The breakdown: The company did well overseas, where revenue jumped 17.8 percent after factoring out currency effects, and poorly in the U.S., where sales dropped by 7.4 percent. Digital, which grew by 11.5 percent (excluding FOREX), now makes up 21.4 percent of Warner’s (WMG) revenue.

Operating income dropped by 18 percent, to $54 million, but all of that decline stems from the severance charges. Factor those out and operating income would be up slightly to $68 million.

For years, the music industry has watched music sales drop while music publishing–money generated by the underlying compositions of songs–has increased. But this time around that’s not the case. Warner says recorded music sales were up 3.7 percent (net of currency changes) and that music publishing revenue was up 11.7 percent.

But all of the publishing increase stems from a one-time gain of $25 million “from an agreement reached by the U.S. recorded music and music publishing industries, which will result in the payment of mechanical royalties accrued in prior years by record companies.”

Little by little, AOL is offering investors more and more details about what the company will look like after it spins off from Time Warner (TWX).

The problem: The more AOL discloses, the less attractive the company looks.

The most recent nuggets come from a preliminary prospectus Time Warner filed with the Securities and Exchange Commission yesterday. Some, but not all, of this has broken out in previous filings or earnings announcements. In any case, it helps to see it all in one place.

The big picture: AOL’s subscription service, which accounts for the “vast majority” of the company’s operating income, is withering away. But advertising revenue, which was supposed to replace that money, has been declining for nearly two years (see tables below; click to enlarge):

And here’s a closer look at the ad business and its recent performance:

The good news for AOL is that some of this is the result of self-inflicted wounds, and it’s possible to heal some of them. The company’s previous regime seemed to go out of its way to mismanage and dismantle the sales force, for example, and if new CEO Tim Armstrong can rebuild that team, he can make a bit of headway.

The flip side is that some of AOL’s woes may be well beyond Armstrong’s control. Money from a Google (GOOG) search deal, which provided a third of AOL’s $2.1 billion in ad revenue last year–and had been increasing up until this year–is now dropping off, too.

Google dollars fell by $42 million in the most recent quarter, representing more than half the $75 million drop in ad dollars from its AOL Media unit. And Google income fell by $90 million in the last nine months, representing about 40 percent of $197 million decline in that period.

AOL says some of the Google decline stems from its declining subscriber base, which brought down search query volume. The rest is due to lower revenue per search query–that is, Google has changed its algorithm in way that ends up punishing AOL. But Armstrong can’t do a whole lot about either of these variables.

He can try extracting more money from Google, whose search deal expires at the end of next year, or from Microsoft (MSFT), which is trying to gain share any way it can.

Earlier this year, Armstrong turned down a new deal from Google and now says he’ll deal with search after he gets other things in place. But the longer he waits, the less leverage he may have.

AOL shareholders will be paying Armstrong well to figure this out, though. His three-year deal pays him a base of $1 million a year, plus annual cash bonuses of up to $4 million. In addition, he’s getting $20 million worth of stock grants to make up for Google shares he left on the table when he resigned from his old employer. And he’ll get stock options worth as much as 1.5 percent of the company once the spinoff is complete.

That said, AOL will also be paying former AOL CEO Randy Falco, who got tossed out in March. Falco will continue to pull down a $1 million salary through 2010–and he’ll get $7.5 million in bonuses through then as well. Former AOL COO Ron Grant, meanwhile, will earn $750,000 a year, plus another $3.3 million in bonuses.

Viacom (VIA) says Q3 ad sales dropped four percent in the U.S., which is two points better than Q2. Companywide, revenue dropped three percent to $3.3 billion, which is what Wall Street expected, but the company slashed enough costs to produce an earnings surprise: After adjusting for one-time charges, Viacom posted earnings of 69 cents a share, well above the 57-cent consensus.

The company’s overall results do a nice job of illustrating why media companies and investors are so enamored of cable TV these days: Even though ads are slumping, the company was able to wring more out of cable system providers (and their subscribers), which more or less kept overall cable revenue flat.

