Decline at AOL, Time Inc. responsible for drop
Jeff Bewkes is eagerly looking forward to the day when Time Warner’s fortunes will turn on content alone.In its third-quarter earnings, Time Warner profit fell 38% last quarter to $661 million, dragged lower by steep declines at AOL and continued softness at beleaguered Time Inc. Revenue dipped 6% to $7.1 billion. But the cable networks and filmed entertainment were both profitable, and the overall numbers handily beat Wall Street’s expectations and prompted the media conglom to boost its full-year earnings forecast. It now expects earnings of $2.05 per share vs. a previous estimate of about $1.98. Time Warner chairman-CEO Bewkes reiterated Time Warner’s intention of spinning off AOL by year’s end and emphasized how much better off the two companies will be once they go their separate ways. The ditching of AOL, combined with the recent spinoff of Time Warner Cable, will leave the conglom a much slimmer, pure content company. Considered on their own, the content businesses saw revenue dip by only 3%, the company said. TW estimated that the content biz alone would post earnings per share of $1.78 a share this year, from $1.42 last year. “This separation is an important milestone for both companies,” said Bewkes during Wednesday’s conference call. AOL revenue plunged 22% and profits dropped by half last quarter as it continues to bleed subscribers and advertising remains sluggish. Time Warner execs said AOL had slashed to the bone, so there’s not much room to maneuver on the cost front. The sooner Time Warner can stick AOL’s results in its “discontinued operations” folder, the better. By contrast, TW’s media networks division, encompassing the Turner cablers and HBO, saw operating income rise 3% to $938 million. Total revenue grew 5% to $2.9 billion. Ad revenues eased 1%, by about $4 million, pulled lower in part, the company said, by declines at the news networks. Turner owns CNN and CNN Headline News. Execs predicted advertising at CNN would remain soft into the fourth quarter on tough comps from last year, which featured a riveting presidential campaign. Subscription revenue rose by 9%, or $163 million. Content revenue fell by 12%, or $27 million, on lower sales of HBO original programming. This time last year, Bewkes said, HBO was selling the DVD set for the final season of “The Sopranos.” In a sense, that marked the end of a golden age for HBO. Bewkes said the pay net’s current lineup of original programming, some quite successful, will start to take up the slack. At filmed entertainment, led by Warner Bros., revenue fell 4% to $2.8 billion on softness in the homevideo market. Theatrical film revenue from releases including “Harry Potter and the Half-Blood Prince,” “The Final Destination” and “The Hangover,” while sturdy, fell short of “The Dark Knight’s” perf in the prior-year quarter. Profit at the division rose 6% to $291 million as the studio slashed overhead and print and advertising costs. The studio took an $85 million restructuring charge this year as it slimmed down, shifted lines of command and streamlined its operations. “Despite softness in the video market, Warner delivered its highest profits ever,” Bewkes said. He’s upbeat on upcoming pics “Sherlock Homes,” with Robert Downey Jr., and Clint Eastwood’s “Invictus” with Matt Damon. At magazine publisher Time Inc., profits plunged 40% to $97 million as the company announced the unit would take a $100 million restructuring charge this quarter. Advertising sales fell 22%. Subscription revenue was down 13%. Newsstand sales also fell. Revenue dropped 18% to $914 million. Giant Time Inc., which is in the midst of another round of layoffs, has been one of the most visible casualties of a one-two punch: a general crisis in the print media as ads migrated online was followed by a severe economic downturn that squeezed advertising even more. Bewkes said the pace of the ad decline is starting to slow. “We believe that much of the downturn in advertising has been cyclical,” Bewkes said — meaning that it should bounce back as the economy recovers. “The readers are still there.” He said the company was trying to lure them with “a depth of analysis.” He used the example of Fortune magazine, which, he said, will come out fewer times per year but with extreme attention to “the quality of each issue” and to reporting on the largest and most important companies. Time Warner shares dipped 6¢ to $30.10 in trading Wednesday.