Update: Time Warner’s Q3 net income jumps 80 percent

Time Warner Wednesday reported third quarter net income up 80 percent year on year, driven by increases in operating income at its America Online (AOL), cable, networks and publishing divisions.

For the three months to Sept. 30, the company reported revenue of $10.5 billion, up 6 percent on the year-earlier period. Net income jumped to $897 million from $499 million a year earlier, for earnings per share of $0.19. Group operating income totalled $1.77 billion for the quarter, up from $1.11 billion.

The company rates its performance by measuring operating income adjusted for various legal provisions, such as the $3 billion set aside earlier this year related to securities litigation, and excluding the effects of depreciation and amortization. The group’s adjusted operating income by this measure rose 8.7 percent year on year for the third quarter, and by 4.3 percent year on year for the first nine months. For the full year, the company expects percentage growth in the “high single digits.”

In the AOL division, revenue slipped to $2.04 billion for the quarter, down from $2.14 billion a year earlier: a $71 million (28 percent) increase in advertising revenue was more than offset by a $175 million (10 percent) decrease in subscription revenue.

Operating income at the AOL division rose to $302 million from $261 million a year earlier, as the drop in subscriber revenue was outweighed by cost savings in networks and marketing, and the increase in advertising revenue. The company saw U.S. subscriber numbers tumble to 20.1 million, down 2.6 million from a year earlier.

“We’re very pleased with the performance of advertising sales at AOL,” Chairman and Chief Executive Officer Dick Parsons said Wednesday in a conference call with analysts and journalists.

The source of the division’s revenue is shifting from dial-up subscriptions to revenue from advertising on the AOL.com portal, which is becoming more profitable, he said. “It’s a priority for us to transition AOL to the audience-based business model. We think AOL has what it needs to get there on its own, but the question is whether, with enhanced technology relationships or relationships to enhance site growth, we can accelerate that transition,” he said.

Recent media reports have alluded to negotiations between Time Warner and a number of other companies, including Google, Microsoft, and Comcast, about the future of AOL.

Time Warner is in discussion with other companies, but “We don’t know if they will result in a transaction, or what form a transaction would take,” Parsons said.

However, the company’s management is looking for a strategic deal, rather than a short-term financial deal, he said.

Other areas also have potential to become more profitable, he said. Income from the company’s cable division has been depressed by what Parsons described as the success of the company’s VoIP (voice over Internet Protocol) telephony service. “There’s a slight loss after installation, and a return to profit in the third year,” he said, so future income in the division “depends on the rate at which we increase VoIP subscribers.”

In the third quarter, 240,000 households subscribed to the company’s phone service, bringing the total to 854,000, or 5 percent of eligible homes passed by the company’s cable TV system.