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Tumbling AOL Revenue Weighs on Time Warner

Time Warner and AOL Earnings

Sharp drops in AOL's advertising and subscription revenues were a drag on Time Warner's fourth quarter, with the media conglomerate reporting a 3 percent dip in overall revenue to $12.31 billion from $12.64 billion the same period last year.

Under the weight of a $24.2 billion writedown in its AOL, cable and publishing sectors, Time Warner (NYSE: TWX) posted a quarterly loss of $16.03 billion, or $4.47 per share. That compares with a profit $1.03 billion, or 28 cents per share, last year.

Without the writedown, Time Warner would have seen earnings of 23 cents per share. Analysts polled by Thomson Reuters had been expecting earnings of 26 cents per share before one-time charges, on overall revenue of $12.71 billion.

The results come amid an ongoing directional shift at Time Warner, as CEO Jeff Bewkes moves to consolidate the company around its media businesses. As a result, it's been in the process of spinning off its stake in Time Warner Cable since last May, a process the company had expected to be completed by the end of 2008. In a statement, Bewkes said "we'll complete the Time Warner Cable separation soon."

But that shift may look less appetizing, with AOL, Time Warner's biggest online division and itself the subject of frequent spinoff speculation, posting some ugly numbers for the quarter.

For the period ending Dec. 31, AOL reported revenue of $968 million, tumbling 23 percent from last year's mark of $1.25 billion.

That decline reflected a 27 percent drop in subscription revenues, and an 18 percent downturn in advertising revenues. AOL generates subscription revenues from its dial-up Internet business, which it is separating from the online media and content segment.

The 18 percent drop in the Web business may be more troubling. That decline is owed to a 25 percent fall-off in display advertising and ads placed on AOL's third-party sites. Meanwhile, flat growth in paid-search listings did little to offset the damage.

The latest period saw AOL's advertising slide accelerate, down even more steeply from third quarter's 6 percent decline in as year-over-year revenue -- a trend reflecting the chilling effect the economic downturn has had on online adverting.

"The economy clearly affected some of our businesses, particularly advertising at AOL and publishing," Bewkes told analysts on a conference call this morning.

Bewkes has said that Time Warner is still considering the fate of AOL. Rumors of some form of tie-up with Yahoo began bubbling up shortly after Microsoft announced its buyout offer last winter, but no deal has emerged.

Adding to AOL's uncertainty is the recent request from Google to unload its 5 percent stake in the company. Bewkes said that Time Warner last week received a letter from Google (NASDAQ: GOOG) asking to exercise its demand-registration rights, a process where investors pressure a company to make their shares available for sale to the public. He said that Time Warner is considering all of its available options, including buying the stake back from Google directly.

In the meantime, Time Warner is taking steps to reorganize AOL, having recently reformed it into three divisions. AOL's new MediaGlow publishing segment now joins its Platform A advertising business and People Networks, the online community division that includes social networking site Bebo.

As part of the reorganization, AOL plans to cut 10 percent of its workforces, or about 700 positions, and could close certain offices.