This should be a good day for the media giant with the strong results and an updated forecast that projects low-teen growth in its 2014 adjusted per share earnings after it spins off Time Inc — expected by mid-year. Time Warner generated $1.3B in net income in Q1, +71.4% vs the period last year, on revenues of $7.5B, +8.7%. The top line came in ahead of the $6.6B that analysts expected. Adjusted earnings at 91 cents per share also beat forecasts for 88 cents. The company’s release says that if you exclude Time Inc then earnings would have come in at 97 cents. “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,” CEO Jeff Bewkes says.
Time Warner’s fortunes largely depend on its Turner cable networks where operating income increased 6% to $895M on revenues of $2.6B, +5%. NCAA March Madness basketball helped to lift ad sales 5% while pay TV company payments increased 7%. The unit also collected $13M from the sale of a news aggregation platform, Zite, which contrasted with the quarter last year when Turner had a $20M charge for its international operations.
Warner Bros also can look back warmly on the quarter: The LEGO Movie and 300: Rise Of An Empire contributed to a 40% gain in operating income, to $369M, with revenues +14% to $3.1B. The studio also saw growth in video game and international TV sales. But home video sales of theatrical films fell 16% while those for TV productions dropped 23.5%. With its “promising slate of movies for the rest of the year and strong lineup of TV shows to be unveiled at the upfronts, Warner Bros is positioned to have another excellent year in 2014,” Bewkes says. Read More »
The Time Warner CEO benefited from a new contract that took effect last year and the board’s conclusion that he “has been highly effective and successful” in a year when the share price appreciated 46%. Jeff Bewkes‘ 2013 package included: $2M salary, $8.2M stock awards, $7.8M option awards, $14.4M non equity incentives, and $126,889 in other compensation. The “other” category includes $55,191 for Bewkes’ personal use of the company plane as well as payments for car and driver and reimbursement for financial advisory services. The Time Warner board treats Bewkes like a rock star in comparison with other execs: His compensation accounts for 53% of the total paid to the top five officers, up from 48% last year. He made 5.5 times the median for his four top lieutenants, up from 4.5 times last year. Corporate governance watchdogs often become concerned that a CEO’s pay is out-of-whack when he or she makes more than three times the median for the others. Time Warner will hold its annual meeting in Burbank on June 13. Read More »
Time Warner‘s premium channel is approaching the point where a change would pay off, but there’s no need to hurry, according to data from an online survey of 2,501 adults out today from Morgan Stanley’s Benjamin Swinburne. Some 44% of broadband-only subscribers in the poll say that they’d be willing to pay a monthly fee for HBO GO. That “ultimately lifts HBO‘s earnings power,” the analyst says. Wouldn’t it face tough competition from Netflix which has about 32M domestic subscribers vs HBO’s 30M? Not necessarily. About 40% of Netflix users also have HBO, which suggests that lots of people consider the services complementary. They also reach slightly different audiences: HBO customers tend to be richer and older than Netflix ones. And people like HBO’s shows. More than 35% of respondents said that HBO has the best original programming while less than 20% picked Netflix in the field of premium services.
Related: ‘True Detective’ Finale Crashes HBO GO
As you’d expect, the big question is how much broadband-only subscribers would be willing to pay for HBO GO. Some 18% said they’d shell out $5 or less each month, while 21% would go up to $10, 4% would go to $15, and 1% would pay more than $15. If that’s not good enough for HBO’s number crunchers, then the company can sit tight and continue to just serve people who subscribe to cable or satellite TV. Even … Read More »
In this week’s podcast, Deadline’s executive editor David Lieberman and host David Bloom look at the Obama administration’s unusual intercession in the Aereo Supreme Court case on behalf of the networks and the notable absence of tech industry involvement in the case so far.
