AOL, Cable Boost Time Warner

Strong Third-Quarter Due in Part to Increased Web Ad Revenue

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NEW YORK ( -- Time Warner reported strong third-quarter earnings this morning, with big gains from internet advertising at the new just-wanna-be-free AOL and from its cable division, which took over some systems from Adelphia and Comcast on July 31. AOL -- which has lost revenue from subscribers since it has gone to a free model -- encouragingly increased ad revenue at a much faster pace than expected.
Time Warner CEO Richard Parsons
Time Warner CEO Richard Parsons Credit: AP

The media megalith, which has lived under heavy pressure from shareholder activists such as Carl Icahn to get its share price up, also said it plans to get at least $15 billion of its $20 billion stock buyback program done before the year is out.

Of course, AOL's revenue of $1.98 billion is actually down from the $2.04 billion reported in the third quarter of last year, but that is mainly due to AOL rapidly losing paying subscribers in the wake of its decision to open its gates to everyone.

'Well above our expectations'
Third quarter results "were well above our expectations due to better-than-anticipated results at all divisions except for Time Warner Cable," said Jessica Reif Cohen, the Merrill Lynch analyst, in a note to investors today. "Revenue declines at AOL were not as dramatic as we expected." Subscription revenue, Ms. Cohen pointed out, fell 13% instead of the projected 15%. And advertising grew a stellar 46%.

The Time Inc. division, singled out as a disappointment in the company's last quarterly report, grew revenue 1% to $1.3 billion; increased ad revenue was partly offset by declines in other revenue. For the first nine months of the year, however, Time Inc. revenue remains slightly behind revenue from the same period in 2005.

The film unit, which includes Warner Bros. Entertainment and New Line Cinema, suffered from tough comparisons with last year's third quarter, when "Wedding Crashers," "Batman Begins" and "Charlie and the Chocolate Factory" were all in the theaters. Revenue fell 10% to $2.4 billion.

Cable revenue rose 44% to $3.2 billion.

Breaking the $20 mark
Chairman-CEO Richard Parsons registered a bit of a coup on Oct. 26, when Time Warner stock broke the $20 mark for only the second time since he took office. That price has widely been cited as strong enough to help the company withstand the demands of Mr. Icahn and others. Shares were trading this morning just under that level.

Companywide earnings totaled $10.9 billion, 7% higher than in third-quarter 2005. Net income reached $2.3 billion, up from $853 million, and 56 cents per diluted common share, up from 18 cents a share. Excluding certain items such as one-time gains and discontinued operations, earnings totaled 19 cents per share, up 12% from the same quarter last year but just shy of the 20-cent consensus estimate from analysts polled by Thomson Financial.
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