Time Warner Profit Beats Estimates as ‘Harry Potter’ Lifts Movie Revenue

Time Warner Inc. (TWX), the owner of Warner Bros. film studios and HBO, reported third-quarter profit that beat analysts’ estimates as the latest “Harry Potter” movie boosted sales at its film division.

Earnings, excluding some costs, rose to 79 cents a share from 62 cents a year earlier, the New York-based company said today in a statement. Analysts predicted 75 cents, the average of estimates compiled by Bloomberg.

“Harry Potter and the Deathly Hallows: Part 2,” the last film in the franchise, has generated at least $1.33 billion in ticket sales worldwide since its July premiere. Sales were also boosted by advertising demand at television networks and new digital distribution deals, allaying concerns that online rivals such as Netflix Inc. (NFLX) would derail traditional media businesses.

“With ‘Harry Potter,’ filmed entertainment was even stronger than we expected,” Alexia Quadrani, a JPMorgan Chase & Co. analyst in New York, said in an interview. The network-TV unit had solid advertising gains, and the company’s recent deal with Netflix added a “great source of revenue,” said Quadrani, who rates the stock “overweight” and doesn’t own any.

Time Warner boosted its 2011 forecast for percentage growth in earnings per share, excluding some items, to “high teens” from an earlier projection of “low teens.”

Time Warner fell 0.8 percent to $33.57 at the close in New York. It has added 4.4 percent this year.

Post ‘Potter’ World

Net income in the quarter ended Sept. 30 gained 57 percent to $822 million, or 78 cents a share, from $522 million, or 46 cents, a year earlier. Sales rose 11 percent to $7.07 billion, compared with analysts’ average estimate of $6.97 billion.

Revenue at the Warner Bros. unit increased 19 percent to $3.3 billion, driven by “Deathly Hallows,” which went on to become the third-highest grossing film of all time, according to Box Office Mojo.

Time Warner has benefited from the “Harry Potter” film franchise with the eight films altogether generating $12.1 billion in theatrical and DVD sales over the last decade, according to figures compiled by the company.

In a post-Potter world, Quadrani said Time Warner will have to look to new franchises such as Batman, helmed by director Christopher Nolan and starring Christian Bale, as well as DVD sales for the fourth quarter.

“It’ll still be difficult to compare against Potter looking forward,” Quadrani said. “But that’s known. And Time Warner has other films coming, including Batman.”

The two Batman films in the franchise have brought in $1.38 billion at theaters, according to Warner Bros. The company’s third movie, “The Dark Knight Rises,” is scheduled to be released July 20.

TV Everywhere

Sales at the networks unit, which includes cable channels TNT, TBS, HBO and Cartoon Network, rose 6.8 percent to $3.2 billion. The unit accounted for 68 percent of operating income.

The company struck a deal with Netflix Inc. last month that gave the online movie video service streaming rights to the full lineup of shows from CW, the joint venture between Time Warner and CBS Corp. The deal signals a shift in the media company’s stance on digital distribution businesses like Netflix, which it had previously seen as a competitor.

Netflix is “adding value to the traditional TV ecosystem,” Barry Meyer, head of Time Warner’s filmed entertainment unit, said in a statement announcing the deal.

Mike Morris, a Davenport & Co. analyst, estimates CBS and Time Warner will each get $30 million in the deal’s first year.

Publishing Decline

Revenue from Time Warner’s publishing division, which has been without a chief executive since Jack Griffin stepped down in February, fell 1.3 percent to $889 million.

The company recently hired George Linardos, formerly an executive at mobile-phone maker Nokia Oyj, to head its digital marketing unit as senior vice president. Linardos will focus on increasing sales of Time Inc.’s digital products, such as tablet versions of its magazines, according to the company.

Time Warner has stemmed declines in its magazine business within the last few years, generating $515 million in net income in 2010 on $3.68 billion in revenue, compared with a loss of $6.62 billion two years earlier. Time Warner’s publishing unit accounted for 7.8 percent of its operating income.

In August, Chief Financial Officer John Martin told analysts the company expected “softness” in third-quarter advertising and newsstand sales. He expects the publishing division to return to growth in the fourth quarter.

(The company plans to have a conference call at 10:30 a.m. New York time. Go to http://www.timewarner.com/investors to listen.)

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.