They also try to make sense of John Malone’s latest complicated stock shuffle that affects SiriusXM and Charter Communications; check in on the many Big Media highlights from this week’s Deutsche Bank investor conference; break out the checkbook for that Amazon Prime price hike; and wonder how DreamWorks Interactive can be on track for both a $310 million global box office haul for Mr. Peabody & Shermanand a write-down of $84 million for that same film. Read More »
“We’re all in the process — and Warner Bros is in the center of it — of figuring out how to license and expose programming” over multiple platforms, the Time Warner CEO says. “The economics have to adjust.” But Jeff Bewkes told the Deutsche Bank Annual Media, Internet & Telecom Conference that he expects little or no cannibalization as TV shows move from networks to cable VOD and online services including Netflix, as well as traditional syndication. “Your interest may go up, not down. We’ve seen a lot of that at HBO….There’s a lot of repeat viewing.” Some analysts are beginning to wonder whether services such as Netflix and Amazon Prime — which thrive from their ability to show TV reruns — might suffer as programmers let cable companies offer episodes almost immediately after they first air on ad-supported VOD where fast-forwarding is disabled. But Bewkes says that TV viewing “will go up dramatically because there’ll be more opportunities for you to see it.…TV will become more accessible and you’ll still have your [online subscription VOD] backup service. It’s like a sandwich. Eat it while it’s hot.” Read More »
In this week’s podcast, Deadline’s executive editor David Lieberman and host David Bloom look at CBS’ new Thursday night football deal with the NFL; Twitter’s complexity issue with newbies, and Disney’s red-hot quarter fueled by Thor and new franchise Frozen. They’ll also take a gander at those newly available HBO financial details and how they stack up against Netflix, even as Time Inc. braces for layoffs after its imminent spinoff; and question whether Microsoft’s new boss will be much different from the old boss, particularly with the company’s first boss as his new technology adviser.
Deadline Big Media podcast 71 (.MP3 version)
Deadline Big Media podcast 71 (.M4A version)
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“There’s been more talk than action,” Jeff Bewkes told analysts this morning when asked about plans by Sony and Verizon — and possibly others — to offer an Internet service with traditional cable channels. Time Warner is “not philosophically opposed” to them. “We just haven’t seen anyone come up with a viable, powerful consumer offering yet.” Sony and Verizon might find it hard to change his mind. The Time Warner chief says he doesn’t want to “make a little money there” if he believes it will “cannibalize something else.” That condition’s important: Programmers fear that many subscribers might cut the cord with traditional pay TV services if offered an opportunity to pay less for fewer channels. For example, people who don’t watch sports would be ripe targets for an online offering that didn’t require them to subsidize ESPN and costly regional sports networks. Viacom CEO Philippe Dauman, who doesn’t have a big investment in sports, is much more enthusiastic than Bewkes is in Internet pay TV. “Based on a variety of discussions that we’re having, I do believe that there’ll be at least one [service] commencing operations in 2014,” he said last week. That’s “a good opportunity for us to enter into a new relationships with emerging distributors to add to our stable of the existing ones.”
Time Warner Raises Dividend As Q4 Earnings Beat Expectations
The company didn’t make a direct connection to Netflix — but the comparisons, especially in profitability (see chart below), become irresistible now that Time Warner reports results for HBO, previously lumped with Turner networks. This morning’s numbers scratch the surface; other filings should tell us much more. The company intends to take advantage of HBO’s financial firepower: HBO will increase spending and hours for original series in 2014, CEO Jeff Bewkes told analysts. Much of the spending will boost Cinemax, which he calls “an under-appreciated asset” with more viewers than Starz and about about the same as Showtime. HBO, the channel, accounts for about two-third of the operation’s 45M domestic and 85M overseas subs. Execs also noted that subs are growing at a healthy pace, with domestic up by 2M in 2013. International revenues account for 25% of the unit’s total — a number that’s expected to grow. Bewkes says that Netflix, Amazon and Hulu have had “no discernible effect” on HBO so far.
