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Time Warner Financial Woes Prompt Possible AOL Spin Off

April 30, 2009

Wednesday brought reports of misfortune for US media and entertainment leader Time Warner Inc., who reported a 14 percent decrease in net profit for the quarter, and further anticipates to spin off the distressed Internet unit AOL, the Associated Free Press reported.

Detailing its earnings for the first time since spinning off Time Warner Cable, Time Warner informed that first quarter net profit dropped to 661 million dollars from 771 million dollars in the same quarter of the previous year. 

The first three months in 2009 accounted for revenue decreases of seven percent to 6.9 billion dollars. Ironically, however, Time Warner successfully beat the 38 cents per share prediction by analysts with earnings of 45 cents per share. 

Time Warner shares rose 3.58 percent on Wall Street following the release of the results to 22.55 dollars.

According to reports filed with the Securities and Exchange Commission (SEC), Time Warner said it supposes to spin off AOL, whose revenue dropped 23 percent in the quarter to 867 million dollars.

Time Warner informed the press, “Although the company’s Board of Directors has not made any decision, the company currently anticipates that it would initiate a process to spin off one or more parts of the businesses of AOL to Time Warner’s stockholders, in one or a series of transactions.”

The company made further inferences that it “may decide to pursue an alternative other than a spin-off” based on “the availability of more favorable strategic opportunities that may arise.”

The SEC filing also indicated that Time Warner was having conversations with Google to purchase the five percent equity interest the Internet leader holds in AOL. 

A conference call was held between Time Warner company chairman and chief executive, Jeff Bewkes, and a group of analysts to discuss the company’s intentions regarding AOL.  Time Warner, who purchased AOL in a extraordinary deal in 2001, said their plans would be made known “very soon.”

Bewkes commented in a previous statement that the first quarter results happened in a “challenging economic atmosphere that is affecting all our businesses, particularly advertising at our AOL and publishing segments.”

“Our results keep us firmly on track to achieve our full-year business outlook,” he added.

Time Warner plans to continue emphasis on its entertainment and publishing efforts such as the CNN and HBO cable TV networks, Warner Bros. movie studio and Time magazine, Bewkes confirmed.

“With our separation of Time Warner Cable, Time Warner has become a more content-focused company,” he said.

Revenues shot up six percent in the quarter to 2.8 billion dollars from, achieved by Time Warner’s Networks unit which consists of CNN, HBO and Turner Broadcasting. 

However the same success was not shared by the Filmed Entertainment unit.  Revenue in this unit dropped seven percent to 2.6 billion dollars on lower DVD sales and only modest box office turnouts for “Gran Torino” starring Clint Eastwood and Brad Pitt’s “The Curious Benjamin Button.”

This slumping revenue trend carried over into other units including publishing, which fell 23 percent to 806 million dollars, advertising with a 30 percent fall, and subscription with 16 percent decrease. 

Advertising sales at AOL, which recently enticed a top Google executive to run the company, were down 20 percent while subscription revenue fell 27 percent.

At the end of March, AOL had 6.3 million US subscribers, down 570,000 from the previous quarter and down 2.4 million from last year. 

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