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Time Warner Powers Profits on Cable, ‘Man of Steel’ Reboot

Media giant second-quarter revenue and profit gains driven by Warner Bros., HBO, TNT and TBS

Time Warner Inc. posted 87% gain in net income for the second quarter of 2013, citing strong performance of Warner Bros.’s “Man of Steel” reboot and record quarterly revenue for cablers.

Media conglom reported 10% increase in revenue in the period, to $7.4 billion, despite decline in Time Warner’s publishing division.

Time Warner cited record quarterly revenues for Turner Broadcasting and HBO of $3.8 billion (up 7% from the year-ago quarter), with advertising growth of 11%. Topper Jeff Bewkes noted that TNT and TBS finished the second quarter as the No. 1 and No. 3 ad-supported cable networks in primetime for adults 18-49, while HBO notched 108 Primetime Emmy Award nominations and had strong viewership for “Game of Thrones” and “Behind the Candelabra,” which was premium cabler’s most-watched film in a decade.

“Our networks businesses, Turner and HBO, continued to shine, reflecting the success of our increased investments in distinctive programming that is resonating with audiences, advertisers and affiliates,” Bewkes said in announcing results.

For the full year 2013, Time Warner raised earnings per share estimates to rise in the “mid-teens” (compared with low double-digits previously) over adjusted EPS of $3.24 last year.

But while Time Warner’s earnings beat on the top and bottom lines, “the glaring chink in the armor” is affiliate fee revenue for its cable networks from pay TV operators, which increased 4% in versus Wall Street expectations of 5%, Sanford Bernstein analyst Todd Juenger wrote in a research note.

Time Warner is entering a period of renewals with cable and satellite ops, and company said it continues to expect double-digit compound annual growth for affiliate fees from 2013 to 2016. Bewkes said Time Warner recently completed renewal with a top-five operator and obtained the rate increase it wanted.

“The story on Time Warner Inc. is all about affiliate fees — next year,” Juenger wrote. Pay TV affiliate fee growth in Q2 was light across the board for all media companies — Discovery Communications, Viacom, 21st Century Fox and Disney. According to Juenger, that suggests the softness is “an issue with subscriber count, not pricing… Perhaps subscriber audits at one or more (pay TV operators) have revealed historical over-counting of subs, and all of the cable networks are suffering a catch-up adjustment.”

Warner Bros. revenue climbed 13%, to $2.9 billion, while adjusted operating income increased 34% to $184 million. Results were driven by Q2 release slate that included “Man of Steel,” “The Hangover Part III” and “The Great Gatsby.” Studio also posted increase in international TV syndication and subscription video-on-demand revenue, which was partially offset by a decline in U.S. TV licensing revenue due to the initial off-network availability of “The Mentalist” in the year-ago quarter.

Man of Steel” grossed over $600 million worldwide at the box office from its opening on June 14 through Aug. 4, Time Warner said. On TV front, Warner Bros. Television Group led all studios with orders for 18 returning series and 13 new series on the U.S. broadcast networks’ primetime schedules for the 2013-14 season — the highest number of returning series for studio in more than 30 years.

Bewkes also touted strong results for “The Conjuring” low-budget horror pic, and upcoming films including this weekend’s “We’re the Millers” and “The Hobbit: Desolation of Smaug” set for Dec. 6 bow. Next year, Warner Bros. skedded to begin production on a Superman-Batman movie with expected 2015 release.

Revenue for the Time Inc. publishing division — which Time Warner now plans to spin off in early 2014 — dipped 3%, to $833 million, reflecting 5% decline in ad sales and 7% in subscription revenue partially offset by a 23% rise in other revenues. Operating income rose 28%, which company said was attributable to operational cost savings from layoffs — Time Inc. cut 500 employees, or 6% of its workforce — and other restructuring actions in the first quarter of 2013.

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