AOL-Time Warner

A progressive slowdown in the ad market forced Time Warner, owner of HBO, AOL and several publishing units, to report its first annual loss in six years.

Minus depreciation and amortization, the media conglomo's adjusted operating income rose 2% last year from 2007's $12.9 billion, compared with a previous projection of 5%. Though its internet unit attracted more users, ad sales were "disappointing" in Q4, forcing Time Warner to write down the value of its cable system, publishing, and internet assets by about $25 billion.

The blow was no surprise to analysts, which saw the trends coming: US ad spend fell 1.7% between January and September, according to TNS Media Intelligence. But as late as November, Time Warner insisted it would come out on top, forecasting profits from continuing operations to be around $1.07 more per share, Bloomberg reports.

At the time, its cable arm suffered from a "dramatic" slowdown in customer growth and less demand for services like pay-per-view, premium channels, and digital-video recording rentals — resulting in a cut in its 2008 sales forecast.

Time Warner last reported an annual net loss in 2002: a shortfall of $98.7 billion, the largest in US history at the time. The loss was due primarily to the declining value of AOL and its cable systems.

Early last year, Time Warner said it would sell its cable division. And its AOL property accounts for less and less revenue: 11% in 2007, vs. 17% the year before. AOL CEO Jeffrey Bewkes is reportedly planning to unload the ailing brand on a major online firm — with Yahoo the most recent would-be buyer. News of their possible merger fluttered through the second half of 2008, but dissipated by December.

Time Warner spent much of 2008 managing AOL with a heavy hand — first separating it from the parent firm's primary business, then dividing AOL's internet subscription arm from its own website and advertising divisions.

Following news of its $25 billion writedown, Time Warner shares fell 6.3% yesterday, to $10.29. Last year the stock fell a total of 39%.