AOL Dials It Down

Sharp user losses worry Time Warner watchers.
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Time Warner

(TWX)

continues to embrace its declining AOL business.

The New York media giant posted

solid third-quarter results Wednesday, highlighted by strong revenue and subscriber growth in its cable business.

But big customer losses and a difficult transition at AOL dampened investors' enthusiasm.

During an earnings conference call with analysts, Time Warner executives spent a fair amount of time defending the strategy to turn its Dulles, Va., dial-up Internet access service into an old-fashioned advertising-driven portal.

AOL sales fell 3% from last year to $2 billion, as it lost nearly 5 million subscribers since last September.

The news comes as a recent report in

Fortune

speculates that

Yahoo!

(YHOO)

is looking at a possible acquisition of the AOL property.

On Wednesday, Time Warner stood by its beleaguered online business.

"AOL is definitely a core asset for the company," said one executive on the earnings call. "It's in one of the three revenue streams we fish in."

Time Warner hopes to lure more visitors to the free AOL site, where higher traffic levels and page-view rates can be converted to greater advertising revenue.

Evidence of this shift was apparent in the third-quarter numbers. AOL posted a 46% rise in ad sales from year-ago levels.

"We see page views turning around and starting to grow," a Time Warner executive said.

"We feel very good about how we are going to do in ad revenue growth compared with the industry," another executive commented.

AOL is also trimming costs by cutting about 5,000 employees, as announced in August.

An executive said the company is on track to cut $1 billion in costs by the end of 2007.

Time Warner executives also gave an update on a plan to

sell 18 magazines in the publishing unit.

The initial announcement to sell titles like

Popular Science

,

Field & Stream

and

Parenting

attracted "70 potential buyers. The second round field is now down to somewhere between eight and 10 parties," an executive said.

Though the executives stated it was too early to call, they said they were "confident we will have a successful transaction there."

Time Warner shares slipped slightly down 4 cents to $19.97 in late-morning trading Wednesday.