Falling DVD sales and a sharp drop in advertising revenues contributed to a 14 per cent drop in profits at Time Warner, the media conglomerate.

The US media group, whose portfolio includes Warner Bros, the Hollywood studio and HBO, the cable network, said that profits in the first quarter, to the end of March, fell to $661 million down from $771 million a year ago.

Sales of $6.9 billion were down 7 per cent year-on-year.

As marketers have slashed budgets in the downturn, media groups have suffered under a collapse in advertising revenues.

The extent of the problem was underlined yesterday when WPP, the marketing group headed by Sir Martin Sorrell, one of advertising's most famous names, conceded that it would miss its sales targets for this year and declared that "life is tough".

Time Warner has cut about 1,500 jobs this year as it seeks to counter plunging ad sales.

Jeff Bewkes, the group's chairman, said that the "challenging" environment had hit the entire group, particularly advertising in its AOL and publishing divisions.

However the company was, he said, "firmly on track to achieve our full-year business outlook."

Sales in the company's filmed entertainment division fell 7 per cent. Aside from lower DVD sales the division also suffered from a reduced take from theatre shows of its titles.

Advertising revenues in its publishing division, whose magazines include People and Fortune, tumbled 30 per cent, sending total sales falling 23 per cent.

Mr Bewkes, who has recently completed a spinoff of the group's cable arm, Time Warner Cable — netting $9.25 billion in cash — is preparing to shed its struggling AOL division.

He said that the group was exploring the "right ownerships structure for AOL."

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