Cable, Internet fortify Time Warner

Film revenues decline in first quarter

NEW YORK — Time Warner reported mixed results for the quarter ended March 31, with dynamic growth in cable and Internet holdings offsetting weakness in film and publishing.

Latter two segments were hampered by tough homevid comparisons (“Happy Feet” and “The Departed” vs. the year earlier’s “Harry Potter” outing and “Wedding Crashers”) plus eroding circulation and a choppy print-ad climate.

Total revenue rose 9% for the quarter ended to $11.2 billion. Adjusted operating income before depreciation and amortization (OIBDA) — said by the company to be the fairest measure of the massive firm’s many interwoven parts — surged 19% to $3.1 billion and margins reached a five-year high of 28%.

“Time Warner is off to a strong start this year,” topper Richard Parsons said. “Our first-quarter results put the company firmly on track to meet all of our full-year financial objectives.”

Free cash flow totaled $973 million, with 31% of OIBDA converted to free cash. Company said it hopes to push that conversion rate closer to 40% over the next several years.

The quarterly numbers satisfied most Wall Streeters, but hypotheses continue to multiply as to what exact shape the world’s largest media company should take. Sell off AOL? Shed more publishing assets? Use cable infrastructure to wring cash from video-on-demand? Everybody has an idea.

“There are a lot of people out there trying to help us figure out what to do with our company,” Parsons said during a conference call with analysts. “A lot of that is fanciful. I don’t know where it comes from.”

Net profit decreased 18% to $1.2 billion from $1.46 billion one year ago, meeting analyst estimates, and shares closed up 1.7% at $20.94 in midday trading amid a broad market rally and a $10.6 billion buyout bid for Cablevision by the Dolan family. By the time the Dow had closed in record territory however, Time Warner shares had stumbled a bit to finish at $20.94.

The cable unit is the conglom’s largest and was the strongest performer, with revenue up 61% to $3.9 billion thanks to the addition of cable systems in Kansas City, west Texas and New Mexico as part of the Adelphia acquisition and swaps with Comcast. Unit reported big increases in video, phone and data subscribers, as well as increased advertising revenue.

At AOL, the transition from a subscription-based business to an advertising-supported portal is starting to bear fruit. Revenues declined 25% to $1.5 billion, but operating income increased $265 million to $1.1 billion on cost-cutting and higher advertising revenue.

Ad revs grew at or above 40% for the fourth consecutive quarter, management noted, though the bar was low historically given how subscription-dependent the service used to be.

Filmed-entertainment revenues decreased 1% to $2.7 billion, and OIBDAin the unit dropped 27% due to P&A and the “quality and mix of titles” and lower homevid revenue. Company said it had expected a dip in the first two quarters followed by a second-half rally.

The current quarter included the homevid releases of Warner Bros.’ “Happy Feet,” “The Departed” and “Blood Diamond.” Declines in homevideo were offset partly by the first two boffo theatrical weeks of Warners’ “300” and increased license fees from worldwide television distribution.

Warner Home Video ranked No. 1 in homevid sales in the quarter with an 18.4% market share.

Time Warner’s TV networks also had a tough quarter, turning in flat revenue of $2.4 billion, reflecting increased subscription revenues but a 12% decline in advertising. Part of that decline was due to the shuttering of the WB and was offset slightly by a 6% increase in revenue at Turner Broadcasting.

Time Warner’s publishing unit continued to struggle, with revenues off 1% to $1 billion, reflecting lower subscription revenues.

“We’re not happy at being down in Time Inc., but we’re happy that we’re making progress” with the task of making money online, Parsons said.

The CEO also noted that the company has spent $18 billion of a planned $20 billion to buy back more than a billion shares. When the buyback program ends in June, the board will reassess how to allocate capital.

The buyback, combined with asset sales and pressure from shareholders, notably Carl Icahn, have combined to buoy shares, which have flatlined recently but are still up more than 15% since last fall.

Time Warner Cable, which was spun off as a separately traded company that went public in February when Time Warner sold a 16% stake, also reported solid earnings Wednesday.

Quarterly profits rose 16% to $276 million, and revenue soared 61% to $3.85 billion.

Time Warner cable shares tacked on 2% on the news, finishing at $36.95.

(Michael Learmonth contributed to this report.)

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