Losses grow, pics up at TW

CEO, CFO plan to pursue 'strategic opportunities'

NEW YORK — AOL Time Warner posted wider losses but higher revenue for the latest quarter, as surprisingly upbeat numbers amid a weak ad market reflected cost-cutting and a focus on filmed entertainment and subscriptions.

Total revenue rose 6% to $9.3 billion. Advertising and commerce revenue dipped 5%. But it jumped 14% at subscription businesses like AOL, magazines and cable, and grew 6% on the content side. That includes filmed entertainment, where revenue rose 5%, and a perpetually troubled music unit, where it fell 1%.

Together, subscriptions and content made up 79% of revenue for the third quarter ended in September — indicating the conglom may be better positioned than some of its peers to weather a prolonged advertising slump.

Still, AOL Time Warner shares fell more than 8% Wednesday to $30.81 after Merrill Lynch downgraded the stock to “neutral” from “buy” as numbers fell short of the firm’s predictions. Others on Wall Street, however, called Merrill’s estimates unrealistically high and found lots to like in the results, which were the first to be released by a major media company this quarter.

The company offered little comfort on the advertising front. Execs said an already weak ad climate had deteriorated after Sept. 11 and showed no sign of recovery. CEO Gerald Levin declined to even speculate about the timing of an uptick. “We’re not going to throw our hat in the ring” as to when things will turn up, he said.

Net losses widened to $996 million from $902 million. That figures in $134 million in merger-related expenses (like eliminating 1,700 jobs at AOL in August) and a $196 million charge to write down investments. Cash flow rose 20% to $2.5 billion.

Cheers for CNN

Levin waxed enthusiastic over CNN, which he said has reaffirmed its role worldwide “as the most vital and reliable news network.”

“(Former WB chief) Jamie Kellner and his team are continuing to revitalize Turner networks,” he added. Levin singled out film, AOL (which hit 31 million subscribers in early September), HBO, and Time and In Style magazines.

Filmed entertainment cash flow jumped 43% from the year-ago quarter to $307 million on revenue of $2.1 billion. Company cited “Rush Hour 2,” New Line’s highest-grossing domestic pic ever, and international coin from “Cats & Dogs,” “A.I” and “Swordfish.” Studio was also buoyed by a 96% jump in DVD sales year-on-year, higher revenue from TV syndication, and benefits from shuttering Warner Bros. stores.

One-two punch

“Training Day” has been a box office winner. The conglom expects to turn “Harry Potter and the Sorcerer’s Stone” and “Lord of the Rings” into long-term franchises and is heavily promoting the pics on AOL. The films, which are among the most highly anticipated this fall, “are a nice one-two punch,” one analyst said.

As for TV networks, cash flow was up 29% to $450 million and revenue rose 4% to $1.7 billion. Subscription revenue growth at the Turner cable nets and HBO more than offset a 10% decline in advertising at Turner. The WB broadcast network (and Cartoon Network) saw ad revenue rise for the quarter.

Warner Music’s cash flow fell 21% to $87 million with revenue of $939 million on higher marketing costs for new artists and bad debt provisions. A ray of light came in market share, which rose for the quarter to 17.2% from 16.9%, leaving Warner in the No. 2 position. As the industry slowly migrates online, “We continue to analyze our cost structures and distribution outlets,” AOL Time Warner chief financial officer Michael Kelly said.

He also warned, “We’re not done” with cost cutting company wide. Cable systems grew cash flow by 11% to $791 million and revenue by 17% to $1.8 billion as Time Warner cable, the nation’s second largest cabler, ended the quarter with 12.7 million basic subscribers. The division will expand its video-on-demand trials into 12 new markets in coming months.

America Online’s cash flow rose 22% to $742 million. Revenue was up 13% to $2.2 billion.

In publishing, Time Inc. said separately that it has closed its purchase of IPC, a giant U.K.-based publisher of consumer magazines.

Aggressive moves

That deal was announced before Sept. 11 forced media and all industries to tighten their belts and rethink strategies. But unlike Disney, whose execs have said they’d be unlikely to make any major acquisitions, Levin and Kelly insisted that they plan to aggressively pursue “strategic opportunities.”

They noted the company’s strong cash positions and $12 billion in committed bank financing.

Cash flow for the publishing division rose 41% to $196 million on revenue growth of 4% to $1.1 billion.

Kelly also noted that AOL Time Warner had repurchased $2.4 million worth of common stock so far this year, including $983 million in the third quarter.

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