Time Warner Profit Falls; Bewkes Outlines Cable, AOL Plans

Feb 6, 2008  •  Post A Comment

In his first conference call with analysts since taking over as CEO of Time Warner, Jeff Bewkes laid out several initiatives for the company, including increasing the use of its cable network programming to stock its on-demand TV offerings.
As expected, Mr. Bewkes said he would be holding talks about changing the company’s stake in Time Warner Cable and expected to report a plan by the company’s next earnings call in April. He also said he plans to split AOL’s declining Internet access business from the online advertising business he expects to grow.
Mr. Bewkes said he plans to focus on cost control. The first areas in his sights were at corporate headquarters, where a 15%, $50 million cut is in order, and at the New Line movie studio. Mr. Bewkes said he questioned whether Time Warner need two full-blown movie studios and that action would be taken fairly soon.
Mr. Bewkes steps into the driver’s seat at Time Warner at a time when the company is under pressure to bolster its lagging stock price. The company’s share have never rebounded since the disastrous acquisition of AOL in 2001.
In its earnings report, Time Warner reported lower fourth-quarter net income and set more modest growth targets for 2008.
The largest media and entertainment company said fourth-quarter earnings came to $1.03 billion, or 28 cents a share, compared to $1.75 billion, or 44 cents a share a year ago, when the company registered a big gain from the sale of AOL’s dial-up access businesses in Europe. Without that gain, the year ago net was 22 cents a share. Fourth quarter revenue rose 2% to $12.6 million.
For the full year, Time Warner reported that net income fell to $4.4 billion, or $1.17 per share, from $6.6 billion, or $1.57 per share. Revenue rose to $24.9 billion from $23.7 billion.
Time Warner said it expects it full-year growth rate in adjusted operating income before depreciation and amortization to be in the range of 7% to 9% in 2008. Adjusted operating income was up 17% in 2007.
Analyst Spencer Wang of Bear Stearns, said the results were in line to slightly ahead of estimates.
Time Warner said operating earnings for its networks group, which includes HBO and Turner Broadcasting, fell 2% to $770 million in the fourth quarter because of tough comparisons to a year ago, when HBO recorded the record-breaking sale of episodes of “The Sopranos” to A&E. Subscription revenues were up 9% and advertising at Turner was up 14%.
Time Warner CFO John Martin said that ad growth reflected a healthy scatter environment and good ratings. He expected that operating earnings would be flat in the first quarter because while the ad market appears to be retaining its strength, higher costs for entertainment programming and news coverage at CNN would be incurred in the period.
Mr. Bewkes said the company needs to be more aggressive in exploiting its content using new digital delivery systems.
He said that putting more programming on demand would not cannibalize its current linear business.
“I see it as the reverse of cannibalization,” he said. On demand programming enhances viewer loyalty and creates opportunities to increase advertising revenue. It also presents opportunities to talk to cable operators about more targeted advertising initiatives, he said.
Most analysts expect Time Warner to move to reduce its 84% stake in Time Warner Cable. But Mr. Bewkes said, “No one should think we’ve lost faith in cable… We think it’s undervalued.”
He called the current ownership structure of Time Warner Cable “less than optimal for both companies” because cable and entertainment have “different business profiles.”
Richard Greenfield of Pail Capital asked why Time Warner would choose to spin off Time Warner Cable at a time when cable stock are depressed, rather than buy at low prices and cash out after it rebounded.
Mr. Bewkes responded that it was a good question. “We will do whatever is the best value creator for TWX and TWC,” he said.
Cable operating income rose to $795 million from $633 million as revenues rose to $4.1 billion from $3.6 billion.
Operating income at AOL fell to $$274 million in the fourth quarter from $274 million a year ago, but adjusted operating income was up to $381 million from $295 million. Revenues fell to $1.3 billion from $1.8 billion.
(Editor: Baumann. Updated 10:10 a.m. with new top, additional earnings information.)


  1. AOL bought Time Warner, not the other way around. Please get your facts straight.

  2. Wonder if they’re going to bully out Bewkes the same way they did with Parsons if things don’t turn around.
    And yeah, AOL bought 52% of Time Warner, not the other way around. It’s just that when things got really bad, Case, Pittman, and Levin (the architects of the deal) got the hell out of dodge while Turner left because, well, he had became a powerless face in a company he helped built. Parsons tried to turn the business around, but AOL dragged the stock down. Bewkes, the “genius” he is, pretty much said synergy is bullscat (and yet, it seemed to work for folks like Viacom/CBS and NBC Universal). You don’t see much Warner Bros. products on Turner Broadcasting outlets these days (seriously, why COULDN’T The Sopranos have aired on the drama-themed TNT? And the Looney Tunes are no longer on Cartoon Network NOR Boomerang . . . the hell’s up with that?) The board moved him up and bullied Parsons out, especially since Bewkes was the one responsible for the toxic atmosphere currently in place at Time Warner.
    Just saying . . .

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