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Time Warner’s Profit Declines as TV Ad Growth Softens

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Time Warner CEO Jeffrey Bewkes
Time Warner Chief Executive Officer Jeffrey Bewkes has pared back businesses and refocused the company on producing broadcast television hits such as “The Big Bang Theory” and running premium-cable networks such as HBO, the home of original series like “Game of Thrones.” Photographer: Scott Eells/Bloomberg

Aug. 1 (Bloomberg) -- Time Warner Inc., the media company that owns everything from the Batman franchise to the TBS cable network, posted a 33 percent drop in second-quarter profit after declines in magazine sales and CNN’s ratings.

Net income fell to $430 million, or 44 cents a share, from $638 million, or 59 cents, a year earlier, the New York-based company said today in a statement. Excluding some items, profit of 59 cents a share beat by 1 cent the average of estimates compiled by Bloomberg.

Time Warner, led by Chief Executive Officer Jeffrey Bewkes, is relying on the cable-networks unit for 70 percent of its annual operating income. Revenue from that business rose 4 percent to $3.6 billion in the quarter, with ad sales growth slowing to 2 percent. The company said on a conference call that it doesn’t expect TV ad sales to increase in the third quarter.

“Obviously we’re not satisfied with the ratings,” Bewkes said about CNN on the call with analysts. “We’re going to do a better job holding viewers.”

CNN President Jim Walton announced last week that he plans to resign at the end of the year after almost a decade leading the network, saying CNN needs “new thinking.”

Advertising revenue growth at the cable networks were softer than expected, “largely driven by weakness at CNN,” whose prime-time ratings fell 39 percent in the quarter, according to Alexia Quadrani, a JPMorgan Chase & Co. analyst who recommends buying the shares.

Time Warner shares rose 1.2 percent to $39.60 in New York at the close. The stock has climbed 9.6 percent this year.

Refocused Company

Revenue from the publishing division, home of People and Sports Illustrated, dropped 9 percent.

Bewkes has pared back businesses and refocused the company on producing broadcast television hits such as “The Big Bang Theory” and running premium-cable networks such as HBO, the home of original series like “Game of Thrones.” Time Warner Cable Inc. and AOL Inc. were both spun off in the past three years. As part of that strategy, Bewkes has promoted a TV Everywhere approach, which lets viewers watch programming they already pay for on multiple devices, such as with HBO Go.

The risk is that Time Warner still relies on third parties for the bulk of its operating income -- either in the form of advertising dollars paid by marketers or rights fees paid by cable operators. That makes it more vulnerable during an economic slump, according to Todd Juenger, an analyst at Sanford C. Bernstein & Co.

Economic Risks

“Advertising spend is sensitive to economic expectations,” he said in a report last week. Another danger: The company’s television “networks may find their competitive positions untenable, resulting in either a loss of viewers, increased production costs, or both,” he said.

The company also reaffirmed its forecast for the year. Excluding some items, earnings will grow at “in the low double digits” in percentage terms from $2.89 a share in 2011. Analysts are estimating $3.20 a share on average. The figures don’t include costs from writedowns, discontinued operations, mergers and other expenses.

Total sales fell 4.1 percent to $6.74 billion last quarter. Analysts had predicted $6.96 billion on average.

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

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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