Shares in Time Warner, the American cable television giant, sank 7 per cent on Wall Street today after the group warned that it will plunge into the red as it writes $25 billion off its books.

The group, which owns the CNN news channel and Time magazine, provided new evidence of the speed at which the US economy is deteriorating and how the recession is engulfing the whole of corporate America.

Collapse of advertising, and the plunging value of its own cable television franchising rights forced Jeffrey Bewkes, the joint chairman and chief executive of the media giant to admit that its results would even fail to meet forecasts it lowered in November.

The company now expects growth in operating income of just 1 per cent, down from its previously forecast of 5 per cent.

On an operating basis, Time Warner said earnings will miss prior estimates as "the economic environment has proved somewhat more challenging than the company previously expected."

Time Warner's profit warning today raises questions about the future of both its cable arm and online search engine - AOL.

The media giant has been planning to spin off the cable provider but keep an 85 per cent inetrest.

Last year, Time Warner was in talks with both Yahoo! and Microsoft about selling AOL, its internet business, to one of them. Following the rapid slide in advertising demand over the last four months, the valuation of both businesses has been brought under doubt.

Time Warner has only just recovered from recording $100 billion worth of writedowns of AOL, which it bought at the height of the technology boom.

Shares in Time Warner, which is based in New York and is the second biggest cable televison company in the US, more than halved last year on concerns that the Americans will spend less on home cable television packages and that advertisers would cut rates.

The company is scheduled to report its full year 2008 results on February 4. In mid-morning trading in New York, the stock was trading down more than 7 per cent at $10.28.

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