early parts of 2007.

Also at UBS, and at the nearby Credit Suisse Media and Telecom Week conference, satellite radio executives wondered aloud about where all Wall Street's negativity is coming from in regard to their industry. Shares of Sirius Satellite Radio and XM Satellite Radio have been beaten down this year.

Sirius CEO Mel Karmazin defended his recent decision to cut guidance, now predicting up to 6.1 million subscribers by year's end instead of up to 6.3 million.

Wall Street's reaction, and that of the business press, "was extraordinary," he said, noting that Sirius still will enjoy its best year ever in terms of subscriber additions.

"The phenomenal impact in December of Howard Stern coming to Sirius" will make year-over-year comparisons tough, Karmazin said. In the final 10 days of last year, Sirius added 500,000 subs. Even so, he expects this quarter to be the second-biggest in Sirius history.

He also dismissed worries that iPods will spell the death of satellite radio.

"I can't figure out how to program my iPod," he said. "It's a lot easier to just put your satellite radio button in your car," and it only costs 43 cents per day.

At UBS, XM chairman Gary Parsons built on the theme. He noted that, together, XM and Sirius have about 12 million subs that translate into 25 million listener and that there's plenty of room for growth considering they only share 8% of the overall radio market thus far.

The homogenization of traditional radio will help, too, he said, noting that country music has all but disappeared in New York and Los Angeles and American standards and classical are quickly fading from terrestrial radio dials.

"Where does the radio listener go?" he asked. "Those aren't niche formats. Those are significant formats that are being pulled back."

In other conference news Wednesday:

  Charter Communications president and CEO Neil Smit said he feels "we are starting to build momentum" and said his team is now and in 2007 focusing on "execution and profitable revenue growth." That is in line with chairman and controlling shareholder Paul Allen's wish for "consistent operating performance," he said. The continued rollout of telephony service and the resulting product bundles is a "cornerstone" of Charter's growth strategy, Smit added.

  In a rare panel for an investor conference, Roy Salter, principal of the Salter Group, a financial advisory firm that serves the entertainment industry, discussed the changed face of film financing, which is increasingly dominated by hedge funds and private-equity firms. He called this development "wonderful."

Salter said that many of these firms have real leverage with studios, are open-minded and have a greater understanding of Hollywood. In the past, he said, film financing was dominated by foreign investors and governments who were often at odds with or just didn't understand the moviemaking process.

"The institutions doing these deals now are very studied," he said. "They're not just providing capital. They have their analysts analyzing the studios."

Rick Hess, head of the film finance department at CAA, agreed that this was a positive development and said one of the reasons it's happening is because the studios simply don't have the money to put out movies without the help of Wall Street investors. "The studios need off-balance outside capital," he said. "They're better partners because they have to be."

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