Logo

Time Warner Revamps AOL, Swings to Profit

Aug 2, 2006  •  Post A Comment

Time Warner’s AOL online service will begin offering free software, e-mail and other products to high-speed Internet users in an effort to boost the unit’s advertising sales. The company said also said it swung to a profit of $1 billion in the second quarter.

Time Warner, the world’s largest media company, posted net income of $1 billion, compared with a loss in the previous year. Operating income rose at the cable TV and networks divisions and fell at AOL and the publishing business, the company said in a statement Wednesday.

The company got a boost of $13 million in earnings before taxes and depreciation through its acquisition of Court TV. Shutdown costs for The WB network, which is combining with UPN to create The CW, will total $81 million, Time Warner said.

In the second quarter, AOL lost about 2 percent of its paying subscribers while online ad revenue rose 40 percent. Time Warner CEO Richard Parsons said the new AOL strategy is designed to “take advantage of some very compelling online trends.” Time Warner is trying to revive AOL, the biggest U.S. Internet access service, by offering free services to attract more Web surfers and the advertisers that want to reach them.

Analysts and news reports have been saying that the new AOL plan probably will pull down Time Warner’s earnings over the next few years. After the earnings report, Douglas Shapiro, an analyst for Bank of America, said in a report that the company’s stock may benefit from the AOL plan because “just clarifying the strategy is probably a positive.”

In a conference call detailing the new AOL strategy, Mr. Parsons said that “we don’t see any material stepdown in AOL earnings for this year. In fact, we think if there’s a bias, it’s going to be slight bias to the upside in terms of earnings.”

Jeffrey Bewkes, president and chief operating officer of Time Warner, added that the AOL plan is likely to increase earnings next year and the year after versus what they would have been. “Any guesses or speculation that this plan requires a ‘quote hit’ to AOL earnings” aren’t accurate, Mr. Bewkes said.

Time Warner raised its full-year forecast for growth in adjusted operating income to the low double digits from the high single digits. That forecast accounts for its acquisition of cable systems from Adelphia Communications and related transactions with Comcast Corp., the consolidation of Court TV and the shutdown of The WB.

AOL ad growth, solid earnings increases at the cable system and better-than-expected performance at the film unit made Time Warner’s earnings an overall positive, Mr. Shapiro said. Results were bolstered by early syndication sales of the “Without a Trace” TV show.

Mr. Bewkes said he expects Turner Broadcasting will end up “at the high end” of cable network performances when it concludes its upfront advertising sales.