-By Anthony Crupi

Time Warner’s AOL and Time Inc. divisions continue to eat into its bottom line, as the media conglomerate posted third-quarter net income of $661 million, or 55 cents a share, a 38 percent decline versus its year-ago profit of $1.07 billion, or 89 cents a share.

Consolidated revenue fell 6 percent to $7.14 billion.

AOL’s ad sales revenue fell 18 percent versus the year-ago period, while subscription dollars dropped another 29 percent. Both declines contributed to the loss of half of the unit’s operating income, which totaled $134 million. AOL now serves 5.4 million subscribers, down 28 percent from 7.5 million a year ago. The unit’s subscription losses accounted for more than half of Time Warner’s overall revenue decline.

Time Warner is on track to spin off AOL before the end of the year.

Time Inc.’s Q3 ad sales dropped 22 percent to $456 million, although the magazine unit did show some sequential improvement. In Q2 ‘09, ad sales fell 26 percent.

On the other side of the ledger, the cable networks continued to serve as Time Warner’s load-bearing wall, as the programming segment upped operating income 3 percent to $938 million. Network revenue grew 5 percent to $2.87 billion, on a 9 percent increase in subscription/affiliate dollars ($1.89 billion).  

Global ad revenue for the networks—which include TNT, TBS and CNN—dropped 1 percent from a year ago to $768 million, up from a 3 percent drop in Q2 ‘08. Time Warner did not break out domestic ad sales figures, although Chief Financial Officer John Martin told investors that stateside business was up “in the low-single digits” versus the year-ago period. (In Q2 ‘09, the Turner nets boosted ad sales by 5 percent.)

Time Warner said its network ad sales business was offset by weakened demand at its news networks, which include CNN and Headline News. In Q3, CNN’s prime-time deliveries plummeted 30 percent, as the news net averaged 949,000 nightly viewers versus the year-ago period. CNN also dropped 38 percent among the core news demo, averaging 288,000 adults 25-54.

Ratings declines are partly a function of comparing this year’s deliveries versus the inflated gains of Q3 2008, when the run-up to the Presidential election lifted all boats.

Martin said scatter pricing is up “strong double digits” over upfront pricing, although he added that Time Warner expects ad revenue to decline in the fourth quarter, “due to lower upfront pricing and unfavorable comparisons” to CNN’s prior-year period. Martin also flagged “recent general-entertainment trends.”

Time Warner CEO Jeff Bewkes added that TNT and TBS have endured “some ratings softness in September and October, and we’re not happy about it,” before noting that the recent declines in prime-time viewership seem to be a direct result of scheduling anomalies. “We had fewer premiere episodes on TNT and TBS ended up with three fewer MLB [playoff] games than they had a year ago,” Bewkes said.

TNT and TBS were down 11 percent in prime in October, per Nielsen ratings data.

Bewkes said he anticipates an autumn upswing at TNT, as the network’s 2009-10 NBA coverage has started strong. On Oct. 27, the Turner net tipped off the 2009-10 NBA season in fine form, drawing 3.68 million viewers with its opening night doubleheader. Taken together, the two games put up big demo deliveries, as TNT averaged 2.17 million viewers 18-49, up 35 percent from last year’s twin bill, while adults 25-54 were up 39 percent.

The Time Warner chief also sees promise in Men of a Certain Age, the new Ray Romano drama that debuts on TNT Dec. 7. “If this were a sustained trend, [the ratings decline] would have an impact,” Bewkes said. “We don’t think it will.”

In morning trading, shares of Time Warner were down .75 percent, or 23 cents, to $29.94.