Good Thing There's Another 'Batman': Final 'Harry Potter' Lifts Time Warner

TV Climbs 7% While CEO-Less Magazine Division Slips

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Happily for Time Warner , Warner Bros. has Batman coming in June.
Happily for Time Warner , Warner Bros. has Batman coming in June.

Time Warner -- the owner of Warner Bros. film studios, HBO and the still CEO-less Time Inc. -- reported third-quarter profit that beat analysts' estimates as the last "Harry Potter" movie boosted sales at its film division.

Net income in the quarter ended Sept. 30 gained 57% to $822 million, or 78 cents a share, from $522 million, or 46 cents, a year earlier. Company revenue rose 11% to $7.07 billion, compared with analysts' average estimate of $6.97 billion.

"Harry Potter and the Deathly Hallows: Part 2," the final film in the franchise, has generated at least $1.33 billion in ticket sales worldwide since its July premiere. Time Warner revenue was also boosted by advertising demand at TV networks and new digital distribution deals, allaying concerns that online rivals such as Netflix would derail traditional media businesses.

"With 'Harry Potter,' filmed entertainment was even stronger than we expected," Alexia Quadrani, a JPMorgan Chase & Co. analyst in New York, said in an interview. The network-TV unit had solid advertising gains, and the company's recent deal with Netflix added a "great source of revenue," said Ms. Quadrani, who rates the stock "overweight" and doesn't own any.

Revenue at the Warner Bros. unit increased 19% to $3.3 billion, driven by "Deathly Hallows," which went on to become the third-highest grossing film of all time, according to Box Office Mojo.

Time Warner has benefited from the "Harry Potter" film franchise with the eight films altogether generating $12.1 billion in theatrical and DVD sales over the last decade, according to figures compiled by the company.

In a post-Potter world, Ms. Quadrani said Time Warner will have to look to franchises such as Batman, helmed by director Christopher Nolan and starring Christian Bale, as well as DVD sales for the fourth quarter. "It'll still be difficult to compare against Potter looking forward," Ms. Quadrani said. "But that 's known. And Time Warner has other films coming, including Batman."

The two Batman films in the franchise have brought in $1.38 billion at theaters, according to Warner Bros. The company's third movie, "The Dark Knight Rises," is scheduled to be released July 20.

Sales at the networks unit, which includes cable channels TNT, TBS, HBO and Cartoon Network, rose 6.8% to $3.2 billion. The unit accounted for 68% of operating income.

The company struck a deal with Netflix Inc. last month that gave the online movie video service streaming rights to the full lineup of shows from CW, the joint venture between Time Warner and CBS Corp. In a conference call with analysts today, Time Warner CEO Jeff Bewkes said the deals didn't represent a shift in the media company's stance on digital distribution businesses like Netflix, which it had previously seemed to consider competition. "We've always been platform agnostic," Mr. Bewkes said.

The difference may merely be the money involved. Mike Morris, a Davenport & Co. analyst, estimates CBS and Time Warner will each get $30 million in the deal's first year.

Revenue from Time Warner 's Time Inc. magazine division, which has been without a chief executive since Jack Griffin was forced out in February, fell 1.3% to $889 million. Ad revenue fell 3% but partly because of the transfer of SI.com and Golf.com management to Turner; without those, ad revenue would have been roughly flat, the company said. Circulation revenue suffered partly from softness in the celebrity category, a softness that Time Warner said it expects to continue.

Time Inc. is planning to introduce tablet editions, which it allows print subscribers to access for free, for all its magazines by the end of the year. "The early results are very encouraging," Mr. Bewkes said during the earnings call, "with hundreds of thousands of print subscribers authenticating across the titles we've launched so far."

Time Inc. also recently hired George Linardos, formerly an executive at mobile-phone maker Nokia Oyj, to head its digital-marketing unit as senior VP. Mr. Linardos will focus on increasing sales of Time Inc.'s digital products, such as tablet versions of its magazines, according to the company.

Time Warner has stemmed declines in its magazine business within the past few years, generating $515 million in net income in 2010 on $3.68 billion in revenue, compared with a loss of $6.62 billion two years earlier. Time Warner 's publishing unit accounted for 7.8% of the company's operating income.

-- Bloomberg News and Ad Age Staff --

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