MarketWatch: Time Warner's Q3 profit drops 7.8 percent

Time Warner revealed a poor third quarter, citing both an eight percent profit drop and the need to sock away $500 million in order to set up a reserve to pay for expected liabilities in an ongoing AOL accounting scandal. The accounting issue centers on $400 million in "advertising" that may have been sham transactions between Bertelsmann and AOL.

AOL's ad sales grew robustly at 44 percent over last year's quarter, but almost all of that was accounted for by the inclusion of recent acquisition Advertising.com and a 70 percent gain in search sales.

The Interactive Advertising Bureau's (IAB's) methods for tracking the growth of online advertising are dependent on the accuracy of reported financial figures, and AOL's past restatements, as well as potential future ones, are not yet accounted for in the trade group's charts. If the IAB were to adopt a more accurate methodology, or if it were to at least backfill data with corrected financial reports, the rise of online advertising would appear more consistent, without quite as much as a bubble effect during the dot-com boom.