Time Warner Profit Drops 38%

Company says it still expects to spin off AOL; cuts under way at Time Inc.

Media giant Time Warner said Wednesday that its profits fell 38 percent during the third quarter as the brutal economy continued to batter its Internet, publishing and film businesses.

Revenues for Time Warner fell 6 percent (to $7.14 billion). The company said it still expects to spin off its AOL unit.

Revenues fell 18 percent at Time Inc., or about $204 million, due to a 22 percent decline in advertising. Revenues were down 23 percent (or $235 million) at AOL dues to subscriber and advertising losses, including lower paid-search and display advertising at AOL Media.

The company also said it expects to incur up to $100 million in restructuring charges in the fourth quarter related to Time Inc.

On Tuesday, the publishing unit began the process of laying off as many as 500 employees, the first coming at Sports Illustrated.

Nonetheless, Time Warner executives tried to put a brave face on what has been a rough year.

"Time Warner is firmly on track to post solid results this year in spite of the tough economic environment,” chairman and chief executive Jeff Bewkes said in statement accompanying the earnings announcement. “Driven by the better-than-expected performance at our Content Group this quarter, we're raising our 2009 business outlook."

"We still expect to spin off AOL by the end of the year," he said, "and we’re making great progress on our other longer-term strategic priorities. At the same time, we're investing even more in our businesses and increasing our direct returns to stockholders this year, while significantly strengthening our balance sheet.”

Bewkes added: “I’m confident that the new content-focused Time Warner will be well positioned to deliver steady and attractive stockholder returns in 2010 and beyond."

Bewkes said he is pleased with Harry Potter and the Hangover, and is “very excited” about Warner Bros.’ upcoming “Sherlock Holmes” and Clint Eastwood’s “Invictus.”

“Although we’re releasing fewer movies this year,” Bewkes said, the company is on track to match its 2008 domestic box office gross, or about $1.9 billion.

TV Everywhere, he said, is "progressing quite rapidly," with commercial launches of the service expected soon.

Bewkes said that Time Inc.’s 2008 restructuring – which resulted in roughly 600 layoffs – was “broad-based,” the restructuring announced by the company today “is much more targeted,” and will mainly focus on its news groups – which includes Time, Fortune and Sports Illustrated.

Despite this, Bewkes said he’s still bullish on print. “We believe the downturn in advertising is cyclical,” he said. “More people read Sports Illustrated than watch the World Series.”

Bewkes said that while Time Inc. is lowering the frequency of Fortune, for example, it is refocusing “our reporting on the largest and most important companies.”

No magazines were closed Wednesday, but Bewkes added: “We will continue to take a hard look at our least profitable titles.”