Here’s how HBO and Netflix compare on the top and bottom lines: Read More »
CEO Joe Ripp doesn’t say in his memo to staffers today how many people will be affected by his effort to, as he put it, “right-size the organization” — although the total is expected to be in the hundreds. The job cuts are at least partly designed to make the company more attractive to Wall Street when Time Warner spins off its publishing arm, expected by mid-year. Its success “will depend on how investors view the momentum we are generating at the new Time Inc,” he says. That requires “some substantive and sometimes painful changes to the way we operate and approach our business.” Employees will learn “as early as today” who’s getting the ax. He unveiled plans to restructure the organization, ditching its three brand operating clusters. EVP and longtime Time Inc vet David Geithner – who’s former Treasury Secretary Tim Geithner’s brother, and runs the Style & Entertainment Group — will be out. Former Dow Jones exec Todd Larsen will take charge of the company’s most famous titles including People, Entertainment Weekly, Time, Sports Illustrated and Fortune. Evelyn Webster, currently president of the Lifestyle group, will continue to manage publications including Cooking Light, InStyle, and Real Simple. Ed Kelley, who ran American Express Publishing before Time Inc bought it last year, also is leaving. Read More »
It’s a big week for media companies and real estate. Yesterday Comcast announced a plan to build a $1.2B corporate campus in Philadelphia. Now Time Warner says that Related Companies, an entity owned by the Abu Dhabi Investment Authority, and GIC ponied up slightly more for the Time Warner Center at New York’s Columbus Circle, which opened in 2004. The deal is largely in line with what people expected in July when Time Warner agreed to move its NYC headquarters and operations, including CNN, to an 80-story skyscraper planned for the industrial Hudson Yards area around 10th Ave and 33rd St. The company will lease its current office space from Related until early 2019, and has made “an initial financial commitment” to Hudson Yards with plans to move there in late 2018. It will be “New York’s next great neighborhood,” CEO Jeff Bewkes says, and will enable Time Warner to “reallocate substantial savings to our primary business of creating and sharing great storytelling in television, film, and journalism with audiences around the world.” The company plans to take more than 1M square feet of office space there for about 5,000 employees in the corporate operations as well as HBO, Turner Broadcasting, and Warner Bros. Time Inc will go its own way after it separates from Time Warner this year. Bewkes said in 2011 that he wanted to review the media giant’s real estate holdings. … Read More »
The company says the cash will go toward the catch-all “general corporate purposes” and will come from two transactions. Time Warner will raise $500M from notes due in 2023 that pay 4.05% in interest, and another $500M from debentures due in 2043 that pay 5.35%. Moody’s Investors Service rates them Baa2, indicating that they’re safe with just a moderate degree of risk. “We believe that Time Warner is taking advantage of the low but rising interest rate environment,” Moody’s says. “The company has no public debt maturities in 2014 and $1 billion maturing in 2015.” Fitch Ratings offers a similar rating, BBB+, saying that the borrowing ”enables Time Warner to moderately de-risk its business profile while increasing strategic focus on its Networks, and Film and TV Entertainment segments.” Time Warner had about $17.6B in net debt at the end of September.
Outside of Comcast and Verizon, cable and satellite companies “haven’t moved fast enough or effectively enough” to offer video on demand to their subscribers, the Time Warner CEO told the UBS Global Media and Communications Conference. Distributors have the rights to offer shows on VOD, and audiences want it. “If you think about the success of things like Netflix, the interest YouTube – it’s mostly because you can get your stuff on demand.” It’s “a gigantic opportunity” for pay TV. But “there’s very spotty performance among distributors on how these tremendous VOD rights are conveyed to you.” if distributors don’t move more quickly then the demand “is going to be filled by somebody else” — probably a tech company. That would be “a missed opportunity….It’s not going to serve consumers as well and won’t serve the broadband plant” or programming diversity. He seemed uncertain, though, that someone will soon offer an online pay TV service that would compete directly with cable and satellite — which became a big issue here yesterday when Viacom CEO Philippe Dauman said he believes an over-the-top competitor will launch in 2014. “We’re all open to it,” Bewkes says. “The question for consumers and rights providers is: What service do they provide?” He also wonders whether the Internet infrastructure can handle the additional bandwidth demands for video. “That’s an open question.” Read More »
