The company did however show growth in the number of AOL subscribers and made gains in its cable business.
AOL Time Warner posted a net loss of $54.2bn (£37.3bn), or about $12.25 (£8.44) per share, after taking a previously announced $54bn charge to reflect a decline in the value of its assets since America Online's acquisition of Time Warner. It took that charge in accordance with a new accounting rule.
Revenue for the quarter, which ended 31 March, increased 4% year-on-year to $9.8bn (£6.8bn).
The Internet and media giant posted $2.05bn earnings before interest, taxes, depreciation and amortisation (EBITDA) or $0.18 earnings per share. That marks a 3% jump over the $1.98bn reported in the same quarter of 2001, when earnings per share was $0.16, according to the statement.
Analysts polled by Thomson Financial/First Call forecasted that AOL Time Warner would show a profit of $0.14 per share.
"There is a lot of good news, but one area of real disappointment," said Dick Parsons, chief executive officer-elect at AOL Time Warner.
The disappointment stemmed from still-weak online advertising revenue, he said. Although subscription rates and the company's cable business showed improvement, advertising revenue lagged and is not expected to increase until next year.
The soft online advertising market led the company to lower its full-year guidance, saying it now expects EBITDA growth in the range of 5-9%, as opposed to previous forecasts in the range of 8-12%, Parsons said.
"We are assuming no recovery in the economy," he said.
Overall, subscription revenue surged 14% to $4.7bn over the same quarter last year, the company said. These gains came as a result of subscriber growth in both the AOL and cable businesses. The company also received a boost from its blockbuster films Harry Potter and the Sorcerer's Stone and Lord Of The Rings: The Fellowship of the Ring which are among the highest grossing movies of all time, according to the company.
The AOL unit's earnings, however, declined 15% year-on-year using the EBITDA figures. While subscriptions rose, the business suffered from a 31% drop in advertising and commerce revenue, according to the statement.
The company's "Content and Other" category also posted a sharp fall in revenue, dipping 44% to $79m. The company lost a substantial amount of revenue after completing the transition of iPlanet E-Commerce Solutions's software business to Sun Microsystems Inc.
Shares of AOL Time Warner rose almost 1% during the day's trading, before the results were announced, to close at $19.30.