Time Warner's Film, Networks Perform Best

Third-Quarter Revenue Up 9%; AOL Revenue Off, Time Inc. Flat

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NEW YORK (AdAge.com) -- Time Warner said today that its third-quarter revenue rose 9% over the third quarter of last year to reach $3.2 billion, led by strong growth at its cable, filmed entertainment and networks divisions.
Richard D. Parsons (l.) and Jeffrey Bewkes
Richard D. Parsons (l.) and Jeffrey Bewkes

But uneven performances at some other units are likely to further stoke speculation that the conglomerate's next CEO, Jeffrey L. Bewkes, will substantially reshape its profile. The company said Monday that Mr. Bewkes will succeed Richard D. Parsons as CEO on Jan. 1.

The company's disparate units turned in disparate results. Time Inc., for example, reported essentially flat revenue. Overall ad revenue grew largely on the strength of digital sales, led by People.com and CNNMoney.com, while print magazine revenue declined.

Slowing ad revenue for AOL
Revenue at AOL, meanwhile, sank 38% to $1.2 billion as subscription revenues continued to crater amid the division's shift from a paid-access model to an ad-supported one. Ad revenues rose 13%, continuing a slowdown in growth; earlier in the transition from a subscription model, ad revenue had been rising at rates above 40%. Ad revenue grew faster at the ad network of partner sites that AOL maintains than display advertising on AOL's owned-and-operated sites. The company said that its acquisition of contextual-targeting firm Quigo, also announced today, will help fill out the capabilities of that network.

The company during a conference call today said it now expects advertising revenue to grow at a slower rate in the fourth quarter than it experienced during the third, although earnings will rise this year and next.

"We've been pulling costs out, as you know," Mr. Parsons said during the call. "We haven't played the last card in that deck either."

Adding credence to the most-favored-divisions theory, both Warner Bros. and Turner Broadcasting/HBO performed strongly. Global demand for movies and DVDs such as the latest Harry Potter film, on the other hand, contributed to a 33% jump in revenue, to $3.2 billion, at the filmed-entertainment division comprising Warner Bros. Entertainment and New Line Cinema.

Network revenue, from Turner Broadcasting and HBO, rose 6% to $2.6 billion as growing subscription revenue and content revenue overwhelmed a 3% decline in advertising revenue.

Time Warner Cable
At Time Warner Cable, revenue rose 25% to $4 billion, mostly as a result of acquisitions. In a separate earnings call this morning, Time Warner Cable CEO Glenn Britt said its revenue growth was based largely on its recently acquired Adelphia and Legacy systems. Subscription revenues were up 25% as well to $3.8 billion, with ad revenue growth up 24% to $43 million.

Of the 13.3 million subscribers to Time Warner Cable's basic video service, Mr. Britt said the most valuable are those who subscribe to the company's "triple-play" service, which includes basic video, internet and phone. Subscriptions to the triple play increased 70% in third quarter. Phone subscriptions, however, have stabilized, with Mr. Britt calling their growth "tepid." He added that the company is currently evaluating where it will devote the majority of its resources going forward.

"[T]he question is: where is all our technology going? Is there a national product extension for cable operators? And No. 2, is it a really good investment opportunity? We will continue to explore that, but we don't think anyone knows where the technology is going," he said.
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