Time Warner startled a lot of people recently when it allowed the No. 1 cable operator to include HBO Go in a new $40 a month broadband service. Wouldn’t some consumers cancel their pay TV service if they found that they can watch the channel’s shows without a subscription to basic cable? But CEO Jeff Bewkes says he isn’t worried. “It’s pretty limited,” he told analysts today in a conference call to discuss Q3 earnings. “It won’t be attractive to most people, but might appeal to a segment.” He wouldn’t discuss terms of the deal, or speculate about how many channels a broadband-only service could offer before programmers would demand that the carrier pick up all of them — basically, replicating the pay TV bundle. “It’s something we don’t have to be concerned about” just yet. “Of all the network groups, we have the highest proportion in the top 40″ with 80% of the company’s cable network revenues coming from TNT, TBS, CNN and Cartoon Network. If a broadband provider tried to develop a best-of-cable package “our networks would be in there.” Meanwhile, Bewkes says that HBO’s having “a great year” with subscription growth. Read More »
Time Warner‘s CEO says he’d be open to helping a broadband-only product from a cable company because it would protect HBO‘s relationship with the biggest source of the premium channel’s customers. “Distributors are competing more,” Jeff Bewkes told investors at the Goldman Sachs Communacopia Conference in NYC. A cable-provided broadband arrangement with HBO “will make it an offer you can’t refuse. … We see growth there for HBO in that.” The exec still doesn’t like the idea of offering the premium channel on broadband to people who don’t also deal with a pay TV provider. As many as 10M homes receive Internet service without cable or satellite, he says. “If you take out old people, it’s probably 5M or 6M.” But people in about 70M homes subscribe to pay TV but not HBO. “We’re working more on that.” Bewkes also provided the most vigorous response I’ve heard so far by a programming exec at the confab to questions about whether their price increases might drive the pay TV business off a cliff by making it too expensive for consumers. Read More »
Pay TV distributors who believe that the decks are stacked against them in retransmission negotiations with major content producers should take a look at the 180-page media and entertainment report out today from International Strategy and Investment Group analyst Vijay Jayant. He urges investors to buy shares of AMC Networks, CBS, 21st Century Fox, Time Warner, and Viacom. He’s neutral on Discovery, Disney, and Scripps Networks. The big reason: These eight companies, he says, “control 90% of total TV viewership and 60% of total film production in the U.S., which means that, for the most part, they have the power to determine how content is packaged and priced to distributors and, therefore, consumers.” That muscle will be evident over the next few years as they squeeze cable and satellite companies to pay $60B in carriage fees for their channels in 2016, up from $45B this year. These payments “are drivers for the overall sector.” Factoring in “the consumer’s inherent psychological need for entertainment (even during tough times),” Jayant predicts healthy profits for his eight companies, with annual average returns on invested capital over the next three years ranging from 40.1% for AMC to 9.9% for Time Warner. Read More »
Richard Parsons, the former chairman of Citigroup who was chairman/CEO of Time Warner until he stepped down in 2007, has resurfaced in Harlem. He and wife Laura are opening two new uptown restaurants in Minton’s and The Cecil. Minton’s is a restoration of the famed 1930s/1940s Harlem jazz club Minton’s Playhouse. It will reside in the original location, redesigned as a contemporary jazz supper club. Next-door sister restaurant The Cecil will be an Afro-Asian-American brasserie that integrates the culinary traditions of the African Diaspora with traditional Asian and American cuisines. The Parsons have appointed their long-time friend and Cafe Beulah restaurateur Alexander Smalls as Executive Chef of both eateries. The Cecil opens September 23rd and Minton’s opens the following month. Read More »
Listen to (and share) episode 46 of our audio podcast Deadline Big Media With David Lieberman. Deadline’s executive editor talks with host David Bloom about a week filled with explanations from media executives regarding the many challenges to their lucrative business models, including whether cord-cutting is accelerating; if Aereo is a threat or a gimmick; whether Dish and DirecTV are facing a shotgun marriage forced by investors; and why Time Inc. is staying at Time Warner for a little longer.
Deadline Big Media, Episode 46 (MP3 format)
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Time Warner’s CEO says that it’s much more likely that pay TV will start to offer smaller bundles of channels, instead of selling them individually. And that’s OK with him: His Turner Broadcasting channels and HBO “would be highly likely to be in any package that anybody would create.” And if cable and satellite companies lower the price for a basic subscription, then it “would make HBO more affordable.” So even though he doubts that the current system of bundles will break up soon, “if it does it will probably happen in a way that helps us.” The entertainment giant has been talking with companies that want to offer pay TV channels via the Internet. He says he doesn’t know what Intel is “going to do, or whether they’re going to do” anything while Apple is a company “we talk to all the time.” But even though he’s ”not philosophically opposed” to Internet competition to traditional pay TV, “we don’t see it being viable through any of the usual suspects yet.” Bewkes adds that he isn’t terribly worried about people pirating some of his hits, since it builds word-of-mouth interest. “Game Of Thrones is the most pirated show in the world. That’s better than an Emmy.”