The cable networks business, which includes CNN, TNT and TBS, continued to grow as the networks benefited by higher advertising revenues. Original shows such as Falling Skies, Major Crimes and Dallas helped drive ratings at its cable networks division, and the company has raised its earnings estimates for the year.  Warner Bros’ Man of Steel boosted the revenues of the film and TV entertainment division. The company’s management stated that it has pushed back its planned spinoff of Time Inc. to early 2014. Going forward, we expect the company to perform better as the cable networks ratings continue to improve. A strong line up at Warner Bros will aid overall growth.
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Cable Networks Business Shines
According to our estimates, cable networks contribute more than 75% to Time Warner’s value. The revenues at its cable networks division increased by 7% to $3.8 billion in Q2 2013 driven by an 11% jump in advertising. The growth in advertising revenues was due to higher pricing and strong demand for sports programming, primarily the NBA and the NCAA tournament. Subscription revenues also grew 4% driven by higher domestic rates and subscriber growth in international markets. 
TNT and TBS finished the second quarter as the No. 1 and No. 3 ad-supported cable networks in prime time for adults 18 to 49.  Going forward we expect the growth in cable networks revenues to continue as the company is focused on original programming and developing new content. The ratings at TNT, TBS and CNN have improved in 2013, which will aid the growth in advertising revenues. (See – CNN Finally Sees A Surge In Ratings And Claims 2nd Spot After Fox News) Led by hit series such as Game of Thrones, we expect HBO to continue to expand its subscriber base. However, HBO’s ability to increase its subscriber fee will decline due to the increased competition from other premium networks as well as online video service providers such as Netflix (NASDAQ:NFLX), Hulu and Amazon (NASDAQ:AMZN).
Movie Business Grows Strongly
The revenues of Warner Bros studios jumped 13% to $2.9 billion led by the higher movie revenues from Man of Steel, The Hangover Part III and The Great Gatsby. The operating income for the division also increased 34% to $181 million.  Television product revenues from licensing declined primarily due to lower syndication revenues as the prior year periods included the initial domestic cable television network availability of The Mentalist. The success of a movie depends on the response its gets from the audience and it will be interesting to see how the audience reacts to the Warner Bros’ lineup for rest of the year, which includes The Hobbit: The Desolation of Smaug, Seventh Son, Gravity and Prisoners. The studio’s horror feature, The Conjuring, which released on July 19, has already crossed $167 million at the box-office and the studio commands 16.4% market share so far this year. 
We are currently in the process of updating our model for Time Warner in view of the recent earnings.Notes: