Time Warner top executives told Wall Street analysts on Wednesday that Warner Bros. was on track to grow its adjusted operating profit this year and could even record its most profitable year ever.
Chairman and CEO Jeff Bewkes also said that the entertainment conglomerate now expects to complete the planned spin-off of its Time Inc. publishing unit in the second quarter of 2014. The firm had previously said it was targeting the publishing unit spin for “early 2014” after initially targeting a year-end 2013 separation.
Bewkes once again said that the timing would give new Time Inc. CEO Joe Ripp time to further fine-tune the company’s strategy. An initial filing on the spin would come in the coming weeks, Bewkes said.
Management on Wednesday also touted the performance of Warner Bros. and HBO.
Warner Bros. “is hitting on all cylinders,” Bewkes said. He called recent release Gravity “a phenomenon,” both in terms of critical acclaim and financial success.
CFO John Martin, who will take over Turner Broadcasting in 2014, said Warner’s operating profitability is up for the year to-date. Comparisons in the fourth quarter with last year’s record quarterly result are “very difficult,” but the studio remains on track to grow its profit for the full year and could potentially record an all-time adjusted operating record. Martin had on previous calls said that Warner Bros. would see its full-year profit come in at least as good this year as last, if not better.
Overall, the current fourth quarter, helped by Gravity, the sequel to The Hobbit and a new Batman video game, “should still be our biggest quarter of the year and among our largest ever for Warners in terms of adjusted operating income,” Martin said. “That should put Warner firmly on track to grow profits this year and potentially have its best year ever.”
Adjusted film unit operating profit for 2012 came in at $1.24 billion, down just 3.3 percent from a company record of $1.28 billion in 2011. For the first nine months of 2013, film and TV entertainment unit adjusted operating profit came in at $751 million, up from $682 million for the same period of 2012 despite a third-quarter drop.
Bewkes Wednesday also lauded a recent deal with Harry Potter writer J.K. Rowling who is working on new movies. “We’re excited to see what new adventures Jo has in store for us,” he said.
Meanwhile, HBO is on track for year for double-digit subscriber growth internationally, Bewkes said, adding that the premium TV company is also having a “great year” in the U.S. And Martin predicted an uptick in subscriber revenue growth at HBO starting in 2014.
Bewkes and Martin also got questions about the performance of CNN, with both lauding the early success of new shows with Anthony Bourdain and Morgan Spurlock. Bewkes said that they show that there could be further upside in CNN’s focus on “broadening its purview of coverage” beyond breaking news. Martin said they hurt the bottom line near-term, but open up new revenue opportunities over time.
Asked about financial trends, Martin said CNN operating profit is down this year, because of “pro-active decisions” by CNN head Jeff Zucker “to try and invest in programming in many, many day parts.” Going forward, TW will evaluate the business, which it expects to return to growth mode, he said.
Despite challenges at Central European Media Enterprises, in which TW has a stake, slower international advertising growth in the fourth quarter and weaker U.S. news ad trends, Turner’s ad revenue is still likely to finish up in the mid single digit range in the fourth quarter, according to Martin. And TW will bring in its fifth consecutive year of double-digit earnings per share growth in 2013, he added.
Asked about subscription VOD deal revenue for this year, Martin said last year, TW booked about $350 million. This year should be comparable or possibly slightly better, he said. “We continue to be encouraged by the breadth of SVOD providers that we are doing business with,” including Netflix, Amazon.com and various international players, Martin said. “We continue to see it as a real opportunity” and significant revenue stream.
Overall, the amounts remain small to TW’s broader business though, with Martin highlighting they amounted to only 10 percent of Warner’s TV syndication business last year and 3 percent of total film and TV entertainment revenue.