In this time of growing uncertainty for the major media companies, the one thing they seem to count on is their broadcast and cable networks.
Time Warner, Viacom, News Corp. and Walt Disney Co. all reported strong results from their media networks businesses during the last quarter. Though advertisers are siphoning money away from both broadcast and cable television, the medium continues to hold its own. TNS Media Intelligence estimates that last year, spending on cable television rose 3.4 percent with a 2.5 percent gain seen by the broadcast networks, which pales in comparison with the 17.3 percent gain enjoyed by the Internet.
“People are still watching TV,” Brad Agate, senior VP at Horizon Media Research in New York, said in an interview. “It’s not going to be replaced by anything soon.”
Network executives are optimistic about scatter pricing, and Standard & Poor’s senior media analyst Tuna Amobi said he is expecting stronger upfront price increases for both broadcast and cable networks this year based on the strength of the scatter market. Also, some advertisers sat out the upfronts last year in the hopes of getting better prices in scatter, only to get burned.
“This current advertising market is a little bit stronger than I would have thought,” Mr. Amobi said.
Still, the networks shouldn’t pop any champagne corks quite yet. Some analysts read the numbers differently.
Jon Swallen, the head of research at TNS Media Intelligence, says TV spending so far this year has been “kind of soft” compared to last year.
“The total ad market has been really soft in the first quarter,” he said in an interview. “The only bright spot has been Internet advertising.”
Viewers are continuing to migrate from broadcast to cable. Now, they are moving from bigger cable channels to smaller ones, according to Mr. Adgate.
“The top-tier networks are facing the same competition that the broadcast networks have faced,” he said.
Here are highlights from the TV business of the big media companies:
Time Warner, whose overall profits fell during the quarter even though it beat Wall Street expectations, benefited from a 6 percent gain in subscription revenue at its TV networks business, which includes Turner Broadcasting and HBO. Advertising revenue fell 12 percent because of the cessation of The WB network.
The continued ratings grabber for Time Warner is perhaps its strangest channel: Adult Swim. The zany and occasionally sophomoric offshoot of the Cartoon Network set a record for ratings among adults 18 to 34, according to New York-based Time Warner. The channel, featuring such fare as “The Aqua Teen Hunger Force” and “Morel Orel,” also has been among the most profitable at Time Warner. The company tried to capitalize on the show’s popularity through the recent release of “Aqua Teen Hunger Force Colon Movie Film for Theaters.”
Anna Nicole Smith’s sudden death and the courtroom drama surrounding it helped boost the ratings of Court TV. The channel reported its most-watched quarter ever among adults 18 to 49, adults 25 to 54 and total viewers in prime-time delivery, according to Time Warner.
At Viacom, a 36 percent decline in net income due to costs related to a restructuring at MTV Networks didn’t obscure some good news for the TV business.
In the company’s earnings press release, Chief Executive Philippe Dauman said advertising revenue showed “solid increases” across the MTV Networks and BET Networks.
Revenue at Viacom’s media networks rose 10 percent to $1.73 billion as affiliate revenue jumped 14 percent to $558 million. Operating income at the business fell 3 percent to $601.5 million because of a 19 percent growth in expenses, including restructuring charges.
Viacom’s former corporate sibling CBS Corp. benefited from the broadcast of the Super Bowl and NCAA Men’s Basketball Tournament, though overall the business didn’t go well. Revenue rose 2 percent to $2.6 billion, helped by gains in advertising, home entertainment revenue and affiliate fees. Operating income dropped 9 percent to $350.1 million.
Fox Broadcasting Co. saw a 49 percent increase in operating income helped by increased prime-time advertising revenue. These gains, however, were offset by increased programming costs for hit shows such as “American Idol,” “House” and “24.” “Are You Smarter Than a 5th Grader” was Fox’s highest-rated series premiere in more than 13 years among adults 18 to 49.
Operating income at the company’s cable network programming business jumped 34 percent to $282 million on higher contributions from Fox News Channel, FX Network, Regional Sports Networks and the Fox International Channels.
Fox News Channel saw operating income rise 49 percent as increased affiliate rates drove revenue growth. Operating profit at other channels including FX and regional sports channels jumped 30 percent. FX’s gain was fueled by affiliate revenue as rates and subscribers rose.
Growth at ESPN and the International Disney Channels boosted operating income at the company’s cable networks business by 19 percent to $963 million. ESPN’s results were bolstered by higher affiliate revenue due to contractual rate increases, subscriber increases and increased advertising sales. Gains in subscribers at the International Disney Channels were offset by higher programming and other costs. Overall, revenue rose 7 percent to $1.89 billion.
The lack of a Super Bowl broadcast resulted in a 7 percent drop in revenue at the broadcasting business. Lower ratings were offset by higher sold inventory and gains in advertising rates. Operating income rose 33 percent to $212 million because there were fewer hours of sports programming and strong sales of shows such as “Desperate Housewives” and “Grey’s Anatomy.”