Time Warner profits hold steady

Gains in TV, film offset dips in publishing, AOL

Time Warner held steady last quarter in a rocky economy, with profit and revenue flat from a year ago, as gains at TV networks, cable and film offset dips at struggling Time Inc. and AOL.

Net income of $1.1 billion was down 2%, revenue unchanged at $11.7 billion, and operating income up 10% to $3.5 billion.

The conglom said it has about $18 billion in cash on hand, a nice war chest at a time when others are pinched for cash. Less than 20% of its revenue depends on advertising, which has been slammed by the current economic slowdown. And almost none of it is local, which has taken the worst hit.

Time Warner also revealed it will take a $100 million-$125 million charge in the fourth quarter for the massive restructuring at Time Inc. announced last week. The parent is cutting hundreds of jobs and splitting the magazine publisher into three divisions — moves it says will help save $150 million next year.

With investors mightily worried about tight credit markets, chief exec Jeff Bewkes reassured them during a conference call that the media giant isn’t “at all concerned about our ability to finance films going forward.”

The studio is moving from a combined annual release slate of 45-50 films (which included New Line) to a “more focused” slate in the 25-pic range. Multiyear movie deals with financial partners are still solid, Bewkes said, and Warner Bros. has a healthy mix of wholly owned films, joint ventures and distribution deals.

Time Warner took a $182 million restructuring charge earlier this year from gutting its New Line division.

Asked about DVD sales, Bewkes said industrywide numbers are down year on year but sales are up 7% at Warner Bros. “We think there will be some (impact from a weak economy), we don’t know how much, and we think we’ll do better than others,” he said.

Filmed entertainment saw operating income rise 3% last quarter to $275 million on lower overhead and P&A costs as well as fewer film writeoffs.

Revenue for the unit slipped 9% to $2.9 billion. Theatrical release of “The Dark Knight” and the homevideo bow of “Sex and the City: The Movie” faced tough comparisons with the year-earlier “Harry Potter and the Order of the Phoenix,” “Rush Hour 3” and “Hairspray” plus “300” on homevid, TW said. It also cited lower TV licensing fees vs. coin from the initial syndication of “Two and a Half Men” and “Cold Case” in 2007.

Time Warner Television Networks saw profits surge 21% to $909 million. Revenue rose 7% to $2.7 billion.

Programming costs fell 4%. Subscription revenue rose 10%, and advertising revenue grew 9%. Those gains were partly offset by a 17% decline in content revenue on lower ancillary sales of HBO original programming.

With CNN getting a big boost from one of the most exciting election seasons in history, some Wall Streeters wondered if the network would show steep declines next year. Bewkes said the progress of the new administration at home and abroad would continue to generate interest. And he noted that high election spending by advertisers doesn’t generate much extra profit for CNN because newsgathering costs are so much higher as well.

“I don’t think it’s a high hurdle. I think we’ll be able to continue to progress,” he said.

At AOL, operating income fell 9% to $268 million. Revenue dropped 17% to $1 billion. Company cited higher traffic acquisition costs, a 26% decline in subscription revenue and a 6% dip in ad revenue.

The goal, investors believe, is to merge AOL with another company, a possibility that was front and center Wednesday as two rivals, Google and Yahoo, scrapped plans for a comprehensive advertising partnership after objections from consumers and antitrust regulators.

“The possibilities and opportunities remain for this whole business to restructure itself,” Bewkes said. Microsoft, Yahoo and Google have all been looking “to bulk up and increase in scale, and we’re no different in that regard.”

As for acquisitions in general, Bewkes said Time Warner would look at anything that would improve its operating position and scale, including cable networks, TV production, international assets and small game publishers.

Time Warner Cable, which is now a standalone public company, saw profits rise 16% to $788 million. Revenue rose 8% to $4.3 billion on continued growth in digital video services like high-speed data and voice. Ad revenue rose 1%.

Time Warner is in the process of divesting its remaining stake in the cable operation, and Bewkes said the separation is on track to close early next year.

Publishing profits plunged 35% to $162 million. Revenue eased 7% to $1.1 billion. Advertising revenue fell 8% as higher online sales led by SI.com, People.com and CNNMoney.com was more than offset by lower domestic print ad revenue.

Time Warner lowered its estimate for growing full-year 2008 operating income to 5% from previous guidance of a 7%-9% bump.

It said earnings per share would be down by at least 4¢ to $1.04-$1.07 vs. a previous estimate of $1.07-$1.11.

On the upside, it sees cash flow for the full year at $5.5 billion vs. a previous outlook of at or above $4.5 billion.

Time Warner stock closed down 6.3% at $10.15 amid a slump in the broader market.

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