Time Warner Boosts Programming at TNT, TBS as Cable Outlets Drive Profit

Time Warner Inc.’s biggest cable channels, TBS and TNT, are spending more on original TV series and paying for marquee names like Conan O’Brien to drive ratings at the unit that now accounts for most of the company’s profit.

The two networks, available in more than 101 million U.S. households, showcased new programs today, including O’Brien’s and the animated satanic comedy “Neighbors From Hell,” at a presentation kicking off advance advertising negotiations for next season.

Time Warner is beefing up programming at cable networks that now contribute three-fourths of profit after the spinoffs of AOL and the company’s cable systems. Divesting those businesses raised the stakes at TBS in particular as the most widely distributed cable channel endures a slide in viewership.

“The only way to improve ratings would appear to be to get new programming that works,” said David Bank, a New York-based analyst with RBC Capital Markets who has an “outperform” rating on Time Warner shares. “The financial community is eagerly awaiting an uptick in ratings.”

TBS and TNT are increasing original program spending by 26 percent this year, according to Karen Cassell, a spokeswoman. TBS spent about $447.3 million on all programming last year, including reruns like “Seinfeld,” while TNT’s costs reached about $879.4 million, the media research firm SNL Kagan said.

“These are investments,” Steve Koonin, president of Turner Entertainment Networks, said in an interview. “Everything we do is about placing strategic and smart bets in a business that is impossible and improbable to predict success.”

O’Brien, NCAA

Time Warner, based in New York, spends about $4 billion a year to program all of its channels, including HBO and CNN. That will rise by a mid-single-digit percentage this year, Chief Financial Officer John Martin said on a May 5 conference call.

The new costs will include O’Brien’s late-night show on TBS, which starts Nov. 8, the network announced today in an e- mailed statement. The expenses also include Turner Broadcasting’s annual share of a $10.8 billion, 14-year contract for the NCAA men’s college basketball championship, done jointly with CBS Corp. Turner will air tournament programming on TBS, TNT and truTV.

TBS’s ratings have fallen every month since the 2009-2010 TV season began in September, according to Nielsen Co. data. The network’s viewers in the 18-to-49-year-old group, the demographic advertisers want, slid 4.3 percent in April to an average of 538,000 at any given point in the day.

TBS Slate

In December, Time Warner Chief Executive Officer Jeff Bewkes pegged flagging viewership at both channels to the lack of movie premieres, fewer baseball playoff games, the underperformance of acquired reruns and fewer original programs.

“We’re not unaware of it, but certainly I do believe we’ve addressed those issues,” David Levy, president of Turner’s sales, distribution and sports, said in an interview.

In addition to O’Brien and the returning “Lopez Tonight” late-night show, TBS ordered “Neighbors From Hell” and “Are We There Yet?” a family sitcom based on a movie.

Today’s so-called upfront presentation for advertisers included appearances by O’Brien, Jada Pinkett Smith, Ray Romano, Kyra Sedgwick and Noah Wyle, who’s signed on for a new TNT show from Steven Spielberg.

“Great talent makes hit programming, not executives,” Turner’s Koonin said before the presentation. “You’re going to see more talent on that stage than you’d see at anybody’s upfront, even pay cable or broadcast.”

Blues-Loving Detective

TNT, known for the slogan “We Know Drama” and ubiquitous “Law & Order” reruns, has fared better than TBS after ratings losses early in the season, in part because of NBA playoffs. It posted gains of 1.7 percent to 8.8 percent in 18-to-49-year-old viewers from February to April and averaged 652,000 viewers in that age group last month, according to Nielsen data.

The network, which had only two original series five years ago, is adding “Rizzoli & Isles,” a drama about a female detective and medical examiner in Boston, “Memphis Beat,” starring Jason Lee as a blues-loving police detective, and “Fallen Skies,” the working title for Spielberg’s show, according to a statement.

In all, TNT is showcasing at least 11 new and returning original shows to advertisers, including “The Closer,” “Saving Grace” and Ray Romano’s “Men of a Certain Age.”

‘Big Players’

“It will pay off in terms of getting the audiences,” said Shari Anne Brill, an independent media analyst in New York. “Clearly they want to position themselves as a big player.”

Time Warner, also the owner of the Warner Bros. film studio, gained 14 cents to $30.76 at 4 p.m. in New York Stock Exchange composite trading. The shares have risen 5.6 percent this year, compared with 3.5 percent for ESPN owner Walt Disney Co. and a drop of 2.2 percent for News Corp., owner of Fox News and the FX channel.

Industrywide, advance advertising commitments may rise 22 percent to $8.16 billion, Spencer Wang, an analyst with Credit Suisse AG, wrote in an April 29 report. Cable channels may sell about 50 percent of their air time in advance, he estimated.

Last year, Time Warner’s cable network advertising fell 2.6 percent to $3.27 billion, according to the company’s annual filing with regulators. Ad sales by all cable networks slid 5.5 percent, according to SNL Kagan.

“The indicators show that it will be a strong upfront,” Levy said. “We do see some signs of us coming out of the recession. There’s transparency now.”

Expanded programming may also help Time Warner compete for subscription revenue from cable system operators. Broadcast networks, along with their affiliate stations, are demanding fees from pay-TV systems for the first time.

“There’s only a limited amount of money in the wallet,” said analyst Bank. “The cable channels now have to make themselves increasingly relevant and have to make sure they stay relevant over time to keep demanding affiliate fee increases. Part of the way they have to do that is by getting more premium programming.”

To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net

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