Time Warner Shows Live Sports on Cable Can Still Drive Profits

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  • Sales at Turner increase 7.2% while ad revenue rises 5%
  • Company renewed deals with pay-TV distributors last year

Time Warner Inc. posted first-quarter earnings that far surpassed analysts’ estimates, proving there’s still plenty of life in the old model of using live sports to squeeze more revenue out of cable and satellite distributors.

Sales at the Turner cable-network unit, which include TNT and TBS, climbed 7.2 percent to $2.91 billion from a year earlier, according to a statement Wednesday from the New York-based company. A 5 percent increase in advertising revenue helped, but the big boost came from an 11 percent rise in fees paid by distributors like AT&T Inc. and Comcast Corp.

As the TV industry grapples with declining ratings and so-called cord cutting, Time Warner’s Turner channels have spent billions on sports rights to give them leverage to demand higher affiliate fees. Sports are attractive because people still like to watch them live, even sitting through advertisements. They also aren’t carried on streaming services like Netflix Inc. that have been luring viewers away from cable.

“While cord cutting certainly remains a long-term risk, Turner’s robust affiliate-fee growth demonstrates that the cable network business remains a viable growth story,” Paul Sweeney, an analyst at Bloomberg Intelligence, said in an e-mail.

Time Warner has committed some serious spending to sports. In 2014 Turner -- along with Walt Disney Co. -- agreed to pay $24 billion over nine years to renew a contract to air NBA games. Last month Turner joined with CBS to pay $8.8 billion to extend their rights to air the men’s college basketball championship tournament through 2032.

Those investments are now paying off as cable and satellite providers pay up to avoid losing access to TNT and TBS. Turner has now renewed deals with its top-10 cable and satellite distributors at higher rates, meaning the company can still drive sales growth even as consumers cancel service and opt for online streaming alternatives from Netflix and Amazon.com Inc. Michael Nathanson, an analyst at MoffettNathanson, said Wednesday Turner’s higher subscription revenue was “the long-awaited pay-off.”

The shares rose 3.2 percent to $75.99 at 9:49 a.m. in New York. The stock had gained 14 percent this year through Tuesday’s close.

In addition to sports, Time Warner CEO Jeff Bewkes is spending billions on dramas to attract more viewers and squeeze higher fees out of distributors. At the same time, he’s trying to win over cord-cutters who don’t pay for cable with a Web-only version of HBO, large digital investments in CNN and the sports website Bleacher Report, and making channels available in slimmer online packages like Dish Network Corp.’s Sling TV. In the past year, it has acquired two online video companies, DramaFever and iStreamPlanet.

Since taking over as Time Warner’s chief executive officer in 2008, Bewkes has also slimmed down the media conglomerate, shedding AOL, Time Inc. and Time Warner Cable Inc. while keeping Warner Bros., its Turner cable channels, and the premium cable network, HBO.

  • Profit excluding some items was $1.49 a share, beating analysts’ projections of $1.30 a share. Revenue was $7.31 billion, compared with a $7.29 billion estimate.
  • The company also reaffirmed its full-year outlook for earnings per share of $5.30 to $5.40.
  • Revenue at HBO, with shows such as “Game of Thrones,” rose 7.7 percent to $1.5 billion in the quarter, the result of higher U.S. subscription rates and an increase subscribers and international licensing revenues. HBO’s operating income gained 4.1 percent to $477 million.
  • Sales at Warner Bros. studio declined 2.8 percent to $3.1 billion. The company attributed the results to lower theatrical revenue, as the first quarter of 2015 featured the releases of “American Sniper” and “The Hobbit: The Battle of the Five Armies,” compared with the release of “Batman v Superman: Dawn of Justice” late in the current quarter.
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