Cable TV, HBO spurs Time Warner to Q3 profits

Michelle Clancy | 27-11-2012
Cable TV came to the rescue of yet another media company as Time Warner Inc saw third-quarter profits that beat analysts' expectations and pleased investors.

It posted a net income of $838 million for the quarter, up from $822 million a year earlier. Much of that had to do with higher carriage fees across its media properties: HBO, Warner Bros and the CW, Turner Broadcasting (Cartoon Network, CNN, TBS, TNT) and its regional sports networks, which includes the recently launched Time Warner SportsNet and SportsNet Deportes in Los Angeles. Overall fees rose 7% in Q3, which managed to offset softer advertising revenue, which dropped 1%.

Total revenue from its cable networks increased 4.1% to $3.34 billion last quarter, even as sales dropped 3.2% to $6.84 billion in the period.

Investors responded well: the stock surged 4.2% in the wake of the earnings announcement.

The company's TV success shows little signs of flagging. Its strategy of embracing digital distribution, most notably in the form of the TV Everywhere-focused HBO GO app, will continue to lead fees upwards by as much as 10% by 2014, according to Barclays analyst Anthony DiClemente.

Meanwhile, streaming rights to library content through deals with Netflix and Amazon has turned out to be a cash cow, bringing in $250 million this year.

"In a time when the market for content consumption is increasingly fragmented and live TV ratings are falling, we believe a network like HBO that has top quality original programming and an integrated digital strategy will be more resilient - and valuable - than networks with mostly syndicated content," said DiClemente, in a research note.

It's not all sunshine and light, however. The fact remains that ratings are off at some of the networks, including CNN, whose president Jim Walton has decided to step down after several quarterly viewing slumps. Election coverage helped the network, but Summer Olympics coverage, which killed for NBC, took viewers away from others in the portfolio. Overall, ratings are down 10%, CEO Jeffrey Bewkes said in a conference call.

Meanwhile, revenue at the film and TV studios fell 12% to $2.9 billion, despite Batman: the Dark Knight's more than $1 billion global box office. Warner Bros still has lower sales than a year previous, when it released Harry Potter and the Deathly Hallows Part II during the quarter.

Cable TV continues to bolster flagging sales in Big Media, including for Viacom and Disney in the third quarter.