(Corrects Netflix's 2013 revenue rise to 21 percent, not
quadrupled, paragraph 5)
By Liana B. Baker
Feb 5 Time Warner Inc broke out the
financials for its premium movie network HBO on Wednesday for
the first time, giving investors a better picture of how the
unit stacks up against video streaming service Netflix.
Netflix was one of the best performing stocks last year and
analysts said Time Warner wants more recognition from investors
for the strength of HBO and its streaming product, HBO Go, which
has a similar feel to Netflix. The effort to highlight the
digital aspect of its business comes as the company prepares to
spin off its slow-growth magazine publishing business Time Inc.
"Perhaps the Street should put a higher multiple on the HBO
business. It's the largest potential competitor to Netflix,
which is trading at such a high multiple," said Gabelli & Co
analyst Brett Harriss, adding HBO's performance last year was in
line with his estimates.
HBO, which said its adjusted operated income rose 8 percent
to $1.7 billion, is much more profitable than Netflix, but it
has also been around much longer and is growing more slowly.
Its revenue increased 4 percent to $4.9 billion, compared
with Netflix's revenue which rose 21 percent last year to $4.37
billion. Time Warner Chief Executive Jeff Bewkes said HBO
recorded its biggest gain in domestic subscribers in 17 years,
about 2 million last year, a figure that includes subscribers
for HBO's sister channel Cinemax.
But these subscriber gains did not generate any revenue,
executives said, due to some of HBO's agreements with cable
operators that allow the providers to keep some of the money it
makes from subscribers.
"We definitely think, and we are doing it, that we can grow
the sub base," said Bewkes. "You can see the result of those
investments in programming and sub growth we have had in the
last couple years."
The company also said it would spin off its Time Inc
publishing unit in the second quarter, along with $1.3 billion
in related debt. In contrast, when News Corp and Fox separated
last year, the publishing unit was not loaded with any debt and
it was given $2.6 billion in cash. Time Warner hasn't yet said
how much cash will be on the publishing company's balance sheet.
Turner, the other cable unit of Time Warner which runs
networks such as CNN and TBS, said domestic advertising was flat
in the quarter. Viacom Inc, which owns cable networks
MTV and Comedy Central, said last week that it saw a 3 percent
rise in domestic advertising revenue.
Time Warner's new finance chief Howard Averill projected
total advertising to grow in the mid- to high single digits In
the first quarter. He said ratings will continue to drag while
scatter pricing, or last minute ad rates, will be up in the
high-single to low- double digits.
Revenue at its Warner Bros unit, which includes its movie
studio, rose 7 percent to $4 billion in the fourth quarter.
Its performance was helped by movies "Gravity", starring
Sandra Bullock and George Clooney, and "The Hobbit: The
Desolation of Smaug", the second of a three-part adaption of
J.R.R. Tolkien's 1937 novel. Both movies grossed more than $300
million at the global box office.
Time Warner's net income fell to $983 million, or $1.06 per
share, in the fourth quarter ended Dec. 31, from $1.11 billion,
or $1.15 per share a year earlier. Excluding items, the company
earned $1.17 per share.
Revenue rose to $8.56 billion. Analysts had expected
earnings of $1.15 per share on revenue of $8.39 billion.
Time Warner forecast 2014 adjusted earnings per share to
increase by a percentage in the low double digits from last
year's figure of $3.51 per share, excluding Time Inc.
Analysts on average were expecting earnings of $4.25 per
share, according to Thomson Reuters I/B/E/S. However, that
forecast did not fully take into account the Time Inc spinoff.
Time Warner authorized a share repurchase program of $5
billion, compared to $4 billion a year ago and upped its
dividend by 10 percent.
Shares rose 47 cents by 0.75 percent to $62.87 on Wednesday.
(Reporting by Liana B. Baker, additional reporting by Sruthi
Ramakrishnan in Bangalore; Editing by Maju Samuel and Stephen