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HBO boosts Time Warner’s Q3 performance
MUMBAI: US media conglomerate Time Warner has reported its third quarter results. Revenues increased by three per cent to $6.2 billion due to growth across all segments, partially offset by intercompany eliminations.
At HBO revenues grew by 10 per cent ($118 million) to $1.3 billion, reflecting increases of 10 per cent ($106 million) in subscription revenues and seven per cent ($10 million) in content revenues. The increase in subscription revenues resulted from higher domestic rates and subscribers as well as the consolidation of HBO Asia and HBO South Asia (collectively HBO Asia)
The growth in content revenues was primarily due to increased home video revenues. Adjusted operating income decreased by four per cent ($17 million) to $380 million, as higher revenues were more than offset by increased expenses due to higher programming and distribution costs as well as increased restructuring and severance costs.
Programming costs grew by 16 per cent due to increased expenses for original and acquired programming as well as the consolidation of HBO Asia. Distribution costs increased primarily due to higher participation expenses. The current year quarter included $48 million of restructuring and severance costs compared to $24 million in the prior year quarter. Excluding the restructuring and severance charges, Adjusted operating income would have been $428 million. Operating income declined 24% ($122 million) to $380 million. The prior year quarter included a $105 million gain related to HBO’s acquisition of its former partner’s interests in HBO Asia in September 2013.
However, Time Warner posted adjusted operating income of $993 million, a decrease by 38 per cent primarily due to charges at Turner related to its decision to no longer air certain programming and restructuring and severance charges across all segments. Operating income decreased 44 per cent to $971 million.
Adjusted EPS rose by 34 per cent to $1.22. Free cash flow reached $2.5 billion for the first nine months of 2014. The company repurchased 69 million shares for $4.9 billion year-to-date through 31 October 2014.
The company’s chairman, CEO Jeff Bewkes said, “We had another good quarter, featuring solid revenue growth as well as strong growth in Adjusted EPS. As we discussed at our Investor Event last month, we’ve refocused the Company over the past few years to aggressively pursue the huge global opportunities we see in video content. And once again, we are seeing the benefits of our increased investments in great content and storytelling. In the quarter, both Turner and HBO had double-digit increases in subscription revenues, reflecting the growing strength and appeal of their programming.
“HBO received 19 Primetime Emmy Awards, the most of any network for the 13th straight year, including five Emmys for newcomer ‘True Detective’. At Turner, TNT ranked as ad-supported cable’s number one primetime network for the second consecutive quarter, TBS was the number two ad-supported cable network in primetime among adults 18-49 and 25-54, and Adult Swim again shined as ad-supported cable’s #1 total day network among its key adult demos. Turner’s extension last month of its longstanding relationship with the NBA through the 2024-25 season is another great example of investing in distinctive programming that will serve us well for years to come.
“This fall, Warner Bros. is once again the number one producer for broadcast television, including a strong slate of new shows. Season-to-date, Gotham ranked as broadcast’s number two new show among adults 18-49, while The Flash had the most-watched telecast ever on The CW. These shows are among five series featuring DC characters that will air this season. DC is also a key component of the ambitious film slate that Warner Bros. recently unveiled. Further demonstrating our continuing commitment to shareholder returns, so far this year we’ve returned over $5.7 billion to our shareholders in the form of share repurchases and dividends.”
Turner: Revenues rose by five per cent ($108 million) to $2.4 billion, mainly due to growth of 10 per cent ($117 million) in subscription revenues and 17 per cent ($12 million) in content revenues, offset in part by a decline of by two per cent ($18 million) in ad revenues. The increase in subscription revenues was primarily due to higher domestic rates and international growth. Ad revenues decreased due to declines at Turner’s international networks. Advertising revenues at Turner’s domestic networks were essentially flat.
Adjusted operating income declined by 64 per cent ($621 million) to $350 million, as higher revenues were more than offset by higher programming costs and increased restructuring and severance costs. Programming costs grew by 84 per cent due to the current year quarter’s $482 million of charges related to Turner’s decision to no longer air certain programming. Excluding these charges, programming costs increased in the low double digits due to higher costs associated with increased volume of original programming and the first year of Turner’s new agreement with Major League Baseball.
The current year quarter included $199 million of restructuring and severance costs compared to $30 million in the prior year quarter. Excluding the programming and restructuring and severance charges, adjusted operating income would have been $1.0 billion.
Operating income decreased by 65 per cent ($630 million) to $337 million.
In October, Turner entered into an agreement to extend its relationship with the National Basketball Association through 2025. The new agreement expands Turner’s television rights, provides enhanced digital rights for Bleacher Report and maintains Turner’s long-standing management of the league’s digital properties and NBA TV.
Warner Bros: Revenues increased by three per cent ($81 million) to $2.8 billion, mainly due to growth in subscription video-on- demand revenues for television product, higher licensing of theatrical product, growth in television production, including from the acquisition of Eyeworks Group’s operations outside the U.S., and revenues from a patent license and settlement agreement. These increases were partly offset by softer performance of current year quarter theatrical releases compared to the prior year’s slate, which included ‘Pacific Rim’, ‘The Conjuring’ and ‘We’re the Millers’ and lower domestic off-network television license fees.
Adjusted operating income decreased by 20 per cent ($61 million) to $241 million, as higher revenues were more than offset by increased restructuring and severance costs, higher film costs for television product and a value added tax accrual. The current year quarter included $45 million of restructuring and severance costs compared to $2 million in the prior year quarter. Excluding the restructuring and severance charges, adjusted operating income would have been $286 million. Operating income declined 23% ($70 million) to $237 million.
Through 2 November 2014, ‘Annabelle’ grossed over $230 million at the worldwide box office.