Ad Rebound, Subscription Strength Drives Time Warner Higher

The Time Warner building.
Mark Lennihan
The Time Warner building.

Time Warner's stock is soaring — now up over 8 percent — on strong fourth quarter results and an upbeat outlook for 2011 that tops Wall Street expectations.

Earnings per share grew 22 percent, on eight percent higher revenue, driven by higher advertising, subscriptions and content revenue, especially at its cable networks. The company stressed that it's investing in content, and in digital and international expansion. That's not all — the company's board approved an 11 percent dividend increase and upped its stock repurchase plan to $5 billion.

Cable networks continue to be Time Warner's crown jewel — profit jumped 20 percent on 14 percent higher revenue. Domestic demand for ads is back — a closely-watched ad revenue number jumped 14 percent. Higher subscription fees came largely from higher rates from HBO Central Europe.

As the company raised its outlook for 2011 it presented a more confident, aggressive image. On the earnings call today CEO Jeff Bewkes said "we're even more confident so we're going to take even more aggressive steps." That means expanding internationally and squeezing out more digital revenue.

Bewkes didn't hesitate to address the looming Netflix question — will consumers stop paying for premium cable if they can access virtually limitless content through Netflix DVD rentals and streaming? Bewkes has been quite outspoken, insisting that Netflix is not a threat to his premium cable channel HBO. Today he said on the company's earnings call that he's willing to increase the amount the company charges the likes of Netflix and Redbox as those deals come up for negotiation.

But instead of dwelling on Netflix Bewkes focused on his "TV Everywhere" initiative, which will allow cable subscribers to watch that content on a range of Internet-connected gadgets. By mid 2011 the company says it'll have agreements covering 70 million U.S. homes, while HBO Go will be available to "the overwhelming majority of subscribers" in the next 12 months. The idea is to give consumers more value out of their subscriptions, to ensure they keep paying. Yesterday Time Warner and Comcast announced a new deal to cover online streaming of Time Warner's channels including TNT, TBS, CNN and Cartoon Network. (*Comcast is now the new parent company of CNBC and NBC Universal)

The company's film division suffered from declining DVD sales, which dragged down operating income 2 percent, while higher TV license fees helped revenue grow 10 percent. No surprise, the magazine division is still Time Warner's weak spot — publishing revenue fell four percent on the quarter. But it's not all bad news, ad revenue grew three percent for the full year.

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