Media Money

Published: Wednesday, 29 Jul 2009 | 2:34 PM ET

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Time Warner is moving towards a new streamlined, content-focused model, and though it's suffering from the ad downturn, that core content business is thriving.

Second quarter earnings, reported before the bell this morning, are down from last year, but still blew past analyst projections. Adjusted profit came in at 45 cents per share compared to the Street forecast of 39 cents, and revenue at $6.8 billion, down 9 percent from last year. And Time Warner

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[TWX  Loading...      ()   ] reaffirmed its business outlook for the year - flat adjusted EPS. The economy hit the media giant's advertising revenue and DVD sales, but cost cutting and strength at its cable networks helped on the upside.

The big news: The company says it's on track to spin off AOL by the end of this year. This is a key step in CEO Jeff Bewkes plan to focus the company on content, following the spin-off of Time Warner Cable. This quarter AOL's revenues dropped 24 percent as it battles the advertising downturn and continues to lose customers of its dial-up business. Bewkes says that a spin-off is a win-win-- allowing Time Warner to focus on its core competency while allowing AOL to attract the best talent.

Bewkes also gave some insight into the the company's plans for the $7 billion in cash on its balance sheet. It's started buying back stock again; in the past two months purchasing some $350 million worth of shares. He says the company will "invest fully in the existing businesses" and "maintain a strong balance sheet" but will also make "appropriate acquisitions." Bewkes didn't refer to any types of companies in particular, just saying that any acquisitions would need to "provide strategic benefits" and be attractive in terms of risk adjusted returns.

What's the company's outlook on the advertising economy? Bewkes said that the ad markets have been more stable, but the company hasn't seen any improvements in ad spending. That doesn't mean we've hit a bottom- they just don't know yet. One factor clouding visibility is the fact that advertisers are buying spots closer and closer to air dates, disrupting usual planning.

The strength and weakness with the various divisions broke down pretty much as expected. The company's strong point continues to be its cable networks unit, whose revenues grew 5 percent this past quarter on strong subscription revenue. In the earnings call Bewkes said that upfront ad sales have been strong and he expects Turner networks to actually gain some marketshare from the broadcast channels.

In addition to AOL, the publishing division also suffered double digit losses thanks to the industry-wide downturn in advertising. Time Inc.'s revenue fell 22 percent on a 26 percent decline in ad revenue. The movie studio, Warner Brothers, has had a very strong run at the box office, with the biggest R-rated comedy ever, The Hangover, and the latest Harry Potter sequel breaking records. Those hits haven't helped the bottom line yet, with revenues at the studio down 9 percent, thanks in part to lower DVD sales.

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