Two big media conglomerates once again were going their separate ways Thursday morning.

Viacom

(VIAB) - Get Report

, until very recently a rare bright spot in an ugly year for entertainment stocks, rose following its latest report of an upswing in the advertising market. Meanwhile,

AOL Time Warner

(AOL)

continued to wither from the fallout of Wednesday night's conference call.

The diverging paths of the two conglomerates spotlight ongoing investor concerns enervating AOL's stock despite hints of recovery in the weakened media market. In morning trading, Viacom's class B shares rose 4.5% to $36, while AOL Time Warner's shares dropped 12.7% to $9.95, after establishing in early trading yet another in its endless stream of new 52-week lows, this one at at $9. In a horrific trading year for so many industries, AOL is down more than 60% and Viacom nearly 30%.

Endless Sumner

For its part, Viacom reported better-than-expected results for the second quarter ended June 30. Earnings per share of 31 cents beat the 29-cent consensus of analysts surveyed by Thomson Financial/First Call. Revenue of $5.8 billion met expectations. Results were strongest in the cable networks, television and video segments, Viacom said.

Falling
Media stocks sag

Viacom painted a relatively rosy outlook for the second half of the year. "Upfront sales at CBS, UPN, our cable networks and our syndication businesses were exceptionally strong, which bodes well for advertising during the rest of 2002 and in 2003," said Chief Operating Officer Mel Karmazin in a statement. "Significant ratings momentum and programming successes at CBS, UPN, MTV, Nickelodeon, TNN and BET, as well as at our radio and television operations are also contributing to Viacom's performance. ... In the current quarter, radio pacings are up high single-digits, our television stations are pacing up double-digits versus the same prior-year quarter, and outdoor pacings continue to show improvement."

On AOL Time Warner's call Wednesday evening, Chief Financial Officer Wayne Pace relayed a cautiously optimistic outlook for television and print advertising, but the company said that online advertising weakness would drag on its operating results. America Online, which reported $342 million in advertising revenue for the second quarter, says that $220 million of that comes from long-term contracts written in more bullish times -- contracts, the implication is, that are unlikely to be renewed on as favorable terms to AOL, if at all, once they expire.

On the Case?

AOL's backlog of advertising commitments has diminished from $1.5 billion at the end of 2001 to $860 million at the end of June, an amount that AOL Time Warner says will burn off within the next four quarters. In comparison,

Yahoo!

(YHOO)

has told Wall Street that vestigial dot-com-era ad revenue has finished working its way through its profit-and-loss statements.

And suddenly, AOL Time Warner gave investors another thing to worry about Wednesday with its disclosure that the

Securities and Exchange Commission

had launched an inquiry into accounting issues at America Online raised last week in

The Washington Post

. Earlier this month the company underwent a management shake-up that saw the departure of longtime AOL star Bob Pittman, following a long series of financial shortfalls at the company.

Citing the inquiry and poor visibility at AOL, Merrill Lynch analyst Jessica Reif Cohen lowered estimates for AOL Time Warner and cut her rating on the company from buy to neutral Thursday morning. Three other analysts downgraded the stock as well, but the move at AOL banker Merrill came just two months after an upgrade of the stock. Despite the downgrades, several brokerage firms still have buy ratings on the stock and price targets as high as $24.