Time Warner (NYSE:TWX) will report its Q3 2013 earnings on November 7. We expect its cable networks to drive quarterly growth on improved ratings. Time Warner’s TNT network has been riding high on the success of its original programming and sports coverage. The company’s popular news channel CNN held on to the second spot after Fox in news channels ratings. Time Warner’s cable networks has been benefiting from increased viewership, which will boost the company’s advertising revenues. Warner Bros., the movie division of the company will see limited growth in the third quarter due to y-o-y comparison with The Dark Knight Rises, which was a huge success for the movie studio released during the same quarter last year.
TV Advertising Shows Steady Growth
Advertising is an important source of revenue for content owners such as Time Warner. For Q2 2013, the company’s ad revenues grew by 7% to $1.7 billion, primarily driven by growth in its cable networks.  The advertising market has been trending well this year despite the absence of the Olympics or high political spending. Television continues to dominate its position as the front-running media format for advertising. For the first half of 2013, global TV ad expenditures grew 4% percent on a y-o-y basis, accounting for 58% of total ad spend. Excluding television, traditional media budgets took some hits in the first half of 2013, as spending in newspapers, magazines and radio all declined in the first half (-2.0%, -1.9% and -0.9%, respectively).  Content owners such as Time Warner will benefit from the rise in advertising spend.
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Cable Networks Will Drive Growth
According to our estimates, TNT U.S. contributes close to 16% to Time Warner’s value. The network has been riding high on the success of Rizzoli & Isles, Major Crimes, Falling Skies and Perception. Falling Skies and Rizzoli & Isles are set to rank among basic cable’s top 5 summer dramas with adults 18-49 and adults 25-54. In its fourth season so far, Rizzoli & Isles has averaged 8.3 million viewers, an increase of 4% over the previous season. The coverage of NBA Playoffs and NASCAR along with the success of original series has helped the network claim basic cable’s top network position in total day delivery of adults 25-54 for the summer.  The sports coverage and higher ratings of its popular shows will drive the advertising growth for the company in the third quarter.
Time Warner’s news network CNN is having a good year with ratings so far. Earlier in the second quarter this year, the network reclaimed the runner-up slot from MSNBC for the first time since 2010, with a 50% jump in prime-time audience. The run has continued into the third quarter, with victory coming in the total day category. Interestingly, unlike Fox and MSNBC, which were down 11% and 27% respectively, CNN’s numbers were actually up over Q3 2012, with 9% gain in total viewers over last year. Anderson Cooper was the ratings leader for CNN, followed by Piers Morgan Live.  Better ratings at the news channel will aid to the overall cable networks’ revenue growth.
The company’s premium subscription channel HBO witnessed a muted quarter in terms of viewership. The network aired the sixth season of the popular series True Blood, but it was unable to get a substantial boost in ratings. The finale of the season was able to attract only 4.1 million total viewers as compared to 5 million it drew in the previous season.  There were big changes in the team when executive producer Brian Buckner took over show-running duties from Mark Hudis, who himself had taken over from creator Alan Ball, in the middle of season six. The latest season aired only 10 episodes instead of the usual 12. 
The success of its popular series Game Of Thrones helped in HBO’s international growth during the second quarter. However, the network is facing fierce competition from Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN). Netflix has already crossed HBO in terms of subscribers in the U.S. (See – Netflix Demonstrates Strong Performance; Stock Remains Richly Valued) This will limit HBO’s ability to increase the subscription pricing.
Movie Business Muted In The Third Quarter
Time Warner’s movie business was muted in the third quarter despite 7 releases including The Conjuring, We’re The Millers and Pacific Rim. The global box-office grossing of Pacific Rim exceeded $400 million but its cost of production itself was $200 million and marketing costs were around $175 million.  Moreover, the comparison in this quarter will be with The Dark Knight Rises, released during the same quarter previous year it grossed over $1 billion worldwide.  However, the studio will benefit in the fourth quarter from Gravity, which has grossed $426 million so far and the studio’s line up for rest of the year looks interesting especially with the scheduled release of The Hobbit: The Desolation of Smaug on December 13. The first in the The Hobbit series grossed more than $1 billion worldwide and the new movie is one of the big releases this year including Disney’s (NYSE:DIS) Thor – The Dark World.Notes:
- Time Warner’s SEC Filings [↩]
- GLOBAL AD SPEND: WITH DOUBLE DIGIT GAINS, DISPLAY ADS DRIVE IN-YOUR-FACE RESULTS, Nielsen, Oct 22, 2013 [↩]
- TNT TO CLAIM FOUR OF BASIC CABLE’S TOP 10 SUMMER SERIES, MORE THAN ANY OTHER NETWORK, TNT Newsroom, Aug 21, 2013 [↩]
- Q3 2013 Cable News Ratings: Fox #1 Overall, MSNBC #2 in Primetime, CNN #2 in Total Day, Media ITE, Oct 2, 2013 [↩]
- Ratings: True Blood Down from Previous Finale, TV Line, Aug 20, 2013 [↩]
- TV Ratings: ‘True Blood’ Season 6 Finale Doesn’t Get Big Boost, The Hollywood Reporter, Aug 20, 2013 [↩]
- Too Many Tentpoles: Hollywood’s Homegrown Summer Movie Crisis, The Hollywood Reporter, July 17, 2013 [↩]
- The Dark Knight Rises, Box Office Mojo [↩]