While Time Warner's (TWX) movie and cable TV businesses continue to flourish, the AOL unit is still floundering, as growth in its ad revenue continues to slow down. The result is a drop of 53 percent in its net income for the third quarter.
Overall, the company net income dropped to $1.09 billion, in contrast to $2.32 billion last year. Revenue increased $11.68 billion, an 8.6 percent increase for the quarter. Most of that was the result of strong growth in its publishing, cable and movie divisions.
Earnings for the AOL unit dropped 24 percent, and revenue decreased by 38 percent. At the same time, ad revenue grew by 13 percent, slowing from the 16 percent it grew last quarter, and the explosive 40 percent it grew the four quarters before that.
The drop in revenue has been expected since AOL Internet-access is now offered free, but the sharp decline in ad revenue has caused the changes to be amplified further than originally thought, putting growing pressure on Warner to divest itself of AOL. Warner added that the slowing ad revenue will probably continue on into early 2008, with the fourth quarter dropping even more than the third quarter.
At this time AOL has 10.1 million paid subscribers, declining by 851,000 from the second quarter. Since they made the decision to offer free access, the company has lost 5.1 million subscribers from about a year ago.
Operating income for the Time Warner Cable Inc. grew by 24 percent, to finish the third quarter at $681 million, on a 25 percent climb in revenue, which grew to $4 billion. Most of that came from acquisitions. For its existing cable units revenue increased by 9 percent.
For the television arm of the company, earnings surged by 45 percent, with revenue growing by 6.1 percent. Growth came from the subscription side of the business, as ad revenue dropped by 3 percent. Licensing for some of their more popular shows helped the unit grow.
Earnings for the movie division also grew healthily, as overall revenue increased by 33 percent based on "Harry Potter and the Order of the Phoenix."
Outgoing CEO Richard Parsons said, "We look forward to a strong finish to this year, and we're confident in our growth prospects for 2008."
Jeffrey L. Bewkes will replace Parsons as CEO on January 1, 2008, and John K. Martin will step into the role of CFO as well.
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