Time Warner’s (NYSE:TWX) TBS network has been riding high on the success of its content. We estimate that TBS contributes close to 8% to Time Warner’s stock value. The network ranked as the #1 entertainment network for November among adults 18-49 and 18-35 in primetime.  Last month, TBS benefited from the post-season baseball coverage that averaged 3.1 million viewers during the period of September 30 to October 27, a 15% gain over the 2.7 million viewers the network posted during the same period last year.  The network has been benefiting from increased viewership, which has translated into higher advertising revenues. We expect this trend to continue as the network is focused on better content and original programming with new shows for the rest of the season.
TBS Tops Rankings For November
TBS has been riding high on the success of Big Bang Theory and its original programming Ground Floor. The network scored solid primetime growth in November, with 4% gain among total viewers compared to the same period previous year. In the demos, TBS’ growth came in at 2% among adults 18-49 and 7% among adults 18-34. The network’s original programming series Ground Floor averaged 1.6 million viewers in Live + 3 delivery.  The network on October 22 also premiered an American game show - Trust Me, I’m a Game Show Host. The show brought in 1.2 million viewers in Live + 3 delivery for Tuesday’s episode and scored big growth in the demos, drawing 732,000 adults 18-49 (+21% vs. the prior week) and 429,000 adults 18-34 (+42% vs. the prior week). 
Recently in Q3 2013, the company’s net income jumped 44% driven by advertising growth in the cable networks due to higher pricing and strong demand for sports programming (Read More – Time Warner’s Profits Jump 44% Driven By Its Cable Networks). TBS should continue to see better ratings in the near term, driven by season 5 of Cougar Town and the 14-episode marathon of Thanksgiving With FRIENDS. It will also be interesting to see if the new shows Ground Floor and Trust Me, I’m a Game Show Host continue to enjoy higher ratings.
TV Advertising Market Continues to Grow
According to a report from Kantar Media, TV ad spending accounted for 51% of the $35.80 billion that was invested in all U.S. media during the second quarter of 2013. The national cable saw a 15% rise in sales amounting to $7 billion.  According to research by PwC, the TV advertising sector will pass the $200 billion revenue mark with global revenues valued at $209.4 billion in 2017, compared with $162.10 billion in 2012.  The spend on TV has been far more than on online ads and all other traditional media. While most of the traditional media markets are growing slowly or declining, television is poised to see healthy growth through 2017.
We estimate TBS’ revenues to be northward of $1.80 billion towards the end of our forecast period growing at an average rate of 3.50%. However, even if the revenue growth were to be slightly different, it will have a minimal impact on the price estimate due its lower value contribution to overall Time Warner’s value. Our price estimate for Time Warner currently stands at $72, reflecting a premium of 9% to the current market price.Notes:
- TBS Ranks as Basic Cable’s #1 Entertainment Network for the Month Among Adults 18-49 and Adults 18-34 in Primetime, The Futon Critic, Nov 26, 2013 [↩] [↩] [↩]
- Baseball Playoffs Propel TBS To October Ratings Win, Multichannel News, Nov 4, 2013 [↩]
- Q2 TV Sales Up 6 Percent to $18.4 Billion, Adweek, Sep 9, 2013 [↩]
- Global entertainment and media outlook: 2013-2017, Price Waterhouse Coopers [↩]