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Time Warner earnings rise 22%, helped by HBO

February 02, 2011

NEW YORK — Time Warner Inc., the owner of Warner Bros., HBO, CNN and Time magazine, on Wednesday reported a 22 percent increase in its fourth-quarter profit and raised its forecast for this year, citing optimism about its TV business.

The stock jumped $2.73, or 8.5 percent, to $34.50 in afternoon trading. Earlier in the day, it hit a two-year high of $35.15.

The New York-based media company said a recovery in advertising and health trends in subscriptions for HBO and other products mean that it expects earnings excluding items, to rise by a percentage in the "low teens" from last year.

Assuming an increase of 12 percent, Time Warner would earn $2.70 per share, above the average estimate of $2.64 that FactSet found in its survey of analysts.

Strong demand is prompting Time Warner to invest "aggressively" in new content, CEO Jeff Bewkes told analysts. It's ramping up development of new shows for broadcast TV, particularly comedies, and creating of original cable series. HBO will air 12 original shows this year, up from 10 last year.

Bewkes also signaled that Time Warner is looking to take a tougher stance against Netflix Inc. and Redbox, the DVD rental kiosks run by Coinstar Inc. A year ago, they agreed to a 28-day "window" after a DVD release to carry Warner Bros. movies, in exchange for lower prices. On Wednesday, Bewkes said Warner would go back to the negotiating table, because Netflix and Redbox are "extracting" more than their fair share of the value of easy access to DVDs.

Time Warner's DVD sales are declining along with the rest of the industry.

Analyst Anthony DiClemente at Barclays Capital said Bewkes was likely looking to extend the window and get higher prices for DVDs.

In its fourth-quarter earnings report, Time Warner said its profit jump was helped by strong subscription and advertising increases in its TV operations and cost-cutting in publishing.

Net income rose to $769 million, or 68 cents per share, for the three months ended Dec. 31, up from $631 million, or 53 cents per share, a year earlier.

Excluding one-time items, earnings were 67 cents per share, surpassing the average analyst estimate of 62 cents, as polled by FactSet.

Overall revenue rose 8 percent $7.8 billion, beating analysts' average forecast of $7.5 billion.

Revenue from HBO and Turner Broadcasting rose 14 percent to $3.3 billion, helped by a 21 percent jump in advertising after the doldrums of the recession.

At the Warner Bros. movie studio, revenue rose 10 percent to $3.6 billion, mainly due to higher TV licensing fees. However, operating income fell 5 percent due to lower DVD sales.

At Time Inc., the publishing division, revenue fell 4 percent to $1.1 billion continuing a long slide as media consumption shifts away from magazines. However, operating income more than doubled to $171 million, as it's already shouldered the upfront expense of cost-cutting initiatives.

Time Warner raised its dividend by 11 percent. The annual dividend is now 94 cents per share, up from 85 cents.

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