Time Warner grows revenue but loses AOL subscribers

Executives still upbeat about the future

Time Warner Inc. grew its revenue by 4 percent in 2005 but also reported a significant drop in its America Online Inc. (AOL) membership, according to results released Wednesday.

AOL lost 2.8 million U.S. members in 2005 to end the year with 19.5 million members, it said. In Europe it lost 287,000 members to end the year with 6.0 million.

Annual revenue from the AOL division decreased 5 percent from 2004, to US$8.3 billion. Adjusted operating income climbed 9 percent to $1.9 billion, helped by lower network and marketing expenses and higher advertising revenues, the company said.

Despite the customer losses at AOL, company executives were upbeat about the subsidiary's future. "Our goals for 2006 are actually quite simple," said Jeffrey Bewles, president and chief operating officer for Time Warner, speaking during a call to discuss earnings. "We will move more subscribers proactively to broadband." AOL can sell more services to subscribers once they’re connected via broadband and also drive more traffic to AOL properties, which should boost AOL advertising sales, he said.

Recently announced partnerships should help AOL execute that plan, Bewles said. Last week, AOL partnered with several DSL (Digital Subscriber Line) and cable companies in the U.S. in order to offer broadband services to customers. AOL has also been offering its content, including video, to nonmembers and formed an advertising relationship with Google Inc. that included a $1 billion investment from Google.

"The relationship with Google will augment those efforts by driving traffic to AOL programming," Bewles said.

Overall, Time Warner's full-year revenue grew 4 percent to reach $43.7 billion, driven by its cable, networks, publishing and movie businesses. Net income declined to $2.9 billion, however, from $3.4 billion in 2004.

Cable revenue for the year increased 12 percent to $9.5 billion, while revenue from its networks group increased 6 percent to $9.6 billion.

Results for the fourth quarter were more positive. Revenue increased 7 percent compared to the same quarter in 2004, to reach $11.9 billion. Its film, cable, networks and publishing segments drove the growth. Net income was $1.4 billion, up from $1.1 billion in 2004, Time Warner said.

For the future, Time Warner said it expects operating income should grow, in terms of percent, in the high single-digits for the full year of 2006.

Some of that growth may come from Time Warner Cable’s ability to soon offer a so-called quadruple play, Bewles said. Time Warner Cable has already racked up 1 million subscribers to its digital phone offering and recently formed a relationship with Sprint Nextel Corp. to begin offering a mobile phone service later this year. Combined with cable TV and broadband cable modem service, Time Warner will be positioned to bundle the four services together.

Copyright © 2006 IDG Communications, Inc.

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