Time Warner Earnings Support Argument Its Better Off Without a Merger

Turner Ad Revenue 'Essentially Flat'

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'Falling Skies' on TNT
'Falling Skies' on TNT

Time Warner beat analysts' profit estimates as fees received for its TV channels rose, lending support to Chief Executive Officer Jeff Bewkes' argument that the company is better off without a merger.

Mr. Bewkes has said that his growth plan for an independent Time Warner will create more value than Rupert Murdoch's $85-a-share buyout offer, which was rejected and then withdrawn in August. After years of spinning off assets to shrink Time Warner down to its cable networks, HBO and the WarnerBros. studio, Mr. Bewkes is now aggressively cutting costs and pushing the company's content online.

"We've refocused the company over the past few years to aggressively pursue the huge global opportunities we see in video content," Mr. Bewkes said today in a statement.

As part of Mr. Bewkes' plan to drive growth, he's been trimming costs, including job cuts across every division in recent months. The company's expenses for severance and restructuring reached $303 million in the third quarter, with two-thirds of that coming from Turner Broadcasting.

HBO Online
During an investor conference last month, Time Warner laid out plans to offer a separate HBO Web-subscription service directly to consumers and focus on greater collaboration across units.

The company, which makes about 60% of its revenue from its television channels, is trying to boost affiliate fees and keep its reliance on advertising modest, Mr. Bewkes said last month. Ads bought in advance on cable networks this year fell for the first time since 2009, according to Paul Sweeney, an analyst at Bloomberg Intelligence.

In the third quarter, Turner's U.S. ad revenue was flat, while the fees it gets from TV distributors like Comcast Corp. and DirecTV rose 10%. Turner includes channels like TBS, TNT, CNN and Cartoon Network. HBO's revenue from distributors also increased 10%. Sales rose 3% to $6.24 billion.

Higher Forecast
Time Warner raised its forecast, expecting adjusted profit to increase by a "high teens" percentage this year, up from a prior projection of a "low teens" percentage increase.

Mr. Bewkes is trying to show he can find growth for Time Warner. His strategy since taking over in 2008 has largely consisted of spinning off assets -- Time Warner Cable, AOL and most recently the Time Inc. publishing division. So far the company has sought to reduce costs through job cuts, while starting a marketing push for its HBO network.

The company is relying on the growth of licensing fees for its cable networks, betting that increased spending on sports rights will help retain viewers on cable channels like TNT, which hosts NBA games. Under an agreement reached last month, starting in 2016 Time Warner and Walt Disney Co. will pay the NBA almost three times as much to air games as under the last contract.

~Bloomberg News~

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