Results better than Wall Street expected

Time Warner may look a lot different soon, with Wednesday’s earnings report reflecting solid growth in film and cable but worsening trouble at Time Inc. and AOL.

In a conference call with analysts, chief exec Jeffrey Bewkes was more blunt than usual in assessing the economic and asset-mix challenges faced by Time Warner. Referring to the eye-popping 30% slump in ad revenue at Time Inc., he said, “We aren’t assuming that this is all cyclical and will automatically come back when the economy turns,” he said. “There will probably be a further shakeout.”

AOL is officially a candidate for a spinoff, either in its entirety or in pieces. Time Warner filed with the SEC to that effect Wednesday and Bewkes reinforced the position on the call.

Execs said the process of unloading AOL could take several months. One step in the process is buying back the 5% of AOL that Google paid $1 billion for in 2006. The online behemoth has since written off $726 million of that transaction.

Asked by analysts about the fate of Time Inc., Bewkes said it has not been determined. He asserted the brand strength of Time, Sports Illustrated, People and other titles, but said the conglom is actively exploring all of its options.

The conglom reported a 14% drop in net income for the frame ended March 31, at $661 million, down from $771 million in the year-ago period. Revenue sagged 7% to just below $7 billion.

The movie unit, frequently in the headlines in recent quarters for “The Dark Knight’s” boffo returns or the scaling back of New Line, turned in a solid quarter. Revenues dipped 7% to $2.6 billion, mainly due to the timing of releases.

Operating net reached $308 million, up 10%, due to lower P&A costs and lower overhead. Key titles were “Gran Torino” and “Yes Man.” The soft returns from “Watchmen” and “The Curious Case of Benjamin Button” (a split with Paramount) were a drag on overall figures.

It was a tale of two companies, in a way, with only the DVD slowdown hampering results in the film and cable units, both of which grew by double digits.

Time Inc., meanwhile, saw operating income before depreciation and amortization (the cash-flow metric preferred by many media companies) plummet 92% to $12 million. AOL’s fell 37% to $255 million.

The networks division, propelled by HBO and Turner, saw profits perk up 11% to $1.1 billion, though ad revenues posted a “slight decline.”

AOL’s ad sales fell 20% while subscription revenue dropped 27%. The unit has been the focus of speculation for months, especially since Bewkes brought in ex-Google exec Tim Armstrong as chief exec.

Under former chief Randy Falco, the online unit had mixed results in its evolution from a pure subscription model to a content-oriented, ad-supported approach.

The content is drawing massive traffic, with its newly christened MediaGlow brand of sites like MovieFone, Engadget and AOL Politics often ranking among the most-visited on the Web. But overall Net advertising has declined, with questions looming about the commitments to it from blue-chip buyers, at least in the near term.

Armstrong, who has a good rep in Hollywood due to his branded advertising achievements at Google, was reportedly interested in the post specifically under a spinoff scenario.

Shares rallied on the news of a reshuffling of Time Warner’s parts, closing up 1% at $21.98. The quarterly results reflect a recent 1-for-3 reverse stock split.

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