• by Gavin O'Malley  @mp_gavin, May 1, 2008

After months of speculation, Time Warner announced plans to spin off its cable division during the company's first-quarter earnings call on Wednesday. Time Warner head Jeff Bewkes has previously vowed to shake up the company, and recently promised investors that a decision was coming on the fate of Time Warner Cable.

"A complete structural separation of Time Warner Cable, under the right circumstances, is in the best interests of both companies' shareholders," said Bewkes, who replaced Dick Parsons in January.

In line with analyst expectations, Time Warner posted net income of $771 million, or 21 cents a share, in the first quarter--down from $1.2 billion, or 31 cents a share, year-over-year.

The results included $116 million in restructuring charges. Excluding those items, Time Warner's earnings were flat at 22 cents a share. Total revenue climbed 2% to $11.42 billion.

At AOL, ad revenue growth continued its unremitting decline, rising just 1% in the first quarter. This marked the sixth quarter in a row that ad growth has slowed since AOL ditched its subscription-based model for an ad-supported business in 2006.

"There were some things we could have done better," Bewkes admitted on Wednesday. "We were not satisfied with the performance of display advertising." Indeed, the unit reported that sales of display advertising throughout its network was down 18%.

On the earnings call, Bewkes chalked up AOL's troubles to "execution challenges," and the slow integration and alignment of its many acquisitions over the last two years.

AOL is now relying on Platform-A to market its sites to Madison Avenue, although the expansive ad-serving network is still a work in progress--having recently lost its president, Curt Viebranz, for failing to align its assets quickly enough.

"We didn't integrate our Platform-A acquisitions fast enough," Bewkes said. "We are optimistic that this dislocation is largely behind us."

Overall, AOL's revenues decreased 23%--or by $330 million--to $1.1 billion. This reflected a 38% decline--or $334 million--in subscription revenues, offset slightly by a 1% increase--or $3 million--in advertising revenues.

Analysts weren't expecting much from AOL. In a report released earlier this month, Lehman Brothers analyst Anthony DiClemente said he expected a drop in Time Warner earnings due to a 29% slide in profit at AOL.

During the quarter, AOL had 110 million average monthly domestic unique visitors and 52 billion domestic page views, according to comScore Media Metrix, which translates into 159 average monthly domestic page views per unique visitor.

Page-views for AOL's various content verticals increased 22% year-over-year, according to Bewkes.

As of March 31, the AOL service had 8.7 million U.S. access subscribers--a decline of 647,000 from the prior quarter and 3.3 million from the year-ago quarter.

Regarding Time Warner's announced plan to spin off AOL's Web-access business, Bewkes said the company was making progress.

In March, Bewkes said he would not rule out the sale of AOL, but there was no mention of any deals in the works on Wednesday.

On a bright note for Time Warner, its cable division posted 55,000 net new basic video customers.

Earnings at Time Warner's TV networks, which include CNN, TNT and HBO, rose slightly 1.6% as ad sales jumped 13%.

First-quarter profit fell 25% at Time Warner's movie business, hurt by a charge to bring in the New Line Cinema business with Time Warner's main film operations.

In Bewkes' first major restructuring effort this year, Time Warner's Warner Bros. Entertainment studio absorbed the independent studio unit New Line Cinema.

Revenue was flat at the publishing business, which includes Time and Sports Illustrated magazines.