Entertainment cos. lose shine as economy weakens

LOS ANGELES - Revenue at top entertainment media companies migrated toward cable TV and away from traditional broadcast networks this fall as ad spending slowed and Hollywood produced a mixed bag of movies.

Time Warner Inc., CBS Corp., News Corp., Viacom Inc. and The Walt Disney Co. all showed healthy gains in cable network programming revenue in earnings reports this week and last for the quarter that ended Sept. 30.

But this year's continuing advertising spending slowdown took a bite from earnings at companies that own local TV stations — News Corp.'s Fox stations or Disney's ABC, for example — or print publications like Time Inc.'s family of magazines or Web sites such as News Corp.'s MySpace.

Several entertainment conglomerates trimmed their fourth-quarter forecasts to account for the ad slowdown, especially in autos.

Four of the largest Hollywood studio owners — Time Warner, owner of Warner Bros.; Disney, owner of its namesake and Pixar; Viacom, owner of Paramount; and News Corp., owner of Twentieth Century Fox — saw film revenues decline as consumers also cut spending on both going out to the movies and renting them to watch at home.

Even "The Dark Knight" — with gross U.S. receipts topping $528 since its July 18 release — couldn't prevent revenue at Warner Bros. Entertainment from falling 9 percent to $2.9 billion.

"These media companies, they are no longer growth stocks, they are cyclical growth stocks," said Hal Vogel, a media analyst and principal of Vogel Capital Management.

"You have to destroy this myth that the movies do well in a depression," he said. "It's nonsense."

Perhaps the biggest surprise of this earnings season was News Corp.'s drastic downward revision Wednesday, when it predicted a percentage drop in the "low to mid-teens" in operating profit in its fiscal 2009, which began in July.

Rupert Murdoch, who runs the company and controls more than a third of its shares, said the forecast was a "clear reflection of the economic downturn, which we believe will persist through fiscal 2009."

As recently as August, News Corp. predicted its annual operating profit would rise 4 percent to 6 percent.

Murdoch said the company is "intensely focused on cost reductions," including outsourcing printing at the Wall Street Journal and merging its back-office functions with the New York Post.

The gloomy news came after the company said net income for the first quarter dropped 30 percent to $515 million, while revenue rose 6.3 percent to $7.5 billion.

Disney too reported earnings worse than expected for the period, when it saw a 13 percent drop compared with 2007, even though revenue grew 5.8 percent to $9.45 billion.

ESPN, otherwise a strong performer for Disney, also was weighed down by an ad decline. The bottom line also suffered from Disney's creation of a cash reserve to cope with fallout from the bankruptcy of investment bank Lehman Brothers. Finally, Disney's studio entertainment revenue fell 5 percent to $1.45 billion, on flops such as "Swing Vote" and "Miracle at St. Anna," and its ABC network and stations lost $150 million, nearly five times the loss of a year earlier.

"Consumer confidence is the lowest we've seen in over three decades, and even the best product out there is feeling the effect," Chief Executive Robert Iger told analysts on a conference call Thursday afternoon.

Time Warner bucked the trend with earnings driven by cable network revenues up 7 percent as audiences were riveted to political coverage on cable channels such as CNN. Subscription revenue also increased, but sales of HBO original shows were lower.

Jeffrey Bewkes, Time Warner's chief executive, said the company's diverse revenue streams helped it stay strong even as advertisers pulled back on spending.

"Most of our revenue comes from our content and subscription businesses, which have historically been largely insulated from macro-economic swings," Bewkes said during a conference call. "Less than 20 percent of our revenue comes from advertising today."

Media empire twins CBS and Viacom, both controlled by billionaire Sumner Redstone, followed two different paths.

CBS, which earned 62 percent of its revenue from advertising, lost $12.46 billion in the quarter as it booked an impairment charge on the value of its TV and radio stations, where local ad revenue was weak.

Total revenue rose 3 percent to $3.38 billion, aided by the purchase of Web site operator CNET Networks, but ad revenue fell 7 percent and the company incurred costs from cutting hundreds of jobs in the quarter.

"While the advertising market is difficult, we're capitalizing on our other growth opportunities," Chief Executive Leslie Moonves said on the conference call last week.

At Viacom, meanwhile, distance from the local advertising market provided insulation from its turmoil. Viacom, which owns cable networks MTV, BET, Nickelodeon and Comedy Central, relies on national advertising and fees from distributors. A 6 percent rise in revenue from media networks to $2.1 billion contributed to a 4 percent boost in overall revenue to $3.4 billion.

But its third-quarter profits fell 37 percent from a year ago as film studio Paramount Pictures' theatrical revenue fell more than a third and global advertising revenue declined 2 percent.

The one standout in the broadcast advertising game was General Electric Co.'s NBC Universal, whose NBC unit took in $1 billion in revenue from the Olympics.

Even with that kind of money, the broadcasts lost money, according to GE's quarterly report, however.

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