Subscriptions Ease AOL Time Warner’s Q3 Net Loss

By Erin Joyce

AOL Time Warner Inc. reported a net loss of $996 million, or 22 cents per share, on total revenues of $9.3 billion during the third quarter of this year as it weathered a tough advertising market made worse by the Sept. 11 attacks.

The results were slightly wider than the net loss of $902 million, or 21 cents per share of a year ago. Total revenues were up by 6 percent compared to its $8.8 billion revenue estimate of the corresponding quarter of 2000 (before the merger of America Online and Time Warner was complete).

But subscription revenues rose by 13 percent to $4.2 billion, or close to half of the company’s revenue during the period ending Sept. 30.

Advertising and commerce revenues were down 5 percent to $1.9 billion for the period, reflecting the year-long weakness in the advertising market.

During a conference call with analysts to discuss the results, Gerald Levin, chief executive, said “Sept. 11 forever changed our lives and made the ties that hold us together as local, national and global communities more visible and vital than ever before.”

And as the events of Sept. 11 have reordered personal concerns, he continued, the United State’s reaction to the attacks and its war on terrorism are impacting how the company conducts its business.

“We have committed substantial resources to news gathering and will continue to do so,” he continued, a move expected to further impact its operations during the fourth quarter.

On top of that, the company as well and the advertising industry have seen a further deterioration of the advertising climate since Sept. 11th.

AOL Time Warner’s quarterly net loss included a $134 million charge from the merger of ISP America Online and Time Warner, Inc. as well as $196 million worth of investment write- downs. During the third quarter of last year, the company’s estimated, or pro forma, net loss also included a $52 million charge for merger-related expenses.

However, not counting the one-time and merger costs, AOL Time Warner’s earnings before interest, taxes, depreciation and amortization (EBITDA) were up by 20 percent to $2.5 billion, or cash earnings per share of 30 cents. Using the same measurement stick, the company said its estimated cash earnings of the same, year-ago period were $2.1 billion, or cash EPS of 21 cents. Analysts polled had been expecting cash earnings of 26 cents per share.

Mike Kelly, chief financial officer, said subscription growth across all the media properties was more than 137 million, an increase of 18.2 million over the past year which was led by 15 percent growth in cable subscribers.

AOL remained one of top performers among the media properties, taking in $2.2 billion, up 13 percent from the estimated $1.9 billion during the year-ago quarter. Subscription revenues from AOL were $1.4 billion, a 14 percent increase from the same time last year and helped in part by the price increase that AOL introduced in May of this year.

AOL raked in 6.7 million new members worldwide year-over-year and 1.3 million for the quarter, bringing overall subscriber numbers to 31.3 million, the company said.

While print and other media properties struggled to maintain advertising revenue in a sluggish economy, AOL’s advertising and commerce sales were up 5 percent to $624 million, helping to offset a 10 percent decline in commerce revenues.

Under its merger agreement, AOL Time Warner also has to roll out multiple high-speed ISP offerings from other providers and as of the end of September it had reached 10 cities across the country with the offerings.

Given the extra resources going towards its media coverage of the Sept. 11 aftermath, the company expects to incur more costs during the fourth quarter and expects slower growth in advertising dollars as well.

Shares of AOL were down close to 5 percent to $31.91 in early afternoon trading on the NYSE.

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