Bloomberg News

Time Warner Rises After TV-Programming Fees Help Fuel Profit

February 06, 2013

Time Warner Tops Profit Estimates on Television Affiliate Fees

Cartoon characters, including Batman, center, and Superman, second from right, are displayed on a mural at Warner Bros. Studios in Burbank, California. Photographer: Patrick T. Fallon/Bloomberg

Time Warner Inc. (TWX:US), owner of the HBO cable network and the Warner Bros. film studio, rose the most in three months after affiliate fees from cable-TV providers boosted profit and the company announced a new share buyback program.

The shares rose 4.1 percent to $52.01 in New York at the close, the biggest increase since Nov. 7. The stock has climbed 8.7 percent this year.

Chief Executive Officer Jeffrey Bewkes has concentrated the company’s growth strategy on its TV business, which fuels more than 60 percent (TWX:US) of Time Warner’s annual sales. He fostered the development of costly shows, such as HBO’s “Game of Thrones,” and signed rights deals for major sports programming, including the NCAA basketball tournament, to command higher fees from pay- TV providers such as Comcast Corp. and DirecTV.

That revenue rose 7 percent in the quarter, a healthy increase according to David Bank, a media analyst with RBC Capital Markets in New York.

“Affiliate performance was great,” he said in an interview. “That’s their big leg up moving forward.”

Fourth-quarter net income climbed 51 percent to $1.17 billion, or $1.21 cents a share, from $773 million, or 76 cents, a year earlier, the company said. Leaving out some items, earnings were $1.17 a share, compared with the average analyst estimate of $1.10 (TWX:US), according to data compiled by Bloomberg.

Dividend Increase

The New York-based company also boosted its dividend 11 percent to almost 29 cents a share, up from 26 cents. The payout will be made on March 15, to shareholders of record at the close on Feb. 28. The stock buyback program, meanwhile, began in January and will be worth as much as $4 billion, Time Warner said. It repurchased $3.3 billion in stock last year.

The effort is helping keep shareholders happy while they wait for next year, when Time Warner’s licensing agreements with pay-TV operators come up for renegotiation, Bank said.

“The share buybacks are acting as a bridge to 2014 when they can line up bigger affiliate fee increases, at least in the double-digit percentage range,” Bank said.

The company’s TV advertising climbed at a slower pace than the affiliate business last quarter, with sales rising 3 percent. Ratings at the company’s cable networks, which include CNN, TNT and TBS, slid 6 percent in the period, according to Anthony J. DiClemente, an analyst with Barclays Research in New York. He has the equivalent of a neutral rating on the shares.

Netflix Contract

In addition to licensing fees from pay-TV operators, Time Warner added about $350 million last year from deals with streaming-video providers such as Netflix Inc. (NFLX:US) and Amazon Inc. The company expects to make additional online-video agreements this year.

For 2013, Time Warner predicts that earnings will grow in the “low double digits” from $3.28 a share in 2012. That includes the effect of a $60 million restructuring at Time Inc., the company’s magazine division.

The 60-year-old Bewkes, who recently renewed his employment agreement through 2017, reshuffled the company’s executive lineup in the past year to shape up underperforming divisions.

He appointed former advertising executive Laura Lang to manage Time Inc., which has been the company’s slowest-growing business. She recently eliminated about 500 jobs, or 6 percent of its workforce, to better manage costs amid declining ad sales. Publishing sales dropped 7 percent to $967 million in the fourth quarter, the company said.

Jeff Zucker

Bewkes also installed former NBC Universal chief Jeff Zucker, 47, to lead the struggling CNN, and last week he resolved a two-year contest among top executives at Warner Bros. by promoting Kevin Tsujihara, 48, to run the unit.

“I chose him because he has the greatest breadth of experience across Warner’s businesses,” Bewkes said on a conference call with analysts.

He played down reports about tension between Warner Pictures and Legendary Entertainment, a film-financing group led by CEO Thomas Tull, who produced the profitable Batman franchise for the studio. Legendary is considering walking away from its Warner Bros. partnership, people with knowledge of the situation said last week.

“We’re very close to Tom, and we have a great relationship with him,” Bewkes said. “There’s no contentiousness -- there’s problem-solving going on.”

In January, Richard Plepler, 54, took over as CEO of HBO for the departing Bill Nelson. The appointments provide Zucker, Tsujihara and Plepler with high-profile posts that puts them in position to compete for Bewkes’s job should he decide to step down at the end of his term.

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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Companies Mentioned

  • TWX
    (Time Warner Inc)
    • $77.02 USD
    • 0.03
    • 0.04%
  • NFLX
    (Netflix Inc)
    • $472.19 USD
    • 4.04
    • 0.86%
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