Time Warner has posted its first loss since 2002 as a £1.35bn lawsuit settlement and lack of a hit film to match the Lord the Rings and Harry Potter franchises plunged the group into the red.

The media giant posted a £180m quarterly loss after it settled a suit with shareholders who had accused the company of overstating advertising revenue by £1.7bn at its America Online internet division between 1999 and 2002.

Today's loss compared with a £437m net profit in the same quarter last year.

The £1.35bn settlement is the second largest by a public company in US corporate history and means the Time Warner has paid more than £1.96bn in total to resolve the accounting issues at America Online, which was forced to reduces its stated earnings from advertising by £382m between 2000 and 2003.

Millions of investors will share the settlement, which includes a £56m payment from Ernst & Young, Time Warner's auditor. Time Warner has also paid £287m to the US Securities and Exchange Commission and Department of Justice. The company's revenue fell 1% to £6bn, below expectations, while a flat US box office saw revenue from its Warner Bros film subsidiary fall 24% to £1.33bn.

Ticket sales for 2005 movies - which included Monster-in-Law with Jane Fonda and Jennifer Lopez, and Batman Begins - failed to match sales for Harry Potter and the Prisoner of Azkaban and Troy last year.

The film industry hopes for a rebound in box office takings in the second half of 2005.

Growth of digital phone customers and high-speed internet subscribers from Time Warner's cable unit helped to offset losses elsewhere.

The company is also seeking a bigger slice of the £5.5bn US online advertising market, which Google dominates.

Time Warner's board has approved £2.81bn in stock repurchases over the next two years, its first buyback since 2001.

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