Correction: An earlier version of this article misinterpreted a passage quoted from Time Warner's 10-Q, leading to a mistaken conclusion that the company's accounting for a loss of revenue may have been improper. We regret the error and are thankful to a representative of America Online, Inc., for pointing it out.

Last weekend, it happened for the fourth time this year. I sat down at my desk, took a deep breath, and got ready to weep. No, I'm not watching bootlegged romantic comedies on the Internet. And no, I haven't resorted to chopping onions on my old, slow-as-paste iBook. I'm just catching up with Time Warner (NYSE:TWX), one of the five companies I own.

What brought me to tears this time around was disheartening news from Time Warner's quarterly report, filed last Friday.

Throughout the report, Time Warner breaks revenues down in a number of ways. The following table, a faithful reproduction, splits them into four somewhat arbitrary categories, cutting across all segments of the company.

Three Months Ended


9/30/02 Change
Subscription $5150M $4818M 7%
Advertising 1424M 1388M 3%
Content 3285M 3244M 1%
Other 475M 513M (7%)
Total $10334M $9963M 4%

*M = Millions

At first glance, the breakdown is slightly more encouraging than the overall 4% gain, which represents a decline (from the 6% gains of the last two quarters, and 10% in the quarter before that): Time Warner experienced revenue growth in all three of the specific categories they provide. (The 7% loss in other revenue is the result of a noble decision to cut down on the use of pop-up advertisements to promote the AOL segment's own merchandise business.)

Most importantly, though, a 3% gain in advertising revenue is particularly appealing to me as a shareholder. You see, I've been waiting for quite some time for my company's advertising revenue to even out or even turn around, following recent industry trends. Instead, Time Warner has faced steady quarterly losses in advertising over the prior year since at least the fourth quarter of 2002. So a 3% gain over the same quarter last year would be good news, right?

It would be, yes, if not for worrisome news elsewhere in the report. AOL, the division of Time Warner in which one would most want to see advertising revenues turn around, has instead suffered greatly. In the third quarter, the segment saw advertising revenues drop 33% over last year, and in the first three quarters, such revenues were down 42%.

It may not seem like a big deal, given Time Warner's overall increase in ad revenue, but the difference to shareholders like me is huge. After all, if DoubleClick (NASDAQ:DCLK) and Yahoo! (NASDAQ:YHOO) can make money through online advertising, why can't Time Warner's beleaguered AOL?

Devan Goldstein can be reached at As mentioned above, he owns shares in Time Warner, Inc. C'est la vie. You can comment on Time Warner on our discussion boards.

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