HBO Now Is 'All Additive' So Far, HBO Says -- No Cable Cannibalization

Turner Says TV Ad Market Is Stabilizing

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'Game of Thrones' on HBO. The network's new streaming service HBO Now is not cannibalizing cable subscribers, CEO Richard Plepler said Wednesday.
'Game of Thrones' on HBO. The network's new streaming service HBO Now is not cannibalizing cable subscribers, CEO Richard Plepler said Wednesday.

Time Warner posted earnings that beat analysts' estimates for a 25th straight quarter, driven by the broadcast of the NCAA basketball tournament and higher fees from pay-TV operators to carry channels like CNN and TNT.

The results validated CEO Jeff Bewkes's strategy of charging higher distribution fees for its cable networks while cutting jobs to reduce costs. After Mr. Bewkes spun off assets in recent years, Time Warner shrunk down to its Turner cable channels, HBO and Warner Bros. He is also trying to keep the company expanding and the stock price rising after rejecting a $75 billion buyout offer last summer from Rupert Murdoch's 21st Century Fox.

"The slimmed down Time Warner is all about the cable networks and the studio," said Paul Sweeney, an analyst at Bloomberg Intelligence. "This quarter showed that these businesses are hitting on all cylinders."

Turner's operating income of $1.1 billion, up 26% for the quarter, was the highest ever for the division, boosted by a 4% increase in advertising revenue, fueled by the strength of March Madness and growth at the news business, according to the company. The NCAA Tournament, which was shown on CBS Corp. and on Time Warner's TBS, TNT and truTV in March and April, was the most-watched in 22 years.

Turner also announced in October a plan to eliminate 1,475 positions, about 10% of its global workforce.

"We accomplished a lot in the quarter, led by Turner, which had its best quarter ever, with audience growth across a number of its networks," Mr. Bewkes said in the statement.

Upfront predictions
Executives expressed some optimism about this year's upfront market, where ad buyers will negotiate for commercial time in networks' upcoming programming.

"It's early to discuss with any level of specificity," Turner Chairman-CEO John Martin said during a call to discuss the results, responding to a question about the upfront. "But at least starting from a broad perspective, the ad market appears to have stabilized compared to what we were looking at in the fourth quarter of last year, so I think that's a real positive."

Turner networks were seeing ratings momentum despite growing viewing on mobile devices that don't show up in Nielsen's counts, Mr. Martin added. "And we're feeling really good about the programming lineup that we'll be unveiling for advertisers in a few weeks," he said. "And we're going to come to the market for the first time in the history of Turner with our entire portfolio."

HBO costs
HBO's profit fell 1.3% to $458 million as higher costs for programming, distribution and marketing offset an increase in revenue from higher subscription rates. The premium channel has been marketing its new Web-only version of HBO, which was introduced in April, after the quarter ended.

"The real thing we want to focus on, going forward in the second half of the year, is marketing our product to the consumer because we think there is a huge audience out there for it," HBO CEO Richard Plepler said during the call.

Subscribers to HBO Now do not appear to be former cable susbcribers trying to downsize their cable packages, he added in response to a question. "We are seeing absolutely no intrusion into the people inside the ecosystem, none at all," he said. "It's all additive."

Hit show "Game of Thrones" also returned on HBO after the end of the quarter. It attracted an audience of 18.1 million people in its fifth season premiere, including viewers who watched up to a week after the April 12 debut.

Revenue at the Warner Bros. studio increased 4.3% to $3.2 billion, helped by licensing the online rights of the show "Friends" to the streaming service Netflix Inc. last fall and the success of the film "American Sniper."

~ Bloomberg News ~

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