AOL drags Time Warner income down

AOL continued to weigh on Time Warner as the media group reported a 26 percent drop in second-quarter income on Wednesday, largely because of weakness at its internet division.

AOL, which has emerged as the biggest challenge confronting Jeff Bewkes, chief executive, suffered a drop of 36 percent in operating income as as it continued to shed paying subscribers. Advertising revenue, which AOL is banking on as its future, rose only 2 per cent.

Mr Bewkes blamed the performance on difficulties from integrating the acquisitions that AOL had made since announcing an advertising-focused strategy two years ago.

He expressed optimism for the remainder of the year. Yet Mr Bewkes also noted that Time Warner had arranged for the separation of AOL's internet access business and its online advertising platform – a move that could hasten a potential sale.

He said: "We have the necessary flexibility to do something strategic with either of those businesses today".

For the quarter, Time Warner earned $792m, or 22 cents per share, compared with $1.07bn, or 28 cents per share, during the same period a year earlier. Revenues rose 5 per cent to $11.6bn. Time Warner's film and cable networks divisions had strong performances.

The film group reported a 16 percent rise in operating income as strong home video sales for I am Legend and other titles appeared to defy gloomy predictions.

Those results did not include the latest Batman film, The Dark Knight, which has shattered box office records.

In the cable division, higher subscription revenues at Turner and HBO and stronger ratings at CNN helped boost operating income by 18 percent to $749m.

That performance offered more evidence of cable networks' appeal in the media industry when the slowing economy has led to a pullback by advertisers.

By contrast, Time Warner's publishing division, home to magazines such as People, Time and Fortune, saw operating income fall 15 percent amid a 9 percent drop in advertising.

The company acknowledged that the growth of online advertising was not sufficient to make up for the deterioration of print. It also warned that sales appeared to be worsening in the current quarter.

Separately, Time Warner Cable, which is 84 percent-owned by Time Warner, reported a slight rise in profits, from $272m to $278m.

Mr Bewkes said Time Warner remained on track to complete a spin-off of its stake by the end of the year, and said it would take a cautious approach in deploying the $9.25bn windfall it would receive from the deal.

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