Time Warner Dodges Fox Bid Questions, Pitches HBO Growth

Time Warner Inc. Chief Executive Officer Jeff Bewkes didn’t want to talk about Rupert Murdoch this morning. Instead, he stayed on message pitching the successes and growth story of HBO and the Turner cable networks.

“We’re not going to comment on the proposal from 21st Century Fox, or the withdrawal,” Bewkes said about the offer from Murdoch’s entertainment company on a conference call today to discuss earnings. The bid was dropped yesterday. “We’re focused on delivering growth for shareholders.”

Time Warner’s second-quarter profit beat analysts’ estimates, lending support to Bewkes’ argument for continued independence. Last month Time Warner said its own growth plan will create more value than any proposal Murdoch’s 21st Century Fox Inc. was “in a position to offer.” Fox yesterday withdrew an $85-a-share bid that valued the owner of the TBS and TNT cable channels and the Warner Bros. film studio at $75 billion.

On today’s call, Bewkes, who’s also chairman, stressed the growth potential of Turner and HBO in foreign markets and the appeal of Cartoon Network among children outside the U.S. Those markets are becoming more crucial to programmers like Time Warner as the number of U.S. pay-TV customers peaks.

The slowdown in video customer growth is partly what prompted Comcast Corp. to agreed to buy Time Warner Cable Inc. this year. Murdoch’s bid for Time Warner could have put him in a better negotiating stance with the consolidating pay-TV industry that distributes its programming.

Murdoch, the billionaire chairman of Fox, said he was backing down after Time Warner’s board refused to engage in talks and Fox’s stock price declined 11 percent after the offer became public.

Stock Drop

Today, Time Warner dropped 13 percent to $74.24 at the close in New York, the biggest drop since November 2008. Fox rose 3.3 percent to $32.33, the most since May.

Through yesterday’s close, Time Warner had surged 20 percent to $85.19 since Murdoch’s bid was made public on July 16. The stock is still higher than its closing price of $71.01 on July 15.

Time Warner’s earnings, excluding one-time items and the Time Inc. magazine unit, were 98 cents a share, the New York-based company said today in a statement. Analysts predicted 84 cents on average. Sales increased to $6.79 billion, missing the average estimate of $6.88 billion.

Bewkes is relying on the growth of licensing fees for his cable networks to add to the company’s value. He set a goal for annual increases of at least 10 percent at Turner, despite ratings declines. The network’s sports programming, including professional basketball and baseball, helps justify increased fees from satellite and cable operators.

Licensing Fees

The licensing fees Time Warner gets for its cable channels gained 8 percent at Turner and 10 percent at HBO during the quarter. Pay-TV distributors including Comcast Corp. paid more to carry programming such as NCAA playoff games that aired on Turner’s networks in the quarter. HBO’s hit “Game of Thrones” had its fourth-season finale in June.

Time Warner reaffirmed its annual forecast, expecting adjusted profit to increase by a “low teens” percentage this year, up from a prior projection of about 10 or 11 percent. The company had adjusted profit of $3.51 a share in 2013, a figure that excludes Time Inc.

Time Warner’s second-quarter net income rose to $850 million, or 95 cents a share, from $771 million, or 81 cents, a year ago. The company completed the spin off of Time Inc. in June.

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