TWX Time Warner Inc. New

By Lisa Beilfuss and Shalini Ramachandran 

Time Warner Inc. said Wednesday that it agreed to buy a 10% stake in video service Hulu, a move that comes as media companies and cable operators contend with viewers increasingly cutting the cord and as Hulu prepares to launch a new live-streaming service.

Time Warner paid $583 million in cash for the 10% stake, giving Hulu a new valuation of about $5.8 billion, according to people familiar with the matter. The new valuation is triple what Hulu was worth in 2012, one of the people said.

In addition, Time Warner also reported better-than-expected second-quarter earnings and lifted its profit forecast for the year, though profit and revenue fell from a year earlier, thanks to slowing revenue growth in its HBO business and box-office weakness.

Time Warner said Wednesday that its channels -- including TNT, TBS, CNN, Cartoon Network and Turner Classic Movies -- will be available live and on-demand on Hulu's new live-streaming service, set to launch early next year. Hulu's new service, confirmed in May, has threatened to further undercut traditional cable providers by competing with their inexpensive "skinny" TV bundles.

"The investment in Hulu reflects Time Warner's continued commitment to supporting innovative digital services that allow consumers to access high-quality content however they want it across a variety of platforms, " Time Warner said Wednesday.

In November, The Wall Street Journal reported talks about Time Warner becoming an equal stakeholder in Hulu alongside Walt Disney Co., 21st Century Fox Inc. and Comcast Corp. The Journal reported then that such a deal could involve the current owners, who own one-third each, drawing down their stakes to 25%.

The New York-based Time Warner -- owner of the Warner Bros. film studio and cable channels HBO, TNT and CNN -- has been grappling with subscriber declines as more people cut the cable cord and opt for online streaming. In an effort to stem the tide, Time Warner last year launched HBO Now, its stand-alone streaming service for the channel featuring popular shows such as Game of Thrones.

The investment is the latest acknowledgment that cord-cutting is accelerating. TV companies have been trying to reassure investors that declines in pay-TV subscribers would continue at a manageable pace. According to data from eMarketer late last year, the number of pay-TV households will drop at a quickening rate for at least the next four years, reaching a 1.4% decline in 2019, eMarketer estimates. By that year, eMarketer estimates that almost 23% of U.S. households won't pay for traditional TV.

21st Century Fox and News Corp, which owns The Wall Street Journal, share common ownership.

Along with the Hulu news, Time Warner also logged better-than-anticipated results in its latest quarter, prompting the company to push up its full-year guidance.

Still, revenue fell 5.4% from a year earlier. The decline was largely due to weakness in the company's Warner Bros. business, where there has been a lack of Blockbusters. At the same time, growth in HBO slowed sharply during the quarter, rising just 2% after having climbed 7.7% in the first quarter. Turner's performance -- revenue increased 6.5% as election coverage at CNN and interest in the NBA playoffs drew more advertising dollars -- helped support the overall results.

In all, Time Warner reported a profit of $952 million, down from $971 million a year earlier. On a per-share basis, the company earned or $1.20 a share, up from $1.16 and boosted by a lower share count. Excluding an impairment charge, among other items, per-share profit rose to $1.29 from $1.25.

Revenue declined to $7 billion from $7.35 billion.

Analysts had expected adjusted earnings of $1.16 a share on $7.05 billion in sales, according to Thomson Reuters.

For the year, Time Warner now expects to post $5.35 to $5.45 in adjusted earnings per share, up from its earlier range of $5.30 to $5.40.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com and Shalini Ramachandran at shalini.ramachandran@wsj.com

(END) Dow Jones Newswires

August 03, 2016 09:18 ET (13:18 GMT)

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