Time Warner profit slides, revenue climbs

Time Warner, the media conglomerate behind Warner Bros., HBO, CNN and DC Comics. said Wednesday its third-quarter net income declined, but adjusted earnings surpassed Wall Street’s expectations thanks to growing subscription and ad revenue in its networks business.

Providing more evidence that the advertising freeze has begun to thaw, the company again raised its adjusted earnings outlook for 2010, saying it now expects percentage growth in the high 20 percent range. In August Time Warner said it expects growth of “at least” 20 percent, another raise from the prior quarter. Analysts expect earnings of $2.26 per share, an increase of about 24 percent from 2009.

Time Warner said its net income was $522 million, or 46 cents per share for the July-September period. This is down 21 percent from $662 million, or 56 cents per share, a year earlier.

Excluding one-time items, the company earned 62 cents per share, easily surpassing analysts’ estimates of 53 cents. Adjusted earnings excluded a charge of $295 million related to debt redemptions.

Total revenue climbed 2 percent to $6.38 billion. Analysts, on average, had expected slightly higher revenue of $6.41 billion, according to a Thomson Reuters poll.

In a conference call with analysts, CEO Jeff Bewkes said Time Warner is working to provide everyone with access to its TV, film and magazine content on whatever device they prefer, as long as it is not given away for free.

Bewkes has been a vocal proponent of the concept that paying TV subscribers should be able to watch their content online for no extra fee as long as they identify themselves. Now, the company is expanding its “TV Everywhere” strategy.

Bewkes said Time Warner will help launch a premium video on demand service that will let people to watch recently released theatrical movies at home, in high definition and eventually in 3D.

Bewkes said the company is close to agreements with film distributors over timing and prices and expects to start offering its movies nationwide by the second quarter of 2011.

Time Warner’s film revenue was flat at $2.8 billion, even with the release of the blockbuster “Inception.” That is compared to last year which had its own big releases, such as “Harry Potter and the Half-Blood Prince” and “The Hangover.”

Revenue at Time Warner’s networks segment, which includes HBO and Turner Broadcasting, grew 9 percent to $3 billion, boosted by growing ad revenue and higher subscription rates.

Publishing revenue slid 1 percent to $901 million, hurt by lower subscription revenues and the sale of Southern Living At Home magazine. This offset a 5 percent increase in publishing ad revenue, a positive sign for Time Inc.’s magazine empire that includes People, Fortune and Sports Illustrated.

Overall, advertising revenue grew 9 percent, driven by growth at Turner and Time Inc., the company said.

Benchmark analyst Frederick W. Moran downgraded Time Warner to “Hold” from “Buy” Wednesday, and said while its shares have proven their “financial resilience through the economic downturn,” they could be sensitive to a stalling economic recovery. Weak housing demand, high unemployment levels and low consumer confidence could limit advertising and home entertainment sales, he said.

Shares of Time Warner fell 81 cents, or 2.5 percent, to $31.60 in early afternoon trading. The stock has traded in the 52-week range of $26.43 and $34.07.