Time Warner Reports Steep Ad-Sales Drops at AOL, Time Inc.

Fourth-Quarter Results: A $16.03 Billion Loss

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NEW YORK (AdAge.com) -- Time Inc. and AOL were punished by the flagging advertising economy, and dragged down Time Warner's fourth-quarter results. Meanwhile, its cable TV properties fared relatively well, helped by higher ratings at networks such as CNN, TBS and Cartoon Network.

Time Warner CEO Jeff Bewkes
Time Warner CEO Jeff Bewkes Credit: AP
Time Warner and Time Warner Cable, which is in the process of being spun off, took a $24.2 billion charge on the declining value of assets. Of that, $15 billion was attributed to cable, and the rest to Time Warner's ailing Time Inc. and AOL divisions. Time Warner took a $16.03 billion fourth-quarter loss on the charges. Overall revenue was down 3% to $12.3 billion from a year ago. Without the charge, Time Warner would have earned 23 cents a share, which was slightly below Wall Street's consensus. Fourth-quarter ad revenue was down 7% to $2.33 billion from $2.5 billion a year ago.

AOL ad sales down 18%
The big story at Time Warner, however, is the steep advertising declines at its two most troubled divisions: Time Inc. and AOL. "The economy clearly affected some of our businesses, particularly advertising at AOL and publishing," Time Warner CEO Jeff Bewkes said.

As expected, ad sales at AOL were down 18% in the fourth quarter to $113 million. Display ad revenue was down 25% in the quarter, one factor behind the dismissal of former Platform-A Exec VP-President Lynda Clarizio, who will be replaced by former Yahoo sales Exec VP Greg Coleman.

The hope is that Mr. Coleman can help build the higher-margin branded display-ad business at the media properties created by AOL's MediaGlow division, which will launch another 30 sites in 2009. But Mr. Coleman won't get any help from the economy. First-quarter ad sales are pacing down 20% since the beginning of 2009, with lower demand in the retail and personal-finance categories.

Further complicating matters, Time Warner revealed that Google has exercised its right to force it to buy back the stake in AOL it bought in 2005. Google paid $1 billion for 5% of the company in 2005, but just wrote down the value of that investment by $726 million.

Time Inc. revenue down 20%
Mr. Bewkes said the company is "evaluating its options," but having to pay back $250 million seems like a pretty good deal after getting $1 billion for the stake four years ago.

Similarly, Time Inc. ad revenue at the division's magazines was down 20% in the quarter, hit by weakness in autos, financial, pharmaceuticals and home entertainment. "Our publishing unit is continuing to feel the weak ad market, and that may continue for some time," Mr. Bewkes said.

First-quarter sales are pacing 22% below where they were last year, according to Chief Financial Officer John Martin. One bright spot is subscriptions, which increased 4% in the quarter, Mr. Bewkes said.

Time Warner's cable networks, including Turner Entertainment and CNN, benefited from political spending and higher ratings in both news and entertainment. Revenue from both subscriptions and advertising was up in the fourth quarter. Ad revenue increased 7% to $65 billion, because of higher ratings and ad rates.

But even cable has a rough quarter ahead. On the conference call, Mr. Martin said ad sales in the first quarter were pacing about flat with the same period last year.

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