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Time Warner Reports Higher First Quarter Net Income - Broadcasting & Cable

Time Warner Reports Higher First Quarter Net Income

Update: 'The Lego Movie' boosts earnings, ad sales rise 5% at Turner
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Time Warner reported higher first quarter net income on gains from The Lego Movie plus gains at some of its TV properties. But CEO Jeff Bewkes (pictured) also expressed dissatisfaction with cable networks TNT and truTV.

Net income rose 71% to $1.292 billion, or $1.42 a share, in the first quarter from $754 million, or 80 cents a share, a year ago.

Revenue rose 9% to $7.5 billion.

Excluding Time, the magazine division Time Warner is spinning off, adjusted operating income grew 12% and adjusted earnings per share were up 20%.

Time Warner also updated its full-year outlook excluding the results from Time. The company said it expected adjusted diluted income per common share from continuing operations to be in the low teens from last year’s $3.51 per share

“We are off to a very strong start in 2014, with results that demonstrate both the returns we can achieve on our investments in great storytelling and the growth potential of our businesses,” Bewkes said in a statement.

“Turner also made history by bringing the NCAA Men’s Basketball Final Four to cable for the first time ever. The success of the NCAA Tournament also helped TBS maintain its position as ad-supported cable’s #1 network in primetime among adults 18-34 and 18-49. It also showcased the importance and vibrancy of our TV Everywhere initiatives, with a more than 40% increase in streams for our March Madness Live service over last year,” Bewkes said. “Another standout at Turner was Adult Swim, which again finished the quarter as the Number 1 ad-supported cable network in total day for Adults 18-34. And CNN reaffirmed that it is the place the world goes for authoritative coverage during major news events, with delivery in its key demographic up over 50% in March.”

During Time Warner’s conference call with analysts, Bewkes called out other Turner networks that have been underperforming.

“We are not satisfied with the recent ratings and advertising performance at some of the Turner networks. At truTV for example, we followed a couple of strong years with a significant drop off in performance,” Bewkes said. Bewkes said management at truTV has been chanced and a new slate of programming looks promising.

“We've also had some challenges at TNT,” Bewkes said. "It can and will do better. Over the past few years, we didn't take enough creative risk with its programming, and as a result, TNT has lost ground with younger viewers. We've already started to address that with the programming that you'll see this summer, including The Last Ship, Murder in the First, and Legends. These shows should also help TNT expand its audience with key male demo.”

Bewkes insisted that Time Warner knows how to make successful shows. "Turner has had its share of hits and we're now moving the target towards younger male and female-skewing stuff and we have new management that's going to actively pursue this,” he said. “Unless we just can't figure out how to do it, which would be I guess the only downside.’’

If the shows attract more younger viewers, that will mean “more ratings, higher CPMs, more money,” Bewkes said.

Operating income at Turner rose 6% to $900 million in the quarter, including a $13 million gain from the sale of Zite.

Turner’s revenue rose 5% to $2.6 billion. Subscription revenue was up 7%. Bewkes has been telling investors that the company anticpates double-digit growth in domestic subscription revenue at Turner for 2013 through 2016. During the call had said that double digit growth will extend through 2018, based on deals the company has already completed. 

Content revenues were down 15%.

Ad revenues were up 5% as gains at Turner’s domestic networks were offset by foreign currency changes. The ad sales increase was mainly due to having more of the NCAA Men’s Basketball Championship.

CFO Howard Averill said domestic ad revenue growth was on the lower end of the range the company had forecast because of soft ratings and moderate demand in the scatter market. He said demand for sports was soft because some money was being drawn to the World Cup.

“Looking ahead to the second quarter, scatter pricing is up high single to low double digits over the upfront, with volumes still relatively modest and we expect ratings to remain a drag on our performance,” Averill said. “We anticipate total advertising to grow in the low single digits in the second quarter."

Programming costs grew 9% reflecting the higher costs from March Madness plus an increase in original programming costs.

HBO’s operating income increased 11% to $464 million. Revenues rose 9%, with an 8% increase in subscription revenues and a 13% gain in content revenues. Domestic sub rates were higher in the quarter and home video revenues from season three of Game of Thrones boosted content revenues.

Last week, Time Warner announced a deal to put HBO shows on Amazon Prime. The deal, Bewkes said, was “in keeping with the spirit of taking advantage of new platforms to connect with consumers and improve monetization.”

Bewkes said that the money won’t flow to the bottom line this year. “We plan to use additional revenue from the deal to invest even more in HBO's groundbreaking original programming and to further accelerate the development of the next generation of HBO GO."

Warner Brothers operating income increased 40%, and its revenues rose 14% led by the release of The Lego Movie.

The company said it repurchased 20 million of its shares for $1.3 billion this year through April 25.

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