Viacom’s movie business is much less meaningful than its TV operations, but in this case, it underperformed enough to drag the rest of the business down. Viacom blames a six percent drop on crummy DVD sales, which it says suffered compared with strong results a year ago.

But every studio in Hollywood is grappling with crummy DVD sales: The only real question is whether that’s a function of the economy or something larger.

I’ll  listen in on the call (8:30 am ET) and report back if there’s anything else worth noting.

UPDATE: CEO Philippe Dauman mentions the new “Sponge Bob Tickler” for the Apple (AAPL) iPhone app, which I believe means that at least one Viacom employee has won a private bet. Waiting to hear more about Q4 guidance.

The core question: Are Dauman and other Viacom execs mildly optimistic about recovery because of an easy comparison with a year ago or because ads are really coming back? A little of both, Dauman says: “Right now the tone is feeling better, but we have to be cautious.”

The latest in a string of downbeat declarations comes today, via Steve Ballmer’s visit to South Korea, where the Microsoft (MSFT) CEO warned that tech spending would take years to get back to its pre-recession peak. AP:

“The economy went through a set of changes on a global basis over the course of the last year which are, I think is fair to say, once in a lifetime,” Ballmer told a meeting of South Korean executives in Seoul.

Spending on information technology, which accounted for about half of capital expenditures in developed countries before the crisis, was unlikely to rebound fully because capital was more scarce these days, he said.

“While we will see growth, we will not see recovery,” Ballmer said.

Which is pretty much what he’s been saying for some time.

There’s at least one upside to this kind of relentless and sensible negativity, though: If you deliver any news that isn’t straight-up awful, people get ecstatic. As they did last month, when Microsoft posted a downbeat but better-than-expected earnings report (click on graph below to enlarge).

The publisher said newspaper revenue dropped 20 percent in the third quarter, and print ads dropped by 28 percent; both of these numbers are worse than Q2, which saw revenue drop by 14 percent and print ads by 20 percent.

No relief from Web ads, either: Internet revenue dropped 18 percent, a decline from the nine percent drop in Q2. And online display ads, which had been more or less flat for the last few quarters, fell off a cliff, dropping 14 percent.

Don’t be duped by headlines reporting a drop in the newspaper division’s losses, by the way. That’s due to one-time accounting charges the previous year. If you look at operating revenue and expenses via a less formal, but more practical, lens, the results are very unpleasant: Losses increased by 55 percent (see summary below; click to enlarge).

Want more bad news? Okay: The company’s magazine group says revenue dropped 33 percent, driven by a staggering 48 percent drop in ad sales at Newsweek.

If you’re at, say, Time Warner’s (TWX) Time Inc. and want to whistle past the graveyard, you can try blaming the drop on the title’s unsuccessful overhaul. But I find it hard to believe that Newsweek’s woes don’t reflect a larger magazine malaise. We’ll see next week.

The good news, as always: The big difference between the Post and many other publishers is that its parent company doesn’t depend on print media. The company’ core education business, which is what has sustained it for many years, continues to do well.

Can the paper cut costs even more? It’s going to try, starting with a 100-person cut in its newsroom, which will bring headcount down by eight percent. But the Times is also counting on the ad market to pick up at some point, and it says it can now see the faint outline of a recovery taking shape.

During the paper’s earnings call yesterday, it offered a bit of insight into who was buying ads and who wasn’t. In the latter category: Banks, mutual funds and insurance companies, which were burning cash a year ago in an effort to convince customers that things were okay; movie studios and telcos also pulled back. But health-care spending was up, via big pharma and hospitals. Were they pitching consumers or legislators?

Bear in mind that ad revenue dropped 26.9 percent for the quarter, so all of this is relative. So when the Times talks about seeing “encouraging signs of improvement,” as CEO Janet Robinson mentioned in a press release yesterday, what exactly does she mean?

