Time Warner ad sales surge, but profit pressured

NEW YORK Wed May 4, 2011 1:06pm EDT

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NEW YORK (Reuters) - Time Warner Inc posted better-than-expected quarterly results, helped by a recovery in TV advertising, but shares fell as the media company failed to boost its full-year earnings forecast.

Time Warner, which owns a clutch of cable networks, premium TV service HBO, magazines and a movie studio, is the latest media company to benefit from the strength of the advertising market.

The chief criticism of Time Warner was that its results, while ahead of forecasts, appeared somewhat pedestrian compared with the blow-out quarters of CBS and Viacom. News Corp, which owns Fox Broadcasting along with a movie studio, pay-TV businesses and newspapers, is due to report earnings later on Wednesday.

"The negative is they didn't beat estimates as much as every other company has in the space," said Laura Martin, an analyst with Needham Capital.

There was also some disappointment that Time Warner chose not to raise its full-year outlook for earnings, helping drive shares down 3 percent after its earnings report. The company said year-over-year earnings growth would improve in the second quarter, but bigger gains would have to wait for the third and fourth quarters.

ROTTEN TOMATOES

The earnings announcement came on the same day that Time Warner said it had bought movie discovery service Flixster, which also owns the "Rotten Tomatoes" review site. Speaking to analysts on a conference call, Time Warner Chief Executive Jeff Bewkes said he wanted to broaden the service. Terms of the deal were not disclosed.

"We plan to expand the functionality to allow the consumer to organize and access their digital movie collections on whatever device they like as well as buy and rent movies," he said.

For the first quarter, Time Warner reported net income of $651 million. This compares with net income in the prior-year quarter of $725 million. First-quarter adjusted earnings of 58 cents a share came in 2 cents above analyst consensus expectations.

The decline in profit was largely due to higher programing costs, specifically those related to its deal with CBS to share coverage of the NCAA basketball tournament, which carries costly rights fees. Executives said the structure of the deal would put less pressure on profit margins in coming years.

But the flip side to the deal is it helped drive a big jump in advertising sales at Time Warner's cable networks at a time when corporations appear willing to spend more on national campaigns, particularly when it comes to so-called event programing.

Ad sales across its networks, which include TNT, TBS and CNN, rose 48 percent.

"I love the advertising numbers," said Needham's Martin. "It was an excellent number -- really, they did a good job."

Overall revenue rose 6 percent to $6.7 billion, the media company said.

In its movie division, revenue dropped 3 percent and earnings fell by 50 percent, as releases including "Hall Pass" failed to draw as large an audience as "Sherlock Holmes" or "The Blind Side" did last year.

In publishing, home to Time, Fortune and Sports Illustrated, revenue was basically steady at $798 million.

Shares of Time Warner, up 17 percent this year, were down $1.07 or 2.83 percent at $36.66 on Wednesday afternoon.

(Additional reporting by Jennifer Saba; Editing by Derek Caney and Matthew Lewis)

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