Time Warner’s gamble that increased advertising revenues would make up for the loss of subscription fees at its America Online internet arm paid off, as the media giant revealed a near-300 per cent surge in profits.

Time Warner, the world’s largest media company, ended its subscription fees for AOL broadband customers this year and said that it would increase its efforts to sell advertising on the internet service. The move helped to lift the ailing media group’s share price as analysts and investors welcomed the move.

Yesterday the company revealed a 46 per cent increase in advertising revenue at AOL, which helped to offset a 13 per cent decline in subscription revenue at the internet unit.

Overall, revenue at AOL declined by 3 per cent to $1.9 billion (£1 billion), but the increase in advertising sales was so large that analysts applauded the move to a free broadband service. Most Wall Street analysts had expected an increase in advertising sales of about 30 per cent.

“The early results are encouraging,” Richard Parsons, the Time Warner chief executive, said on a conference call with analysts, adding that the AOL unit was a core asset. However, the AOL increases were not a significant contributor to the massive rise in profits in the third quarter at Time Warner.

Net income in the period soared to $2.32 billion, or 57 cents a share, from $853 million, or 18 cents a share, in the same period last year. Sales rose 6.5 per cent to 10.9 billion.

Time Warner had a gain of $729 million tied to the sale of a stake in Time Warner Telecom and the Warner Brothers Theme Parks in Australia. The company also enjoyed a $373 million tax benefit.

On top of those one-off charges, Time Warner wrote down $200 million in costs after the merger of its WB television Network with Viacom’s UPN.

Profits excluding the one-off items were a much more modest 19 cents a share, which missed the 20-cents-a-share expectation of many Wall Street analysts. Subsequently, shares of Time Warner were off slightly at $19.77 by the close on Wall Street. Nevertheless, the shares are still on the rise and have improved steadily since Mr Parsons announced the AOL strategy shift in the summer.

Growth was strongest at the company’s cable TV arm. Sales at Time Warner Cable rose to $3.21 billion, and operating profit jumped 28 per cent to $1.1 billion.

AOL DATA

Operating margin up 5%
2006 Q3: 28%
2005 Q3: 23%

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