Time Warner’s Profit Up; AOL Slides

Time Warner’s profits jumped in the third quarter of 2003 thanks to strength in its cable and network results, which helped to offset continued weakness in the media giant’s AOL online unit.

Net income for the formerly named AOL Time Warner during the quarter was $541 million, or 12 cents per share, compared to a net loss of $57 million, or 1 cent per share, during the same time a year ago. Revenues were up by 4 percent to $10.3 billion for the period.

Revenues in the AOL unit slipped by 5 percent $2.1 billion from $2.2 billion during the same, year-ago quarter. The main culprits were the advertising revenues, which took a slide (as AOL and Time Warner executives had warned), falling 33 percent to $178 million for the quarter.

Wayne Pace, Time Warner’s CFO, said AOL’s ad revenue for the period reflected the continued unwinding of backlogged advertising contracts for the unit. Intercompany, commerce and other ad revenues fell by 63 percent to $45 million, another reflection of leftover contracts from the dot-com heyday that are working their way out of AOL’s ledger

AOL has said it expects ad revenues to fall by as much as 40 percent for the year as ad contracts leftover from the dot-com boom years peter out. But future ad commitments were $277 million during the quarter, which are essentially flat compared to the prior quarter.

“We believe that we have essentially stopped the sequential declines and we are at or very close to the bottom in reported ad revenues,” Pace said. On a brighter note, he said the unit is seeing solid sales and growth in search and interactive marketing. Overall, the company said it still believes reported ad revenue will bottom out this year and begin to grow in 2004.

Subscription revenues offset some of the ad results with 4 percent growth to $1.9 billion, thanks to new subscriptions in its “Bring Your Own Access” broadband service, which notched 340,000 new subscribers during the period.

But AOL also lost 688,000 dial-up subscribers during the period, which comes out to about two million less than the same time last year. The slide brought its total subscriber base to 24.7 million, including 2.6 million broadband subscribers.

Pace said AOL is going to be “marketing aggressively” to bring new subscribers to the company’s just-released 9.0 version of its service. The Wall Street Journal reported Wednesday that AOL is planning to more than double its domestic advertising spending to $275 million next year, from its $115 million in spending this year.

Still, overall, the company expects to see the decline in narrowband subscribers continue as customers switch over to broadband.

The media giant also affirmed its expectations for the entire company of revenue growth in the mid-single digits, compared to $41 billion in 2002.

For the AOL unit, Time Warner said it expects total revenues for 2003 to drop mid-single digits from $9.1 billion in 2002. As previously stated, overall ad revenues are expected to drop by 35 percent to 45 percent from the $1.3 billion it took in during 2003.

Dick Parsons, chairman and CEO of Time Warner, said the results showed progress against the company’s main objectives, especially net debt reduction.

Overall, he said, the results added up to continued growth, as stronger-performing units compensated for continued slide in earnings for the AOL and music divisions.

“We are confident that our company will finish this year in a position to accelerate growth in 2004,” he said.

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