Time Warner Blinks

Revenue dropped 5% at AOL, as advertising revenue rose 28% but subscription revenue dropped 10%. AOL subscribers dropped by 678,000 sequentially and 2.6 million year-over-year in the U.S. to 20.1 million. Against all odds, AOL emerged in the latest quarter as a highly sought-after property due to the reach of its Web sites. The company has been in talks with Google (GOOG Quote), Comcast (CMCSA Quote), Yahoo! (YHOO Quote) and Microsoft (MSFT Quote) over possible investments in AOL.

Revenue rose 13% from a year ago at Time Warner Cable, driven by a 13% rise in subscription revenue and a 4% rise in ad revenue. Time Warner Cable managed 10.9 million basic video-cable subscribers, which included nearly 1.6 million subscribers in unconsolidated joint ventures. Total basic video-cable subscribers grew 18,000 during the quarter. Digital-video subscribers rose 149,000 over the previous quarter for a total of 5.2 million. This growth represents the largest third-quarter increase since 2002. Digital penetration of basic video-cable subscribers reached 48% at the end of the quarter. Digital Video Recorder subscribers climbed 134,000 in the quarter to 1.3 million subscribers, representing 24% of digital video customers.

Residential high-speed data subscribers increased by 234,000 during the quarter for a total of 4.6 million, representing 24% of service-ready homes passed. This is the largest third-quarter net increase since 2002 and marks the third consecutive quarter in which net residential high-speed data subscribers increased by over 200,000. Digital Phone subscribers grew by 240,000 in the quarter for a total of 854,000, representing 5% of eligible homes passed.

Movie revenue rose 6% and networks revenue increased 10%, while publishing revenue inched ahead 3%.

Time Warner reaffirmed its expectation that its 2005 full-year growth rate in adjusted operating income before depreciation and amortization will be in the high-single digits, off a base of $9.9 billion in 2004. This expectation reflects anticipated revenue gains and margin expansion. In addition, Time Warner continues to expect that it will convert between 30% to 40% of its 2005 adjusted operating income before depreciation and amortization into free cash flow.

Time Warner said it bought back $809 million worth of stock between Aug. 3, when its $5 billion buyback plan was announced, and Oct. 31.