- Anthony Crupi, Mediaweek

NEW YORK Despite the ravages of a slumping advertising market, Time Warner’s cable networks unit enjoyed a robust third quarter, upping ad sales revenue by 9 percent versus the prior-year period, to $772 million.

Total revenue at the networks group, which includes the Turner Broadcasting entities TNT, TBS, Cartoon Network and CNN, as well as the premium channel HBO, climbed 7 percent, or $176 million, to $2.73 billion. Along with the advertising gains, network revenue was goosed by 10 percent year-to-year growth in subscription/affiliate revenue.

The Turner nets now appear to represent the most “recession-proof” ad-supported cable properties, having thus far outperformed the rest of the marketplace. Last week, Scripps Networks boosted its third-quarter sales 5.4 percent, to $236 million, while Viacom saw domestic ad sales fall 3 percent. (Related: "Struggling Ad Biz Hurts News Corp.")

Time Warner CEO Jeff Bewkes noted that the election season has been particularly kind to CNN of late, as the net saw its average prime-time delivery jump 68 percent in the quarter to 1.35 million total viewers, while the core news demo grew 85 percent with an average 473,000 adults 25-54. While cable news ratings are expected to sag now that the race has been decided, Bewkes argued that CNN wouldn’t necessarily see a big drop-off in what’s left of the fourth quarter.

“We don't see that ratings growth can’t continue, given the vibrancy of stories that are out there in the market,” Bewkes said, adding that viewers were likely to show up in droves for President-elect Barack Obama’s inauguration. A cratering economy and the ongoing wars in Iraq and Afghanistan are also arguments against viewer churn, Bewkes said.

Although the AOL division continues to be a drag on Time Warner, the media conglomerate still managed to match Wall Street expectations. The company reported net income of $1.07 billion, or 30 cents a share, more or less in line with the $1.09 billion, or 29 cents per share, it earned in the year-ago period. Excluding various onetime charges, profit was 31 cents per share, beating a consensus estimate of 27 cents per share, per Thomson Reuters.

In the quarter, revenue was essentially flat, adding up to $11.7 billion.

Bewkes said that while Time Warner enjoyed its strongest quarter of 2008 in Q3, he’s not reading the tea leaves for next year. “We have been as surprised as anybody else by the speed and the magnitude of the financial crisis and it’s hard to predict the ultimate impact on the economy,” Bewkes said, before adding that the company may be less exposed to the vicissitudes of the ad market, as ad sales make up less than one-fifth of its overall revenue.

Such uncertainty continues to cast a pall over AOL and the Time Inc. units. At AOL, overall ad sales fell 6 percent, or $33 million, to $507 million, marking the first such loss since the division shifted from a subscription model in 2006. Display ads fell 15 percent, as AOL saw financial services and domestic auto dollars disappear.

All told, AOL lost 634,000 subs during the quarter, for a total of 7.5 million.

Meanwhile, the magazine unit registered a 7 percent drop in overall revenue, as ad sales fell 8 percent to $585 million. Time Inc. chairman and CEO Ann Moore announced Oct. 28 that she would group the unit’s 24 U.S. magazines into three silos, covering lifestyle, entertainment and news. In Wednesday’s earnings call, Bewkes said the reorg would call for a 6 percent reduction of Time Inc.’s workforce, affecting approximately 600 employees.

Revenue at Time Warner Cable grew 8 percent to $4.34 billion. Hampered by its reliance on local ad sales business, the cable company’s third-quarter ad sales were up just a hair over 1 percent to $224 million. Those numbers are expected to contract in the fourth quarter, as political advertising goes away.

“Political is big for us and it’s been basically buoying that business,” said Time Warner Cable COO Landel Hobbs. “We’ve been hit hard, of course, automotive, financial services. Not really going to lean into the fourth quarter but you know what’s happening in the world out there. Advertising is continuing to be extremely soft -- if anything, it actually has gotten worse in the third quarter -- and as much as political buoyed it, that will be gone. Underlying trends in primarily all of the advertising sectors for us are very weak.”

Looking ahead, Time Warner lowered its full-year 2008 guidance on charges associated with the restructuring at Time Inc. reflecting $100 million to $125 million severance and other costs. Time Warner now expects profits of $1.04 to $1.07 a share this year, down from its prior outlook of $1.07 to $1.11 per share provided in February. Analysts have been expecting $1.07 a share -- the high end of Time Warner's new guidance.