Cable Networks Will Drive Time Warner’s Q4 Earnings

Time Warner (NYSE:TWX) will report its Q4 2013 earnings on February 5. We expect its cable networks drove the growth on improved ratings. Time Warner’s TNT network has been riding high on the success of its original programming. TNT in 2013 claimed four of basic cable’s top 15 original series — more than any other network. ^[1] The company’s popular news channel CNN ended the year with second spot after Fox in total day news channels ratings. However, the news network hit a 20-year low in primetime ratings. ^[2] Time Warner’s cable networks has been benefiting from increased viewership, which will boost the company’s advertising revenues. Of particular note in the upcoming earnings is how HBO’s subscriber trends pan out for 2013, given the increased competition from Netflix (NASDAQ:NFLX).Warner Bros., the movie division of the company, likely benefited from the success of Gravity and The Hobbit: The Desolation of Smaug, both of which were released in the fourth quarter.

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Continued Growth In Cable Networks

According to our estimates, TNT U.S. contributes close to 15% 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 in 2013 claimed two of basic cable’s top 10 original series among adults 25-54. TNT’s blockbuster drama Rizzoli & Isles brought in more than 8.3 million viewers into the “Live +7 delivery” category (industry parlance for the first week after initial showing). This marks an increase of 5% over the same number of episodes in the previous season. For 2013, the network saw 3% gains among total viewers in total day, as compared to 2012. ^[1] The higher ratings of the network’s popular shows will aid the company’s overall growth in the fourth quarter.

The company’s news network CNN also posted gains in total day in total viewers (414k vs. 397k). ^[2] The positive trend for the network was the audience levels that remained steady compared to 2012, while both FOX and MSNBC were down double digits in 2013. However almost all the cable news networks were down compared to 2012, which was a Presidential election year.

According to preliminary Nielsen estimates, TBS network might end USA’s seven-year winning streak as the lead ad-supported cable network in 2013 in primetime among adults 18-49. ^[3] At TBS, repeat telecasts of The Big Bang Theory remained popular, ruling as basic cable’s No. 1 off-net series for the third consecutive year. Higher ratings at Time Warner’s cable networks likely boosted the company’s overall advertising revenues.

Warner Bros. Will Benefit From The Success Of Gravity And The Hobbit

Warner Bros. contributes around 6% to Time Warner’s stock value, according to our estimates. Time Warner ended 2013 with highest market share (17%) in the U.S. with grossing of over $1.87 billion. ^[4] We expect to learn the company’s movie business performed well in the fourth quarter, driven by the success of Gravity and The Hobbit: The Desolation of Smaug. The global box-office grossing of Gravity exceeded $694 million, while its production budget was $100 million. ^[5] The Hobbit: The Desolation of Smaug has so far grossed more than $854 million at the box-office globally ^[6] (Also Read – DC Characters Help Time Warner Top 2013 Global Box Office Grossing).

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1. TNT CLAIMS 4 OF BASIC CABLE’S TOP 15 ORIGINAL SERIES, MORE THAN ANY OTHER NETWORK, TNT Newsroom, Dec 11, 2013 [↩] [↩]
2. CNN Moves Past MSNBC to Finish 2013 as #2 Rated Cable News Network, CNN Press, Jan 2, 2014 [↩] [↩]
3. TBS, USA Lead the Way Among Top-Rated Cable Nets of 2013, Variety, Dec 12, 2013 [↩]
4. Studio Market Share – 2013, Box Office Mojo [↩]
5. Gravity, Box Office Mojo [↩]
6. The Hobbit: The Desolation of Smaug, Box Office Mojo [↩]