A wave of Harry Potter's wand and a dash of mystery from Frodo Baggins helped the world's largest media company, Time Warner, beat forecasts with healthy half-year profits yesterday.

The conglomerate earned $1.73bn (£950m) in the six months to June, against $1.46bn a year ago, despite ongoing problems at its America Online internet arm.

Its second-quarter profits declined 27% to $777m but the fall was largely due to an exceptional gain of $760m in last year's figures from the settlement of antitrust litigation with Microsoft.

The strongest performance was from Time Warner's filmed entertainment division which benefited from the cinema release of Harry Potter and the Prisoner of Azkaban. The young wizard's latest adventures have generated $703m in box offices to date, while the final instalment of the Lord of the Rings trilogy was a huge seller on home video.

Time Warner's chairman, Dick Parsons, described the results as "robust".

Media analysts expressed concern at news that the company has embarked upon an internal investigation into how it accounted for its purchase of AOL Europe two years ago, which has been under investigation by the securities and exchange commission.

Tom Wolzien of Sanford C Bernstein said: "At this point, you'd think it was getting locked down, but it's widening instead of contracting."

AOL's performance was mixed - profits rose 36% to $404m in the first half, but the number of online members fell by 668,000 to 23.4m - as those on free trials declined.

The company is viewed as the front-runner to buy the film studio Metro-Goldwyn-Mayer, while bankrupt cable operator Adelphia Communications is also in its sights.

The shares slipped 35 cents in early trading to $16.56. Media experts said the company was showing strong signs of recovery from the disastrous merger of Time Warner and AOL in 2001.