Here’s Robinson’s answer to that question, delivered during yesterday’s call. Transcript via Seeking Alpha:

We’re seeing improvement, a modest improvement. We’re seeing certainly more requests for proposals across the board. We’re seeing a modest growth in regard to commitment. We still are seeing just in time commitments, so the visibility continues to be cloudy, but I think we are encouraged that indeed we see advertisers telling us that their business is improving and consequently requesting more information from us in regard to rates and placement and certainly customized programs.

I’ll give you an example. The retailers in September as noted in my remarks, we started to see a little bit of a pickup. We have had in depth conversations with them in regard to their improvement. So we do see traffic improvement in regard to the stores and consequently when that’s the case, they tend to want to do more in regard to building even more traffic.

Same holds true in regard to some of the national advertisers with technology and national automotive, with certainly the bankruptcies behind General Motors and Chrysler and some activity certainly in technology and healthcare, we are seeing more commitments coming our way in regard to national schedules as well.

Surprise! They’re not that awful, at least by the diminished standards of the newspaper industry:

Excluding one-time charges, the publisher earned 16 cents per share on revenue of $570 million. Analysts expected the Times (NYT) to lose a penny per share on revenue of $561 million.

Ad revenue declined 26.9 percent, which is unpleasant but better than the previous quarter, when it dropped 30.2 percent. Internet revenue dropped by 7.2 percent and Internet ad revenue was down 8.2 percent. Both of those results are improvements over the previous quarter as well: Last quarter, Internet revenue was down 14.3 percent and Internet ad revenue was down 15.5 percent.

Some cautious optimism from CEO Janet Robinson:

Looking ahead, visibility remains limited for advertising in the fourth quarter. But as is the case across the media sector, we have seen encouraging signs of improvement in the overall economy and in discussions with our advertisers. Early in the fourth quarter, print advertising trends, in comparison to the third quarter, have improved modestly, while digital advertising trends are improving more significantly.

A little more color on digital: The big improvement this quarter was driven by a turnaround at the Times’s About.com content mill: Revenue was up 7.2 percent, way up from the 5.1 percent decline posted in the previous quarter. This makes sense, given that About is driven by pay-per-click ads and these have come back across the industry, led by Google (GOOG).

But the story is less impressive at the Times’s traditional Web sites. Ad revenue there was down 18.5 percent, which is better than the 21.6 percent drop the previous quarter, but nothing to write home about. As it has done in previous quarters, the publisher blames the decline on a drop in online classifieds, and I assume that much of the drop stems from vaporized employment ads. If this is the case, it’s going to be hard to move those numbers significantly for quite some time.

The numbers, via parent company GE’s (GE) release this morning: NBCU posted a $732 million operating profit, up 13 percent year over year, on revenue of $4 billion, which is down 20 percent. Important footnote: As GE explained during its earnings call, if you adjust NBCU’s performance for one-time gains, operating profit would actually be down nine percent.

Still, even that result is an improvement over previous quarters. So perhaps those numbers will cheer Comcast investors, who have been beating up the cable company ever since news of its talks to buy NBCU surfaced last month.

GE usually spends very little time discussing NBCU’s performance during its earnings calls, since investors are much more concerned with the rest of the company’s performance, and in particular, its troubled finance arm. But perhaps the pending Comcast (CMCSA) deal will change that this time around.

Some notes from the earnings call: GE CEO Jeff Immelt has joined the “recession is over” crowd, but only mentioned NBCU briefly during his opening statement. He says scatter pricing–ads that marketers buy during the TV season, as opposed to the spring “upfronts”–is “better.”

GE booked a $283 million one-time gain from the sale of some of its stake in the A&E cable channel. And it took charges on write-downs related to its stake in NDTV, its Indian TV investment, as well as the Weather Channel, which it bought alongside some private equity groups for $3.5 billion last year. But the company still ends up $89 million ahead in the one-time events column–the equivalent of a penny per share of earnings.

And as the company explains in the table below, if you take out the one-time gains, NBCU’s quarterly profit increase turns into a loss. This is a reverse of previous quarters, when the company told investors to ignore one-time losses that made horrible earnings look even worse.

More color on the scatter market: CFO Keith Sherin says Q4 pricing is up “double digits” for primetime TV spots, and more than 20 percent for cable TV.

