By Chelsey Dulaney And Joe Flint
Time Warner Inc.'s profit easily topped Wall Street expectations
in the second quarter, as new videogame releases helped drive
revenue higher in its Warner Bros. division.
For the quarter ended June 30, Time Warner reported earnings of
$971 million, or $1.16 a share, up from $850 million, or 95 cents a
share, a year earlier.
Revenue grew 8.2% to $7.35 billion. Excluding some items,
earnings were $1.25 a share. Those metrics beat analysts'
expectations for profit of $1.03 a share on revenue of $6.9
billion.
Despite the upbeat results, Time Warner shares fell 9% to $79.74
in early afternoon trading Wednesday amid a broader selloff of
media stocks. Industry stocks tumbled after Walt Disney Co. on
Tuesday cut its long-term earnings growth target for its cable
business, as consumers increasingly opt for less costly "skinny
packages" of channels or abandon cable altogether.
Cable programming is the biggest engine at Time Warner, whose
holdings include HBO and Turner Broadcasting, parent of CNN, TBS,
TNT and other networks.
Time Warner executives tried to ease analysts' concerns about
cord-cutting and stressed that the company is well prepared for the
future. Citing new online efforts and heavy spending on content,
Time Warner Chief Executive Jeff Bewkes said the company is
"investing aggressively to adapt to the changes in the media
landscape."
Time Warner recently launched HBO Now, an online version of the
pay-TV channel in an effort to sign up people who don't subscribe
to traditional pay-TV. On a call with analysts, HBO CEO Richard
Plepler said that less than 1% of HBO Now subscribers left their
traditional pay-TV distributors to sign up for the new service.
That means HBO Now isn't hurting cable and satellite companies, so
far. The service is available through digital distributors such as
Apple Inc. and traditional partners such as Cablevision.
But the cost of the investments to launch HBO Now took a toll on
profit. HBO was the only major unit to not increase operating
profit in the second quarter. Instead, HBO's operating income fell
7.3% to $508 million. The premium network's revenue inched up 1.5%
to $1.44 billion.
Turner Broadcasting CEO John Martin said declines in U.S.
subscribers have been "modest" and aren't accelerating. He added
that the push by distributors to add so-called skinny packages
would benefit Turner because its channels are seen as
must-have.
"We at Turner have the types of networks that we think will be
overly represented in those type of bundles," Mr. Martin said.
In the latest quarter, Warner Bros., the largest top-line
contributor, posted revenue growth of 15% to $3.3 billion. Time
Warner said the growth was driven by higher videogame revenue, due
to releases of "Batman: Arkham Knight" and "Mortal Kombat X." TV
licensing revenue also grew on syndication of "The Big Bang Theory"
and subscription video-on-demand licensing of "Seinfeld."
Revenue at Turner grew 2.8% to $2.83 billion. A 48% jump in
content revenue, driven by licensing of some content to Hulu,
offset a 1% decline in advertising revenue.
Despite significantly exceeding analysts' estimates for revenue
and profit in the second quarter, Time Warner maintained its
full-year earnings forecast. That implies an earnings deceleration
in the second half of the year, according to MoffettNathanson
Research.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and Joe
Flint at joe.flint@wsj.com
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