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Time Warner Profit Declines 9.9 Percent on Decline in Movie Revenue

Time Warner Inc. (TWX), owner of the Warner Bros. studios, reported a 9.9 percent decline in first-quarter profit as the film division’s revenue dropped and cable-network costs rose.

First-quarter net income fell to $653 million, or 59 cents a share, from $725 million, or 62 cents, a year earlier, the New York-based company said today in a statement. Excluding some items, profit was 58 cents a share. Analysts estimated 56 cents, on average, according to a Bloomberg survey.

Filmed-entertainment sales dropped 3.3 percent to $2.6 billion as the first quarter’s movies didn’t measure up to hits like “The Blind Side” and “Sherlock Holmes” a year ago. The unit’s operating profit dropped by almost half.

“They just did not have as much product hitting DVDs and the movie theaters compared to a year ago,” said Barton Crockett, a New York-based analyst at Lazard Capital who rates the shares “buy.”

The company, also owner of the Warner Bros. film studio, fell $1.24, or 3.3 percent, to $36.49 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 13 percent this year.

Investors had high expectations after other media companies posted positive results, Crockett said. CBS Corp. (CBS) and Viacom Inc., owner of Nickelodeon and MTV, topped profit expectations by 52 percent and 16 percent, respectively.

“By comparison, it’s a little bit of a disappointment,” Crockett said. “People have become accustomed to big beats.”

‘March Madness’

Sales climbed 5.7 percent to $6.68 billion, compared with analysts’ average estimate of $6.47 billion. Sales at the networks business, which includes cable channels TNT, TBS, HBO and Cartoon Network, rose 18 percent. The unit makes up more than half of operating profit.

For the first year, Time Warner partnered with CBS to air the National Collegiate Athletic Association men’s basketball tournament, helping boost advertising revenue 20 percent. Time Warner paid more than $200 million to air the competition, increasing costs.

Time Warner and CBS signed a 14-year, $10.8 billion contract to broadcast the tournament, known as “March Madness.” This year’s games were the most-watched since 2005, the company said.

Time Warner reaffirmed its full-year profit forecast, saying in a separate statement that adjusted earnings from continuing operations will increase by a “low teens” percentage, from $2.41 a share a year ago. Analysts project $2.74, on average, which reflects a 14 percent increase.

Flixster

Sales from the networks division climbed to $3.5 billion from $2.96 billion, also helped by higher revenue from HBO’s original programming, including “The Pacific” and “Boardwalk Empire.”

The segment is getting a ratings boost from shows such as “Conan” too, Crockett said. The late-night TV show starring Conan O’Brien, who left NBC’s “The Tonight Show” last year, started in November.

Separately, Warner Bros. said it agreed to buy Flixster, an online movie database that also owns film-review site Rotten Tomatoes. The company, which has more than 25 million monthly users, plans to expand its services to allow people to buy, share and organize digital content. Terms of the deal weren’t disclosed.

Sales from Time Warner’s publishing division, which include magazines such as Time, People and Fortune, were little changed at $798 million.

The company, which boosted its buyback plan to $5 billion in January, had repurchased $1.3 billion of shares as of April 29, it said.

To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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