Cable Unit Boosts Time Warner Profit

The cable TV business took the spotlight again at Time Warner Inc., powering a stronger first-quarter performance at the media conglomerate, whose holdings also include HBO, People magazine and Warner Bros.

The cable business reported a 10% jump in revenue, the largest of any business unit at Time Warner, as the New York-based company signed up more users of premium services such as high-speed Internet, digital cable and its new digital telephone service.

Time Warner is making a big bet on cable and announced two weeks ago that it had reached a deal along with Comcast Corp. to acquire the 5.3 million cable subscribers of Adelphia Communications Corp., which is in bankruptcy protection, for about $17.6 billion in cash and stock.

Time Warner’s America Online service continued to struggle, however, posting a 3% decline in revenue as it continued to lose dialup subscribers; that more than offset a 45% gain in advertising revenue. Profit rose 10% despite the revenue loss because of a decline in telecommunications costs.

Despite the strong showing in the quarter, investors are watching closely to see whether Time Warner will turn around its struggling AOL business, which is losing basic subscribers to high-speed Internet providers.

And though other looming issues have been resolved recently -- including the Adelphia deal and settlements with government regulators over accounting problems at AOL -- it remains uncertain how Time Warner will use its improving balance sheet.

Merrill Lynch analyst Jessica Reif Cohen told investors in a note Tuesday that the resolution of the Adelphia deal should allow the company to make a decision about offering shareholders a stock buyback or dividend in the second half of the year.

Revenue from the Warner Bros. and New Line studios edged up 1% while earnings were essentially unchanged from the same period a year earlier.

Overall, the company earned $963 million, or 20 cents a share, in the first three months of 2005, up less than 1% from $961 million, also 20 cents a share, in the same period a year earlier, when it recorded an accounting gain and owned a music business that has since been sold. Revenue rose 3% to $10.48 billion.

Excluding the effect of several one-time gains in the latest quarter, per-share earnings came in at 18 cents a share, a penny more than expectations of analysts surveyed by Thomson First Call.

Investors liked what they heard, sending Time Warner’s shares up 60 cents, or 3.6%, to $17.28 on the New York Stock Exchange. The stock remains down about 12% since the start of the year, in line with a general slump in the media sector.