Time Warner Profit May Be Unchanged on Potter Costs (Update2)

By Gillian Wee

July 31 (Bloomberg) -- Time Warner Inc., the world's largest media company, may say quarterly profit was little changed as marketing expenses for the latest Harry Potter film and lower sales at its AOL Internet unit offset cable TV gains.

Time Warner probably earned 20 cents in the second quarter, according to the average of 18 analysts' estimates compiled by Bloomberg. The company also earned 20 cents a year earlier excluding discontinued operations. Sales at New York-based Time Warner may have gained 3.7 percent to $11.1 billion, the estimates showed.

Film earnings may have fallen 52 percent because of advertising for ``Harry Potter and the Order of the Phoenix,'' said UBS AG analyst Michael Morris. The movie will add to the company's revenue in the current quarter. AOL's sales may have dropped after the unit shifted to free e-mail service, while Time Warner Cable Inc. was probably the fastest-growing unit by sales and profit for the 14th straight quarter.

``Cable provides some stability for the rest of the media business,'' said Robin Diedrich, an analyst at Edward Jones & Co. in St. Louis. She has a ``buy'' on Time Warner shares and doesn't own any. ``I'd like to see AOL show improvement.''

Time Warner, also owner of the CNN cable-television news channel and People magazine, is scheduled to release earnings tomorrow at about 6 a.m. New York time. Time Warner spokesman Keith Cocozza declined to comment.

Cable Gains

Time Warner Cable, the second-largest U.S. cable company after Comcast Corp., will release separate earnings at 8:30 a.m. tomorrow. The 84 percent-owned unit started trading on the New York Stock Exchange in January.

Time Warner's shares fell 31 cents to $19.26 at 4:02 p.m. in New York Stock Exchange composite trading. They have declined 12 percent this year, while the Standard & Poor's 500 Index gained 2.6 percent.

Eighteen analysts suggest buying Time Warner stock, according to data compiled by Bloomberg. Five recommend holding the shares and no one has a ``sell'' rating.

Profit at the cable unit probably jumped 52 percent to $1.45 billion, helped by the acquisition of Adelphia Communications Corp. assets in cities including Los Angeles, Morris wrote in a July 18 note. He is based in New York and rates the shares ``buy.''

Time Warner Chief Executive Officer Richard Parsons, 59, said in June that he planned to buy more cable systems over the next two years to bolster the unit.

Film Unit

The film unit's profit may have declined to $111 million from $229 million, according to UBS's Morris. The cost of advertising ``Ocean's Thirteen,'' released in June, and ``Rush Hour 3,'' in theaters in August, also reduced earnings.

The latest movie in the Harry Potter series cost $150 million to make and has so far earned $691.8 million in tickets sales worldwide, according to researcher Box Office Mojo, based in Burbank, California. The film was released July 11.

AOL sales may have fallen by a third to $1.38 billion after the Internet-access service lost 1.2 million paid subscribers in the quarter, based on estimates by Michael Nathanson of Sanford C. Bernstein, the top-ranked media analyst by Institutional Investor magazine.

AOL's online ad sales probably gained 27 percent, Nathanson said in a July 19 note. The New York-based analyst rates Time Warner shares ``outperform.''

`Net Drag'

Parsons said in June that he will decide by year's end if the strategy to rely more on ad sales is succeeding.

``Even with the growth in advertising at AOL, it's a net drag to earnings because the ad revenue does not make up for a significant loss in subscribers,'' said Richard Dorfman, managing director at Richard Alan Inc., a New York-based investment company.

Sales at Time Warner's cable-TV networks, including TBS, TNT and Cartoon Network, were probably little changed at $2.63 billion after the close of the WB Network last year, Nathanson said.

Time Inc.'s profit probably gained 5 percent to $269 million, Nathanson estimated. The unit, the world's largest magazine publisher with titles such as Fortune and Sports Illustrated, has cut about 900 jobs in the past 18 months to counter a slowdown in ad sales.

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net .

Last Updated: July 31, 2007 16:12 EDT

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