The Street set a low bar for Time Warner, and the company just barely crossed it. The entertainment giant reported Q2 net income of $429M, -32.7% vs last year, on revenues of $6.7B, -4.1%. Analysts expected revenues to be slightly higher at nearly $7B, but adjusted earnings at 59 cents a share beat forecasts by a penny. Time Warner’s cable networks saw 4% top line growth to $3.6B with pay TV distributor payments +6% — but ad sales only +2%. Some analysts predicted ad growth of at least 4%. The company says that improvements at its domestic entertainment networks, including TNT and TBS, were somewhat offset by weakness at CNN. But operating income was -5% to $974M due in part to the closing of networks in India and Turkey. Over at the Warner Bros studio, revenues were -8% to $2.6B while operating income was -13% to $134M as it struggled against comparisons with last year which included The Hangover Part II and home videos of Harry Potter And The Deathly Hallows: Part 1. Time Warner’s magazine publishing unit revenues were -9% to $858M with operating income plummeting 43% to $72M as ad sales and subscriptions both declined. The company reaffirmed its forecast to end 2012 with a low double digit increase in adjusted earnings per share. “Across Time Warner, we’re continuing to make progress on our long-term goals, and we remain on track to meet our financial objectives for the year,” CEO Jeff Bewkes says.
UPDATE, 8:45 AM: Time Warner shares are down 2.5% in early trading: Investors already knew that Harry Potter was a hit, and expected more from the cable networks. Time Warner tried to show the Street some love by accelerating its share repurchases — it spent $1.1B in 3Q — which enabled the company to raise its earnings-per-share growth estimate for 2011 to “high teens” from the previous “at least low teens.” But CEO Jeff Bewkes used his conference call with analysts to cheer-lead what he says will be a company-wide benefit from the growing global interest in high quality content. He says that CW (which Time Warner co-owns with CBS) recently cut “game-changing” deals with Netflix and Hulu. “It adds money to the ecosystem,” he says, especially as the digital services license old and serialized shows that are hard to syndicate. “There’s plenty of room for us to do deals if the people who want to buy (shows) can afford it.” Although the company acknowledged that it’s been disappointed by recent ratings at TBS and TNT, it expects that to change. In the first two weeks, re-runs of The Big Bang Theory have raised ratings at TBS, which Bewkes says should lead to “big improvement” in 4Q and 2012. “We think it’s going to continue to build and help the lead-in to Conan.” He says that the cable nets have had a hard time finding successful sitcoms to buy, although that’s changing. Warner Bros has four of the top seven now on TV. “We’ve never had so many successful comedies on the air at one time,” he says. The company says the loss of NBA games in 4Q will be immaterial; although it won’t have their big audiences, it also won’t have the big costs. Bewkes says he’ll look at adding NFL football to the mix. “We would not do it as a loss-leader” he says but adds that “it would be a giant move, if we made the move.” Time Warner says that ad prices in the scatter market are up high-single to low-double digits over upfront.
PREVIOUS, 4:55 AM: The entertainment giant will be talking a lot about its movies and TV shows today after Warner Bros’ record-setting quarter helped to make up for a slowdown in cable network growth and a decline in publishing. Time Warner had net income of $822M, up 58.1% vs last year, on revenues of $7.1B, up 10.8%. Earnings at 79 cents a share were well ahead of the 76 cents that the Street expected. Filmed entertainment revenues were up 19% to $3.3B powered by Harry Potter And The Deathly Hallows Part 2 and license fees from The Big Bang Theory, although home video was down. The cable networks, which include Turner Broadcasting and HBO, saw a 7% increase in revenues to $3.2B.
UPDATE: Jeff Bewkes Admits ‘Green Lantern’ Not As Bright As Expected As Time Warner Beats 2Q Estimates
UPDATE, 9:30 AM: CEO Jeff Bewkes tried to stick to his optimistic story for Time Warner, but analysts forced him to play defense as well in this morning’s quarterly earnings call. In response to a question, Bewkes acknowledged that Green Lantern “did not live up to expectations” — although he wouldn’t say whether Warner Bros has ruled out a sequel. Despite the film’s disappointing performance, the CEO says that he’s “not concerned” about the studio’s effort to capitalize on DC Comics superheroes: “DC will be a major contributor,” with new films on tap featuring Batman and Superman.
Bewkes also said that TNT and TBS’ ratings suffered because “we had some bad programming choices in series we acquired over the last few years.” The problem may have been exacerbated by the fact that some of the shows were also available on digital platforms. As streaming services such as Netflix and Hulu become more popular, “hit shows win, and mediocre stuff loses.” Turner hopes to fix the problem by adding reruns of popular series including The Mentalist and Hawaii Five-0. One hit “can have a significant impact,” Bewkes says. He urged analysts to keep an eye on Time Warner’s upcoming initiatives involving Flixster, the movie site it recently bought, and the entertainment industry’s UltraViolet program that enables consumers who buy a home video to access it on almost any kind of device. Beginning with Warners’ Green Lantern the “vast majority” of its releases will work with UltraViolet, Bewkes says. He adds that a beta version of Flixster that will be “deeply integrated” with UltraViolet will be released this week. Beginning this fall, consumers also will be able to bring DVDs they already own to retailers who will be able to make them available from the broadband cloud. All in all, investors seemed unimpressed with today’s news even though the financial numbers beat analyst estimates: Time Warner shares are down about 2.2% in mid-day trading.
PREVIOUS, 4:42 AM: The entertainment giant ended 2Q with net income of $638M, up 13.5% vs the period last year, on revenues of $7B, up 10.2%. Earnings at 60 cents a share handily beat the Street’s forecast of 56 cents. Analysts also anticipated revenues of $6.8B.