Asked a vague question about the proposed NBCU deal, Immelt gave a vague answer, noting that while “NBCU is a great franchise that’s consistently delivered income growth and cash…we always evaluate our portfolio.” He then suggested that GE doesn’t need to sell NBCU, which is the right thing to say. “We just want to be ready for several scenarios….We don’t have a specific pronouncement, or a specific need for cash.”

Here’s GE’s broad-stroke description of NBCU’s quarter (click to enlarge):

Now we get to find out just how good Google’s (GOOG) growth story is. Read three different analyst reports and you’ll get three different descriptions of Wall Street’s “consensus” estimates for the search giant’s Q3 numbers, out this afternoon. But Thomson Reuters thinks the Street expects earnings of $5.42 per share on revenue of $4.24, so we’ll go with that.

Here’s a more detailed breakdown of expectations, courtesy of Bernstein Research’s Jeffrey Lindsay. Note that per above, his description of consensus differs from the one at Thomson Reuters (click to enlarge):

More broadly, Wall Street expects to hear that U.S. ad dollars picked up in the last quarter, that international markets have as well, and that margins have held up due to cost-cutting, because Eric Schmidt has been saying all of those things out loud in recent days. Schmidt has also continued to talk up YouTube’s prospects for profits, so expect to hear about that this afternoon as well.

That clip, it turns out, is an unlikely homage to…wait for it…the artist formerly known as Puff Daddy. Really!

Go ahead and look at the first two clips at the bottom of the post. Note Hurley’s reference to “salt and pepper” and “two kings getting together.” See? In the Diddy clip, too. Who knew? (Okay, so at least one of you did).

Anyway, Hurley references both clips in a blog post he published this morning commemorating the anniversary of the sale. He also announced that the site is now serving up “well over” one billion video views per day. Last month comScore (SCOR) estimated YouTube was doing 10 billion views per month in the U.S.

And there’s also some general talk about the site’s evolution: Rather than focus solely on short clips, it’s also working to bring in movies and TV shows, etc. Nothing you didn’t know already.

Expect to hear more meaningful–but equally upbeat–talk about the site’s progress next Thursday, when Google (GOOG) announces its Q3 earnings.

Last quarter, Google executives went out of their way to talk up the site, and CFO Patrick Pichette said YouTube could start generating significant profits soon. This week, CEO Eric Schmidt also made a point of praising the YouTube deal and the site’s performance during a New York press conference.

Here, once again, is that famous clip:

And here’s the one Hurley was apparently referencing:

And here, once again, is the most popular clip in YouTube’s history:

Analyst Imran Khan says he talked to 20 ad buyers and planners, who control a collective $1.6 billion in ad spending, and they tell him that they’ll spend more in the second half of 2009 than they did in the first six months. But that’s not useful information, since ad spending is traditionally weighted that way.

More tellingly, Khan’s correspondents tell him they think spending will be “roughly flat to down” in the last six months of 2009, compared to 2008. And as we’ve discussed before, ad spending started plummeting in the second half of 2008. So if it isn’t improving now, that’s unpleasant news.

More pleasant: Things should get better next year:

2010 ad budgets are looking positive. 25% of respondents see upside of 5-9% in 2010 and an additional 25% see upside of 10-14% vs. 2009. Approximately 40% think that ad spend in 2010 will be roughly flat with 2009 levels.

Looking for more concrete data? Wait a week. Earnings season kicks into high gear Thursday, Oct. 15, when Google (GOOG) hands in its Q3 report card; in the following weeks we’ll also get updates from big media players, including Yahoo (YHOO) and Time Warner (TWX).

The Citigroup (C) analyst spoke with PubMatic and the Rubicon Project, two “optimization” firms that help publishers manage inventory they hand over to ad networks. And both say they’re seeing continued upticks in sales and demand.

Pubmatic, for instance, says pricing has increased every month this year, and Rubicon says that they’re seeing demand from–believe it or not–travel and auto advertisers. Just as encouraging, buyers are actually making “longer-term” plans, which was unheard of in the darkest days of 2008 and 2009.

