Earnings: Time Warner Continues To Feel Pain From AOL, Print, and the Economy

Time Warner (NYSE: TWX) reported Q408 results this morning that underscored the increasing difficulty ad-driven media companies are facing as the economy appears to have worsened in the past couple months. Because the company issued a pre-announcement of earnings several weeks ago, there weren't many major surprises today. But Warner Brothers and Time Inc. each reported declines that exceeded consensus expectations, indicating rockiness ahead for studios and print publishing. Here are the details from the quarter:

AOL: Revenues down 23%, Operating income up 6%
Cable: Revenues up 8%, Operating income up 6%
Film: Revenues down 11%, Operating income up 6%
Turner NW: Revenues up 9%, Operating inccome down 20% (up 12% w/o one-time charge)
Time Inc.: Revenues down 13%, Operating income down 70%

—While overall revenues at AOL were largely in-line with expectations, AOL ad revenue declined 18%, well below the low-double-digit declines many analysts were predicting. This is further evidence that online display advertising slid during the fourth quarter of 2008; it appears to be experiencing continued erosion into 2009 (see our IAC Earnings report). AOL is largely viewed as a bellwether for display advertising so the results suggest that display appears to be eroding as fast as many print-advertising categories.

—Cable results showed continued strength. In particular, triple-play subscribers increased 4 percent over the previous quarter –- a key area to watch as cable companies battle aggressive competitors in the IPTV space. The number of basic subscribers likely decreased more than many were expecting.

—Film revenue declines of 11 percent are slightly below consensus estimates, which were in the high-single-digit range. But recent announcements of coming layoffs at Warner Brothers served as an early warning that the studio environment was experiencing pressure.

—Turner Networks results were strong, as expected, with growth in ratings, ad rates and inventory.

—Time Inc.'s revenue declines of 13 percent were significantly below analyst expectations, which were for high-single-digit decreases.Operating income also decreased more than most analysts were forecasting, driven by a number of one-time charges. And ad revenue declined 20%, providing a window onto the struggles magazines face as marketers continue to lose confidence in print advertising.

More on 2009 outlook after the call.

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