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Time Warner Inc.’s second-quarter earnings fell 26% on declining subscriber fees at its AOL online unit and lower ad revenue at the Time publishing business, the media conglomerate said Wednesday.

Time Warner (TWX, Fortune 500) affirmed its full-year financial targets after revenue rose at its film, cable and networks segments.

The company also took legal and tax steps that make it possible to split its AOL online business and sell it in parts.

The New York-based media conglomerate said net income fell to $792 million, or 22 cents per share, from $1.07 billion, or 28 cents per share, a year ago.

Excluding one-time items, profit rose to 24 cents per share from 22 cents per share last year, when gains from the sale of assets bolstered results.

That result was a penny better than analyst expectations, according to Thomson Financial.

Revenue rose 5% to $11.6 billion, surpassing Wall Street’s estimate of $11.46 billion.

AOL remained a burden on the company’s results. Subscription revenue fell 29%, pushing operating income down 36%. AOL scrapped fees for its e-mail service in favor of an ad-supported revenue model, but ad revenue rose only 2% in the quarter. The service still has 8.1 million subscribers.

The company has made no secret of its plans to sell the ailing business to focus on content production. Chief Executive Jeff Bewkes said Time Warner has "made the key decisions that will enable us to run AOL’s access and audience businesses separately beginning in 2009."

Internet service provider EarthLink Inc. (ELNK) has been named as a potential bidder for the dial-up access business. Both Yahoo Inc. (YHOO, Fortune 500) and Microsoft Corp. (MSFT, Fortune 500) are considered to be interested in AOL’s Web sites, which would boost either company’s viewer traffic and ad revenue.

Time Warner previously announced it would sell the 84% of its cable operations that it still owns to shareholders later this year no teletrak payday loans. That unit delivered 7% higher revenue on increases in cable, Internet phone and video-on-demand fees. Basic cable subscribers were flat during a quarter that traditionally sees a drop-off.

Home video sales of "I Am Legend" and "The Bucket List" helped the Warner Brothers film unit post 14% higher revenue. The unit’s blockbuster Batman film, "The Dark Knight," did not hit theaters until after the quarter ended.

Higher cable subscription fees and advertising revenue pushed the Turner Broadcasting networks unit, which includes TNT and CNN, to a 9% rise in revenue.

Time Inc., the publishing unit, continued to straggle, as ad revenues fell 10%, mostly at magazines such as Time and Sports Illustrated. The magazine industry is contending with the same shift in ad spending online that has gutted the newspaper sector in recent quarters. Time Inc.’s Internet properties reported revenue growth, but online ads sell for only a small fraction of what a print ad costs.

Looking ahead, Bewkes said the company faces a "challenging economic environment," but is pleased "we’re on track to achieve our business outlook."

Time Warner still expects earnings from continuing operations between $1.07 and $1.11 per share. That forecast does not include any impact that may occur from the sale of a unit. 

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