• by Joe Mandese  @mp_joemandese, November 3, 2004

In a sign of the rising importance of advertising, Time Warner, the world's largest media company, reported a 4.9 percent gain in third quarter revenues, due largely to a rise in demand for its advertising inventory. While Time Warner is the least dependent of the major media companies on advertising, ad sales have been growing as a percentage of total company sales. During the third quarter, advertising rose 1.5 percentage points to 16.5 percent of Time Warner's total revenues.

"I'm particularly pleased that the growth in Advertising Revenues is the best we've seen in years," Time Warner Chairman-CEO Richard Parsons stated in the earnings release issued early Wednesday morning.

The turnabout is significant for a company that recently had been touting itself as a "subscriptions" company, and earlier, during the Internet run-up period, a "commerce" company, though "content" revenues still outweigh advertising sales by a wide margin.

However, problems in Time Warner's subscription businesses, especially its America Online and Time Inc. publishing units, have slowed both subscriber counts and subscription revenues for the company.

In fact, AOL continues to plague Time Warner by all accounts, including a nettlesome legal challenge of AOL's accounting practices in Europe that caused the company to $500 million into "legal reserves," as well as a new round of layoffs at the unit's Virginia headquarters.

However, while total revenues for AOL rose only 1 percent during the quarter, advertising sales actually surged 44 percent to $79 million, reflecting the overall rebound in demand for online advertising inventory.

The growth in ad sales benefited from a 70 percent gain - about $30 million - in domestic paid search sales and the inclusion of newly acquired Advertising.com ($35 million), which closed on Aug. 2.

But Time Warner's strongest advertising contributor continues to be its TV network operations, especially Turner Broadcasting. Total TV ad sales rose 8 percent to $48 million during the quarter, including a 12 percent rise at the Turner networks, which helped offset a 3 percent decline at The WB Network.

Advertising Builds Share Of Time Warner Revenues

                -----Third Quarter-----    ------Nine Months------ 
                 2004    2003
Change     2004     2003    Change 
Advertising     16.5%   15.0%  +1.5 pts    15.9%    15.5%  +0.4 pts 
Subscriptions   54.2%   54.2%      NC      52.2%    53.0%  -0.8 pts 
Content
26.6%   27.3%  -0.7 pts    29.1%    27.7%  +1.4 pts 
Other            2.7%    3.6%  -0.9 pts     2.8%     3.8%  -1.0 pts 

Total*         $9.965  $9.503    +4.9%   $30.979  $28.661    +8.1%

Source: Time Warner earnings release. *In billions.