This article was updated at 8:39 p.m.
NEW YORK — Time Warner chairman-CEO Richard Parsons praised the conglom’s 14 Golden Globe nods and predicted, “We are going to be the big winners at this year’s Oscars” — even as investors slammed the stock for a humdrum set of financial results.
Shares fell 4.52% Wednesday to $17.96 as some balked at the numbers for TV networks and cable systems and remained leery of America Online.
Time Warner’s fourth-quarter and full-year revenue rose 6% to, respectively, $10.9 billion and $40 billion — posting gains at all units except AOL.
Company swung to a net profit of $638 million for the quarter and $2.6 billion for the year, compared with losses of, respectively, $45 billion and $99 billion. Those year-earlier results were decimated by huge writedowns at AOL and were not hard to beat.
Execs including Jeff Bewkes said Time Warner ratcheted up spending on programming at the nets, which would reap benefits this year. And Parsons promised that a new digital phone service would fire up Time Warner Cable. The cabler, along with its peers, is fighting tough competition from satellite, Parsons acknowledged at a meeting to discuss Time Warner’s latest earnings report.
Parsons toned down his aggressive acquisition talk from recent presentations, saying he’d be happy to spend this year on incremental investments inside the company (like the cable phone service). “If that’s all we do in 2004, I’ll be fine with it,” he said.
“This quarter wasn’t great, but, in aggregate, the numbers were perfectly in line. There are logical reasons why some numbers are worse,” said Richard Greenfield, a media analyst with Fulcrum Global Partners. “It’s good, not great.” He noted that company financial guidance for this year was extremely upbeat.
Maybe it’s just back to bidness, as George Bush says. The euphoria of seeing Steve Case ejected from the corner office and the AOL sign knocked off the front door may have faded somewhat, along with the honeymoon with new management. Now it’s back to a handful of (mostly) solid assets in a complex and increasingly competitive landscape. Plus, the SEC and DOJ are still investigating the company and the stock has had a major run-up lately.
Film muscles up
Filmed entertainment was the much-sung hero of 2003.
Revenue at the division surged 17% in the quarter to $3.4 billion. Operating profit rose 6% to $341 million. For the full year, revenue rose 9% to nearly $11 billion and income jumped 22% to $1.2 billion.
Cash flow rose 3% at Warner Bros. last year and 300% at New Line, according to Time Warner financial chief Wayne Pace.
Franchise pics, including “The Matrix Reloaded” and “The Matrix Revolutions,” as well as “Lord of the Rings” and “Harry Potter,” filled studio coffers from theatrical and homevideo-DVD releases. Other profit centers included “The Texas Chainsaw Massacre” and “Elf.”
TV costs increase
Company said strong perfs were partly offset by higher TV production costs, reserves of $40 million established for potential value-added taxes overseas and increased accruals for employee bonuses.
The studios grabbed a total of 28 Academy Award nominations, with 11 for “Lord of the Rings: The Return of the King,” six for “Mystic River” and four for “The Last Samurai.”
“At the end of the day, the quality of the products counts, and no one produces the quality of the product and then distributes it in more ways than we do,” Parsons said.
At TV networks, quarterly revenue rose 4% to $2.1 billion. Operating income fell 11% to $545 million. For the year, revenue grew 10% to $8.4 billion and income eased 2% to $1.8 billion.
Higher cable rates, some added subscribers plus video and syndication sales of HBO’s “My Big Fat Greek Wedding” and “Everybody Loves Raymond” helped boost revenue.
Ad revenue rose 10% at the Turner nets and 12% at the WB due to higher CPMs and ratings.
But profits were pinched by increased investment in programming, along with a $219 million charge related to the sale of the Atlanta Hawks and Thrashers sports teams.
Company noted a $45 million drop in programming expenses related to the deferral of costs associated with future syndication and homevideo distribution. Pace explained that since HBO shows now have a proven revenue stream beyond pay TV (“Sex and the City” and “Band of Brothers” were sold into syndication), the net can now book its expenses over a longer period of time.
Time Warner Cable posted quarterly revenue of $2 billion, up 9%, and swung to an operating profit of $377 million from a loss of $10 billion. Revenue also rose 9% for the year, to $7.7 billion, and unit swung to an annual profit of $1.5 billion from a loss of $9 billion.
Subscription revenue rose 13% on high-speed data and digital video services and steeper cable rates. But advertising revenue plunged 30% –mostly ads purchased by programming vendors looking to promote new channels and inter-company advertising.
The cabler also cited higher programming costs and higher costs for customer equipment like digital converters and modems.
The cable company added virtually no new analog subscribers; it is adding high-speed data and digital video customers. The fear is that growth there will slow if the service doesn’t consistently add new features — thus the perceived importance of the phone service, which Parsons has been touting aggressively for several months.
At America Online, revenue for the quarter fell 7% to $2.2 billion. The unit swung to an operating profit of $109 million from a loss of $33.4 million. For the year, revenue dipped 5% to $8.6 billion with operating income of $663 million.
AOL loses subs
Parsons insists the troubled Netco is on the mend, but many Wall Streeters need convincing. AOL shed 400,000 subs in the fourth quarter — and 2.2 million for the year. But subscription revenue was slightly higher. Ad revenue plunged 40% last year, but it’s expected to rise in 2004.
Long term, the division’s prospects are hazy, but it could surprise Wall Street with a strong couple of year years, Fulcrum’s Greenfield said.
Seeking buzz, AOL has inked an $8 million deal to sponsor the halftime show at the Super Bowl this Sunday. It also gets three commercials during the game.
In publishing, led by flagship Time Inc., quarterly revenue rose 3% to $1.6 billion and operating income fell 11% to $261 million.
Full-year revenue nosed up 2% to $5.5 billion as income plunged 25% to $664 million. Company has just sold the money-losing Time Life unit, which has been weighing on the division’s profits.