Time Warner Earnings Beat Expectations

Despite some tough comparisons to a year ago, Time Warner reported on Wednesday it beat analyst expectations on cable network gains. Net income rose to 86 cents, up from 78 cents a year earlier.

Time Warner Earnings Beat Expectations
Mark Lennihan

"Investments in content and technology are paying off," CEO Jeff Bewkes said.

The company has done $3.1 billion in dividends and share repurchases so far this year and is on track to meet its financial objectives for the year. Looking forward, Bewkes expects advertising to grow in the mid to high single digits, though international advertising is expected to decline in the fourth quarter.

There's no question that Time Warner's greatest strength is its cable networks — the division grew adjusted operating income double digits to its biggest quarter yet, on revenue that grew $131 million to $3.34 billion. (Read More: 10 Multimedia Stocks With Double the S&P 500 Gains.)

Bewkes highlighted the "good momentum" across the company's networks — TBS, Turner and HBO in particular.

HBO has more original programming than ever, which combined with HBO Go, is helping achieve subscriber trends that the company calls "the best they've been in years." And it's no longer just a domestic play. The company's first "over-the-top offering" — i.e. direct to consumer option without requiring a cable subscription — in the Nordic countries is preparing to launch. (Read More: Netflix Expands Into Scandinavia.)

Still, Bewkes dismissed the idea of creating an Internet-only version of HBO, saying a "subscription broadband network is not ready for primetime." The problem, he said, is that these broadband-only networks don't really have fresh programming. Bewkes said he's trying to figure out the method that's most monetizable for high quality original programming, and for now, that's a TV Everywhere model like HBO Go.

Just as News Corp. stressed the importance of sports to drive live viewership, Bewkes talked about the importance of its new deal with Major League Baseball, including expanded digital rights, to well position the network for affiliate renewal.

Is the company interested in more sports rights? Bewkes said if an NFL package came up, Time Warner "would consider it" but only if the company was confident it could monetize it.

When asked about how much Time Warner will be able to grow affiliate revenue as deals come up, Bewkes was coy. He said the fact that Turner is one of the largest cable network groups by itself "gives us some alternatives," so they'll negotiate "to ensure that the value is recognized."

There are two areas where Time Warner is struggling: CNN and Time Inc. Bewkes said the company is great at drawing a huge audience during big events like the hurricane, but it can "do a better job of tracking and retaining an audience when news isn't breaking."

The magazine division, where revenue dropped 5.7 percent, is "clearly operating in a challenging environment," and is focused on "extending industry lead share," Bewkes said.

Bewkes also fielded similar questions as News Corp. did about volatile broadcast rating trends — the fact that with the exception of live sports and events, people just aren't viewing as much in real time.

"Some of the pressure is coming from viewing on alternative platforms," Bewkes said. "VOD does this — it increases viewership, increases value of hit shows." That, he added, can increase ad revenue. (Read More: Predictions: The Future of TV.)

The question is whether Time Warner and the other networks can generate gains on these new platforms to compensate for declines elsewhere. We'll be watching to see what CBS reveals about ratings trends when it reports after the bell.

—By CNBC's Julia Boorstin

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