Time Warner posts fall in profits

Conglom moves closer to AOL spinoff

Subscribers up, profit down at TWC
Time Warner film co-financier hit by crunch

NEW YORK -- Time Warner took another step toward an expected spinoff of AOL as it reported mostly weaker first-quarter results Wednesday while touting the performance of its core content businesses.

Its film unit reported a profit that provided a positive surprise for Wall Street observers.

TW said in a regulatory filing that it plans to start a process to prepare to spin off all or part of its AOL unit. The board hasn't made a decision, and the plan could change based on market conditions or a better strategic alternative, the company said.

Chairman and CEO Jeffrey Bewkes said in a conference call that TW plans to announce a decision on AOL's structure "very soon." He added that the company and new AOL chairman and CEO Tim Armstrong will in the near future also discuss AOL's latest business strategies.

TW also disclosed that it has notified Google that it plans to buy back 5% in AOL held by the online bellwether, while staying open to potential alternative moves. An independent valuation is expected to be completed in the coming months.

In its first earnings report since spinning off Time Warner Cable, the conglomerate posted a first-quarter profit of $661 million, compared with the year-ago profit of $771 million.

Adjusted operating income before depreciation and amortization fell 7% to $1.6 billion. Revenue also fell 7% to $6.9 billion.

TW reiterated its forecast for a 2009 adjusted profit for its remaining content businesses of $1.98 per share from continuing operations.

At the company's core content group, revenue declined 4% but OIBDA rose 3%. As expected, TW's TV networks unit was the only division that saw year-over-year growth in revenue, operating profit and OIBDA.

Quarterly operating profit at the film arm surprised with a 17% increase, while many analysts had predicted a decline. Film unit revenue declined 7% amid lower DVD sales, but print and advertising expenses fell, overhead costs were lower and TV licensing fees were higher. The quarter included the theatrical performances of "Gran Torino," "The Curious Case of Benjamin Button" and "Watchmen."

However, Wunderlich Securities analyst Martin Pyykkonen warned that investors shouldn't expect similarly solid results from too many film units of other media biggies. "We expect to see that the Warner Bros. studio outperformed its competition in the quarter, especially in terms of DVD sales," he said.

TW management said the film unit also faces tough home video comparisons in the current second quarter because of fewer DVD releases.

TV unit operating profit rose 10% in the quarter on a 6% revenue gain, driven by a 9% gain in subscription revenue that helped offset a 2% ad revenue decline.

Discussing the recession, Bewkes said: "It's tough out there in the economy, no question. But I feel good."

CFO John Martin told analysts on the call that second-quarter scatter TV advertising prices are coming in around upfront levels at TW, but ad cancellation rates are up. He predicted an ad revenue decline in the mid-single digit percentage range for the second quarter.

Bewkes said the Turner networks are well positioned for the nearing upfront.
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