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Time Warner revenue, profits fall as ads and DVDs still weak

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Continued weakness in the advertising market and DVD sales sent Time Warner revenue down 9% in the second quarter to $6.8 billion, while net income plunged 34% to $519 million.

The conglomerate’s studio Warner Bros. saw its revenue fall 9% to $2.3 billion, despite a strong theatrical slate led by surprise hit ‘The Hangover.’ That’s mainly due to the continually troubled home-entertainment market. Time Warner said that Warner Bros. experienced weaker performance for its new DVD releases as well as catalog titles and received lower television licensing fees for its films. Its video-game division, Warner Bros. Interactive, also had no new video-game releases to compare to last year’s hit ‘Lego Indiana Jones,’ which it produced for LucasArts.

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Thanks to reduced marketing spending and cost-cutting at the studio, including layoffs, operating income for Warner Bros. actually rose 52% to $143 million.

HBO and Turner Entertainment, which make up Time Warner’s networks division, were the only bright spot in the quarter. Despite a 3% drop in ad revenue, subscription fees rose 8%, giving the unit overall 5% growth to almost $3 billion. Consumers pay directly to get HBO in their homes, while cable systems pay to carry Turner channels including TNT, TBS, CNN and Cartoon Network. Adjusted operating income grew 17% to $875 million.

The soon-to-be-spun-off Internet division AOL saw no end to its woes, as revenue plummeted 24% to $804 million in the face of weak advertising and a continued drop-off in subscribers. Operating income dropped 28% to $165 million. In a statement, CEO Jeff Bewkes said that Time Warner is on track to separate AOL into a separate company by the end of the year.

The magazine publishing unit was also a big drag as it suffered the problems besetting many print publications. Overall revenue was down 22% to $915 million, thanks to a 26% drop in advertising and 18% decline in subscriptions. Operating income was down 53% at $102 million.

Despite the tough quarter, which was similar to that of competitor Viacom, which reported earnings Tuesday, the results appeared to slightly beat analysts’ expectations. Time Warner stock was up 1% at $27.37 in early trading.

-- Ben Fritz

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