B.O. slide fails to spoil big games
NEW YORK — Time Warner profit nearly tripled last quarter, with the film studio a lone laggard. But execs hope Warner Bros.’ tepid box office run has ended with “The Departed” and touted a handful of late ’06 releases including “Happy Feet” and “Blood Diamond.”
The giant conglom’s net income surged to $2.3 billion from $853 million for the three months ended in September, partly due to the purchase of cabler Adelphia. Total revenue rose 7% to $10.9 billion.
Studio profits sank 25% to $120 million on revenue off 10% at $2.4 billion.
“I am highly confident that we will grow the earnings on the film side next year. We had a hell of a year in ’05, and it’s the film business — it moves around a little bit,” chief operating officer Jeff Bewkes told investors on a conference call.
“You can never tell. Witness ‘Poseidon.’ Every once in a while, one of your ships sinks,” he said. Still, he stressed that Warner plus New Line “have been the most successful cash flow and earnings producers in the business (with) a big and diverse slate.” The studios, he added, have “an ongoing flow of more big-event films than our competitors do. And it’s the same in TV.”
The studio perf was expected, as pleasantly surprised analysts focused on AOL — where revenue fell less than expected following a radical revamp last summer.
The AOL story, combined with asset sales, the cable deal and planned IPO and, possibly, the belated effect of a massive stock buyback, have shifted Wall Street sentiment on the company. TW stock is at last flirting with a new benchmark of $20 a share.
“After trading sideways for nearly three years, we believe that TWX’s recent breakout is the first leg in a potentially multiyear upswing,” said Merrill Lynch analyst Jessica Reif Cohen.
AOL recently made the dramatic move of offering email and other services for free to subscribers who get their high-speed service elsewhere. Idea is to keep those subs but focus on page views and advertising revenue, not fees.
As a result, AOL’s revenue dipped 2.8% — less than some had anticipated — to $1.98 billion. Lost subscriber fees squeezed the unit by $210 million. But a 45% jump in ad sales brought in $151 million.
Operating income grew 38% to $397 million as the Netco ratcheted down marketing expenses.
AOL also had $25 million in restructuring costs.
“AOL is definitely a core business for the company and growing very well,” said Bewkes. He dismissed AOL chief Jon Miller’s comments in the British press a week ago that TW’s board is considering a sale of the division.
In cable, revenue was up by $1 billion to $3.2 billion. Operating income grew 17% to $550 million. The increase was due in large part to the acquisition of Adelphia. Like other cablers, Time Warner Cable is rolling out voice service, enticing customers with a “triple play” of voice, video and high-speed Internet service. It sees particular potential in the new Adelphia systems that had not offered phone services.
TV networks, led by Turner and HBO, saw revenue rise 4% to about $2.5 billion thanks in part to the addition of the other half of Court TV, bought from Liberty Media. Court TV brought in an incremental $42 million in ad revenue. That was offset by a $48 million hit from the WB network, shuttered in late September.
Networks’ operating income fell 21% to $526 million. That also included a $200 million writedown of the WB and $38 million in shutdown costs for the net.
Company also said networks’ content sales were hit by tough comparisons at HBO, whose previous year was buoyed by syndication revenue from “Sex and the City.”
At Time Inc., revenue was flat at about $1.26 billion. Operating income rose 8% to $226 million. TW cited international magazines including Grupo Editorial Expansion plus gains Stateside at People and Real Simple. Company also noted higher online ad revenue at CNNMoney.com and SI.com.
TW said it’s net debt about doubled to $32 billion.
It’s announced more than $20 billion in acquisitions and $4 billion in asset sales.
As of Oct. 31, company said it’s repurchased $13.4 billion worth of shares. It expects to hit $15 billion by year’s end and the target of $20 billion in 2007.