Time Warner hit by drop in ad revenue, recession

Time Warner Inc., the owner of AOL and the Warner Bros. film studio, said first-quarter profit declined as the recession sapped advertising and DVD sales.

Net income fell to US$661-million, or 55 U.S. cents a share, the New York-based company said today in a statement. Profit of 45 U.S. cents a share excluding some items beat the 40-cent average estimate of 14 analysts in a Bloomberg survey.

Time Warner cut about 1,500 jobs this year and reduced spending on film marketing to help counter slumping ad sales at AOL and the Time Inc. magazines. Chief Executive Officer Jeffrey Bewkes, 56, split off the cable-systems unit and is weighing a possible separation of AOL to focus Time Warner on content assets including its film studio and cable-TV channels.

"It looks like they were able to manage costs reasonably well," said Chris Marangi, an analyst for Rye, New York-based Gabelli & Co., whose affiliate Gamco Investors Inc. manages about US$20-billion, including almost 4 million Time Warner shares. "We expected cable networks to be strong, and AOL to be weak."

Time Warner gained 31 U.S. cents to US$21.77 yesterday in New York Stock Exchange composite trading. Before today, the stock had fallen 2.4% this year, while the Standard & Poor’s 500 Index dropped 5.3%.

Revenue declined 7% to US$6.95-billion from US$7.47-billion. Analysts estimated sales of US$6.79-billion on average.

The cable networks division, including HBO and CNN, was the only unit to add revenue in the quarter. Revenue at the film division fell 7.3% on dropping DVD sales, Time Warner said.

Ad revenue at Time Inc., the publisher of People and Fortune magazines, plunged 30%, steeper than the 27% drop projected by Michael Morris, an analyst a UBS AG.

AOL’s ad sales dropped 20% in the quarter, in line with an estimate by Alan Gould, an analyst at Natixis Bleichroeder Inc.

"It’s an ugly world out there," Morris, who recommends buying the shares, said in an interview before the results. Advertising was "pretty nasty in the first quarter."

Bewkes has prepared AOL for a possible spinoff in the past two months, hiring Google Inc. veteran Tim Armstrong as chief executive for the division and amending debt agreements that restricted the transfer of its assets. Bewkes said in February that spinning off all or part of the Web unit was one option.

The company is working to determine the "right ownership structure for AOL," Bewkes said today in the statement.

Time Warner also reiterated that it expects 2009 adjusted profit from continuing operations to be unchanged compared with 2008.

The company completed the spinoff of Time Warner Cable Inc. in March, in turn receiving US$9.25-billion in cash. Results for last quarter and the year-ago period exclude Time Warner Cable.

The separation dropped Time Warner to third place among U.S. media companies, behind Walt Disney Co. and News Corp., based on 2008 sales.

Last month, Time Warner agreed to buy 31% of Central European Media Enterprises Ltd., the TV station operator founded by cosmetics heir Ronald Lauder, for US$241.5-million.

Net income was US$771-million, or 64 U.S. cents, in the year-ago quarter.

Bloomberg News