Both firms also reiterate the conventional wisdom that we’ve been hearing for the past 12 months: The money that is being spent is increasingly going to “performance-based” ads, which are paid for only when someone interacts with them. That’s another data point in favor of Google (GOOG), whose core product is performance-based.

Again: Things were so lousy a year ago and through the spring of 2009 that it’s prudent to take these kinds of data in stride.

And if you really want to be half-empty about it, you can note that the inventory Rubicon and Pubmatic sell is the cheapest real estate publishers have to offer. Which means it’s hard to say how various sites’ high-end real estate–the stuff they sell themselves–is doing.

We’ll get a better sense of that in about a month or so, during Q3 earnings season, when we get color from Web publishers like Time Warner’s (TWX) AOL and the New York Times (NYT).

But, as I said, this is supposed to be an optimistic post.

Is the newspaper advertising slump about to end? Nope. But it’s continuing to get a little bit less awful.

The New York Times polled some of the remaining analysts covering the industry, as well as people who actually work in it, and concluded that Q3 ad revenue will be down 25 percent, or “possibly a bit less.” Awful by any standard except those of this year: Q1 was down 28.3 percent and Q2 was 29 percent.

Worth noting, but not in a newsworthy way: We’ve been headed in this direction for a while. Publishers, including the New York Times (NYT), Gannett (GCI) and McClatchy (MNI), started making hopeful murmurs–or less hopeless murmurs, really–earlier this summer. But all they’re really saying is that:

• Things don’t seem to be getting any worse, and
• It’s nearly impossible for year-over-year comparisons not to improve for the rest of the year since results will be measured against those posted in the fall of 2008, when the economy was in shocked-and-awed mode. Which we knew. But still worth repeating, and something we’ll probably repeat many more times through the rest of this year.

The answer shouldn’t be a surprise, but somehow the performance Gamestop reported this morning managed to catch Wall Street off guard anyway.

The company’s revenue of $1.74 billion was in line with estimates, but earnings of 23 cents a share missed consensus by five cents. More worrisome is that the company had to knock down its guidance for the rest of the year and says that comparable store sales will be down between four percent and eight percent through 2009. Now Gamestop (GME) shares are trading down five percent in a flat market.

Did I mention that this shouldn’t be a surprise? Game sales, once thought to be immune to the recession, have been slumping for months. Turns out that a tough economy may indeed prompt more gamers to huddle in the basement in front of their Xboxes, but it won’t prompt them to buy new games (used ones may be a different story).

Gamestop says it’s still optimistic that coming games, like yet another Call of Duty sequel from Activision (ATVI) and yet another version of Halo from Microsoft/Bungie (MSFT), will help perk things up. But I’m interested to note that the company didn’t cite the new Beatles version of Rock Band, from Electronic Arts (ERTS) and Viacom’s (VIA) MTV as a catalyst.

By the way, for fantasists who persist in pretending that the Beatles are coming to iTunes at Apple’s (AAPL) event next month: Stop! It’s not true.

Operating income could be a problem, though: Factoring out foreign exchange swings and a one-time charge, Amazon delivered pro forma operating income of $240 million, and Wall Street was looking for something like $260 million.

As Henry Blodget points out, Amazon’s North America media sales (books, CDs, DVDs, etc.) have flat-lined in the last year. This is what that looks like in graph form (click to enlarge):

Now listening to the stultifying earnings call, which does not feature Jeff Bezos. Assuming there’ll be questions about the Zappos deal; I also assume that Amazon (AMZN) won’t have much to say about it beyond the announcement it put out yesterday. But I’ll add in any highlights below.

Q. Mary Meeker wants to know if Amazon is seeing a slowdown in media sales due to the transition to digital. She’s also interested in the possibility that mobile could be a big deal.

A. Media is slow, but it doesn’t seem to be related to digital. Still very early, and Amazon is seeing good unit growth there (Kindle, MP3 store, movie service). Not much to say about mobile.

Q. Any plans to take Kindle overseas?

A. Nonanswer.