Wednesday, October 22, 2003

NEW YORK (AP) — AOL is gone from its name, but Time Warner Inc. continues to be dogged by troubles at its struggling online business.

Despite an otherwise upbeat report on third-quarter earnings, the giant media company showed continued losses in dial-up subscribers at AOL and more declines in online advertising revenue.

The company also declined to comment on a report that its senior executives had been subpoenaed as part of an accounting investigation.

Time Warner, which officially dropped AOL from its name last week, earned $541 million, or 12 cents a share, in the three months ending Sept. 30, versus $57 million, or 1 cent a share, in the same period a year ago. Revenue rose 4 percent to $10.33 billion from $9.96 billion in the same period a year ago.

The earnings growth was driven by better results at the company’s cable networks such as TBS and TNT, its large cable TV division and higher earnings at its film and TV division.

But the AOL business remained a sore spot, posting a 5 percent decline in revenue and an 8 percent fall in earnings. Advertising revenue was particularly hard-hit, tumbling 33 percent.

Chief Financial Officer Wayne Pace told investors during a conference call that the company believed its online advertising revenue was bottoming out and would resume growth next year.

“We believe we have essentially stopped the sequential declines,” Mr. Pace said.

AOL continued to lose subscribers, shedding another 688,000 users during the quarter and bringing its total subscriber base to 24.7 million, 2 million lower than at the same time a year ago. In July, the company reported an even larger quarterly subscriber loss of 846,000.

Mr. Pace said more than half of the membership losses in the quarter came from nonpaying trial members.

He also said that AOL was making progress in signing high-speed customers, adding 340,000 during the quarter for a total of 2.6 million.

AOL has been focusing on cutting nonpaying subscribers in order to boost profitability, but investors remain concerned that AOL’s customer base is eroding, particularly as prices for high-speed Internet access from rivals like DSL and cable modems become cheaper.

Time Warner’s shares were off 49 cents, or 3.2 percent, to close at $15.06 on the New York Stock Exchange.

Company spokesman Ed Adler declined to comment on a report in the New York Times that top executives from the company, including Chief Executive Richard Parsons and former Chairman Steve Case, have been subpoenaed by the Securities and Exchange Commission as part of an investigation into the company’s accounting for an advertising deal with the German media company Bertelsmann.

SEC spokesman John Heine declined to comment on the report.

The SEC has been looking into the company’s accounting practices for more than a year.

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