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Time Warner’s Profit Tops Estimates as Network Revenue Gains

Time Warner Inc. Chief Executive Officer Jeffrey Bewkes
Chief Executive Officer Jeffrey Bewkes has focused Time Warner’s growth strategy on its TV business, which accounts for more than 70 percent of operating income. Photographer: David Paul Morris/Bloomberg

Time Warner Inc., owner of cable channels TNT, CNN and HBO, reported third-quarter profit that surpassed analysts’ estimates after its television networks benefited from higher programming fees and advertising.

Excluding some items, earnings rose to $1.01 a share in the period, the New York-based company said today in a statement. Analysts had predicted 89 cents on average, according to data compiled by Bloomberg.

Pay-TV companies such as Comcast Corp. and DirecTV are paying more to carry Time Warner programming, whether it’s “Game of Thrones” on HBO or college basketball and professional baseball games on TNT and TBS. That subscription revenue climbed 4 percent the quarter. Advertising grew 11 percent, bringing the company’s total sales from that division to $3.5 billion.

“TBS was the No. 2 ad-supported cable network in prime time across adults 18-34 and 18-49,” Chief Executive Officer Jeffrey Bewkes said in the statement. “And TNT finished the quarter as the No. 2 network among adults 25-54 in total day, thanks to a lineup of originals that included four of the top 10 scripted shows on ad-supported cable.”

Time Warner shares fell less than 1 percent to $67.69 at the close in New York. The stock has risen 42 percent this year.

Spinoff Strategy

Bewkes has focused Time Warner’s growth strategy on its TV business, which accounts for more than 70 percent of operating income. After spinning off AOL Inc. and Time Warner Cable Inc. in recent years, he’s now offloading the magazine publisher Time Inc. That business, Time Warner’s worst-performing division, will be spun off in the first half of next year, following unsuccessful talks to merge the unit with Meredith Corp., owner of Ladies’ Home Journal.

Total sales were little changed at $6.86 billion, compared with an analyst estimate of $6.94 billion. Lower revenue at Time Inc. and Warner Bros. dragged down results.

Advertising was a bright spot, due in part to improved ratings at CNN, TBS and the Adult Swim programming block on the Cartoon Network, which is popular with adults age 18 to 49 -- a group advertisers pay more to reach.

The company repurchased $1.2 billion of its stock in the quarter, part of a $4 billion buyback program. Time Warner has spent $3 billion buying its own stock this year.

Separately, Time Warner reaffirmed its full-year forecast, saying adjusted earnings would grow in the “mid-teens” from $3.24 a year ago. That doesn’t include one-time items such as the planned spinoff of Time Inc.

Media Breakups

In July, Time Warner named Joseph Ripp as CEO of Time Inc., ahead of the planned split. Bewkes’s move to spin off the shrinking magazine business and focus on the more valuable television and film divisions mirrors plans by other media companies. News Corp. split in two at the end of June to form separate newspaper and entertainment businesses, and Tribune Co. announced earlier this year that it would spin off its newspapers, which include the Los Angeles Times, while keeping its TV stations.

Bewkes named Chief Financial Officer John Martin to lead its Turner Broadcasting unit in July, part of his plan to move his lieutenants into key posts as the company evaluates possible successors in anticipation of the end of his employment agreement in 2017, when he’ll be 65.

In January, Bewkes named Kevin Tsujihara to lead the company’s Warner Bros. film and TV studio, and a few months earlier, he hired Jeffrey Zucker to lead the ailing CNN. In September, Bewkes named Richard Plepler head of HBO. Last month, HBO Chief Operating Officer Eric Kessler, a 27-year veteran of the cable network, announced he would be stepping down at the company.

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