Time Warner earnings drop 34%

A strong “Hangover” wasn’t enough to keep Time Warner from becoming the latest media conglomerate to get hit by the soft advertising and DVD markets.

The parent company of Warner Bros. reported a 34% decline in net income to $519 million and a 9% drop in revenue to $6.8 billion for the second quarter.

Results were dragged down by troubled online division AOL, which will be spun off into an independent company later this year, and magazine group Time Inc., which continues to struggle along with the rest of the print media industry.

Cable television networks were the company’s one clear bright spot, as revenue rose 5% to $2.96 billion and operating income grew 17% to $875 million. Subscription fees paid by cable and satellite operators that carry HBO and the Turner cable channels were up 8%. Ad revenue was down 3%, entirely because of softness overseas. Bucking an industry trend, domestic advertising revenue was actually up in the “low single digits,” Chief Financial Officer John K. Martin said in a conference call with analysts.

Viacom, one of Time Warner’s biggest cable competitors, reported Tuesday that its domestic advertising revenue fell 6% last quarter.

Asked about the Turner networks’ performance in the “upfront,” where ads are sold for the fall season, Chief Executive Jeffrey Bewkes said the process was not complete, but he sounded a very upbeat note.

“We think we’ll take share from the broadcast networks, basically due to . . . the huge reach of TBS and TNT as replacement devices for the big four broadcast networks,” he said during the conference call.

Film and TV studio Warner Bros. proved a mix bag, as revenue fell 9% despite the huge success of its surprise hit “The Hangover.” That’s mainly because of the contracting home entertainment revenue. Time Warner reported weaker DVD sales than last year along with lower television licensing revenue for its movies.

Its video game division, Warner Bros. Interactive, delayed the release of the Batman game Arkham Asylum and thus had no new titles to compare with last year’s hit Lego Indiana Jones, which it produced for LucasArts.

But thanks to reduced marketing spending and cost-cutting at the studio, operating income for Warner Bros. rose 52% to $143 million.

With “Harry Potter and the Half-Blood Prince” the studio’s second summer hit, Warner is well positioned for a strong fourth quarter when those two films, along with so-so box-office performer “Terminator Salvation,” hit DVD.

AOL’s revenue plummeted 24% to $804 million in the face of weak advertising and a continued drop-off in subscribers. Operating income fell 28% to $165 million. Bewkes emphasized that the company was on track to divest AOL by the end of the year, as it did with Time Warner Cable in March.

The move will rid the conglomerate of its only division not devoted entirely to producing content and mark the final chapter in the two companies’ disastrous 2000 merger.

“Spinning off AOL will enable us at Time Warner to focus even more on driving the best possible performance from our content businesses, which have always been the core of our company and our capability,” Bewkes said.

Magazine publishing was also a big drag, as the unit experienced a 26% drop in advertising revenue and 18% decline in subscriptions. Segment revenue was down 22% to $915 million and operating income fell 53% to $102 million.

Time Warner stock declined 49 cents, or 1.8% to $26.52 on Wednesday after earnings were announced.

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ben.fritz@latimes.com