News Tempered by Still-Struggling America Online, Federal Probes

By Published on .

NEW YORK ( -- AOL Time Warner posted improved results in the second quarter, but management warned the outlook remains cloudy, as its America Online division continues to drag down results and a federal probe could delay a spin-off of its cable systems the company is counting on to reduce its crushing debt.

AOL posted net income of $1.06 billion

Related Stories:
Improved TV and Magazine Ad Sales Cited
in the quarter, or 23 cents per share, up from $396 million in the year-ago period. The income figure was helped by gains from asset sales including the sale of 50% of Comedy Central to Viacom, its former partner in the venture. Factoring out one-time charges, operating income was up 6% over the same period last year.

Ad revenue up for TV
Revenues rose 6% to $10.8 billion, led by increased ad revenue in broadcast TV and strong cable subscription growth. Cable revenue increased 9% in spite of a 31% million drop in ad revenue due to reductions in advertising by cable operators and by lower intracompany advertising. TV network revenue increased 10%, thanks to a 16% increase in ad revenue, led by a 23% increase at the WB network.

Online weakness continues
America Online continues to struggle, however, posting a 6% decrease in revenue, due to weak advertising and slow subscription revenue growth. Advertising revenue for the service dropped 48% while subscription revenue rose 6% to $1.9 billion, despite the loss of approximately 850,000 subscribers during the quarter. Nearly half the subscriber losses were profit-draining accounts dropped by the service itself, said Don Logan, chairman of the media and communications group.

Wayne Pace, AOL's chief financial officer said the outlook for the second-half remains uncertain, but he reaffirmed AOL's targets of revenue increase in the mid-single-digit percentages, even as America Online revenue is expected to be down in the same range. The film and television units are faced with tougher comparisons in the second half, he said. The TV unit is still going strong into the third quarter, while the magazine unit is expected to show single-digit growth in the third quarter, but the company is only "cautiously optimistic" due to the uncertainty around the economy.

Federal investigations
Executives also said a planned initial public offering of its cable systems will have to wait for a resolution of a federal investigation of its past accounting practices. AOL had previously warned that the spin-off, which had been expected to take place in the second half, could be held up by federal regulators while the U.S. Securities and Exchange Commission and Department of Justice investigate the company's accounting of $400 in revenue from two advertising-related transactions with Bertlesmann.

The company is still on target in its plan to reduce its debt, which totaled $24.2 billion at the end of the second quarter, Chairman-CEO Richard Parsons said. The company plans to reduce the number through increased cash flow and asset sales, including its Warner Music unit and sports teams.

Most Popular
In this article: