Time Warner CEO Talks Warner Bros. Profits, CNN Progress

UPDATED: Jeff Bewkes says that the studio continues to head toward a potential record profit year, lauds continued carriage fee gains and says pay TV operators should do a better job with VOD services.

NEW YORK – Time Warner chairman and CEO Jeff Bewkes discussed the progress of CNN and the profitability of Warner Bros. here on Tuesday at a big year-end investor conference.

Speaking during a luncheon at the 41st Annual Global Media and Communications Conference, organized by UBS, he once again touted the financial strength of Warner Bros. and reiterated a previous comment that the studio could report record operating profit for 2013. "We are looking like we are heading towards another record year," he said.

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.

VIDEO: Beware the Batman Teaser

Management has said that the current fourth quarter, helped by Gravity, the sequel to The Hobbit and a new Batman video game, should be the studio's biggest quarter of the year and among its largest ever in terms of adjusted operating income.

Bewkes on Tuesday also lauded a recent Warner deal with Harry Potter writer J.K. Rowling, who is working on new movies in the field "that she is so inventive in." And he touted the studio's continued success with its focus on new and established tentpole franchises.

Bewkes also got questions about the performance of CNN, saying: "We are making real progress," especially with the network's morning programming.

Management has lauded the early success of new shows with Anthony Bourdain and Morgan Spurlock. Bewkes previously said that they show that there could be further upside in CNN's focus on "broadening its purview of coverage" beyond breaking news. On Tuesday, he said in the same vein that CNN and HLN might continue their evolution by adding "an expansion of the news definition in primetime."

CNN boss Jeff Zucker has also emphasized the need for coverage beyond the traditional definition of hard news, saying: "We've got to remain true to the journalistic values that have always been the hallmark at CNN, and at the same time, continue to broaden the definition of what news is."

On Tuesday, Bewkes also lauded the "continued superior performance" of CNN's digital and mobile platforms, saying they often get overlooked.

Asked about subscription VOD deal trends with the likes of Netflix, Bewkes said it was continuing to be a healthy business. Last year, TW booked about $350 million. This year should be comparable or possibly slightly better, management has said.

Bewkes joined other industry CEOs in saying TW was open to striking content deals with online pay TV operators that might launch sooner or later. A couple of executives have said at the UBS conference that 2014 could be the year for a launch following delays experienced by Intel. Many have said that a virtual pay TV operator would have to carry all of their networks, but Bewkes cited another key issue: the quality of broadband platform such a possible virtual operator would be based on.

He also touted the move of consumers towards on-demand TV viewing, reiterating that this was good news for content powerhouses like TW. Bewkes lauded Comcast for promoting VOD better than any other pay TV operator in the industry, also citing Verizon FiOS as doing well. But he said others should focus on that opportunity more, especially by providing a better user interface or risk allowing tech companies to encroach on the turf. "If we don't fill that need, it will be filled by someone else," he said about consumer demand, asking for "more foresight" of TV distributors.

While touting financial growth expectations at TW's TV networks unit, Bewkes signaled that fourth-quarter advertising revenue could come in below expectations due to temporary ratings weakness at such channels as the Cartoon Network. He said some programming on the network was suffering from "tiredness." He also hinted that the ad market has been a little weaker in recent weeks.

At the UBS conference, Bewkes reiterated that the planned spinoff of Time Inc., TW's publishing arm behind such magazines as Time, People, Sports Illustrated and Entertainment Weekly, was on track to happen in the second quarter of 2014. The conglomerate said in March that it planned to spin off the business and recently pushed back its timing to the second quarter, but a recent report suggested the timing could get pushed back further.

TW recently disclosed that Time Inc., now led by CEO Joe Ripp, generated $2.39 billion in revenue in the first nine months of the year, down from $2.47 billion during the same period a year earlier. Earnings of $135 million were unchanged from a year ago.

Asked how he feels the conglomerate has been doing and about its outlook, Bewkes said: "I feel very good about how the company is doing, how we are positioned."

Discussing growth drivers for the company, Bewkes cited TV network carriage fees, which he said will contribute about a third of overall company revenue after the Time Inc. spinoff. Management has predicted strong affiliate fee growth over the 2014-2016 period. "I'm very happy with how it looks," he said, adding: "We are very much on track" with recent carriage deals to meet, possibly even exceed, financial predictions. The company has targeted double-digit percentage growth in affiliate fee revenue over the three-year period.

Bewkes also reiterated that international TV networks' operating profit would reach $1 billion in a few years.

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai