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Time Warner will use various models to reach subscribers for its planned standalone HBO online service, which is scheduled to launch this year, CFO Howard Averill told an investor conference on Wednesday.
Speaking at the Citi 2015 Global Internet, Media & Telecommunications Conference in Las Vegas, he also said that TW would take higher restructuring charges related to layoffs in the fourth quarter than originally expected. The conglomerate has been laying off people across divisions to free up money for content and other investments.
Averill said fourth-quarter restructuring and severance charges would be in excess of $150 million, above the initial target. That will bring restructuring charges for the second half of 2014 to $450 million, compared to the original target of “over $400 million.”
Late in 2014, TW said it expected to generate annual savings from the restructuring actions of around $450 million over time, with much of it coming in 2015. On Wednesday, Averill said that based on the updated restructuring figures, TW would “generate about $500 million in ongoing savings.”
TW late in the year also increased its 2014 adjusted earnings per share guidance to high teens percentage growth, which included an estimated net benefit of around 15 cents per share from the reversal of tax reserves and programming, restructuring and severance charges in the third and fourth quarters.
On Wednesday, CFO Averill said the company would take “a few tens of millions” of additional programming impairment charges. This will reduce the net benefit of the special items to 10 cents per share, he said.
At the Citi conference Averill also discussed the planned standalone HBO web service, saying that “the biggest opportunity we see for HBO is within the [pay TV] system.” Addressing broadband-only homes is also key for the company, he added.
He reiterated that there are three ways of going about that, as Time Warner CEO Jeff Bewkes has said. Those are: working with existing pay TV partners, with new digital distributors and going directly to consumers. The CFO said the company would employ multiple models rather than focusing on one of the three.
Averill said that in some international markets where HBO currently licenses its content, it could in the future also launch over-the-top broadband services.
Averill also said that the company’s long-term earnings guidance doesn’t account for certain things that could provide added upside. He said that could allow the company to exceed its targets or set off shortfalls elsewhere, such as in advertising or pay TV revenue.
He said pay TV subscribers have likely declined less in 2014 than in 2013, while video consumption is fairly stable, giving the company confidence despite some investor concerns. He added that the pay TV bundle still has value to the consumer. Offering HBO outside of that won’t drive cord cutting, he argued, signaling that it would be focused on untapped subscriber opportunities.
Competition from new OTT services could lead to more pay TV innovation and also lead some consumers back to pay TV services, Averill said in highlighting possible benefits for TV networks companies.
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Portia de Rossi
James Gordon Meek