Time Warner Inc's third-quarter profit beat estimates, driven by growth at its cable networks, and its chief executive said on Wednesday a new cable package offered by No. 1 cable operator Comcast would help HBO expand its subscriber base.
Comcast Corp said in October it would offer a promotion that included HBO, the premium cable channel, and its HBO Go online service in a pared-down basic cable package of about 10 channels as well as Internet access for about $50 a month.
The move was closely watched by investors and analysts, who see it as a test for HBO to be sold in a different format, and as a sign that one day customers will be able to buy smaller packages of channels.
Speaking on a conference call with analysts, Time Warner CEO Jeff Bewkes said the package "could be an effective way" for HBO to reach the 8 million or 10 million homes that currently have Internet subscriptions, but no video service. HBO is still figuring out how to get a bigger slice of the 60 million to 70 million U.S. customers who pay for a television subscriptions but don't have HBO.
Finance chief John Martin said the company is seeing "some encouraging subscriber trends at HBO" that will drive subscriber revenue to accelerate next year.
Bewkes insisted that if the small cable bundles become popular, Time Warner Cable's basic channels such as TNT and TBS would still be included in the packages.
"If there's viability and consumer attractiveness for people trying to get basically a more focused, more valuable and less expensive basic cable package, our channels will be in there," Bewkes said.
TIME INC SPINOFF DATE
Bewkes updated the timing for the spinoff of Time Inc, saying that Time Warner Inc's publishing assets will become an independent company in the second quarter of 2014. The company announced the spinoff earlier this year.
On October 31, longtime news executive Norman Pearlstine said he was leaving Bloomberg LP to return to Time Inc in the newly created job of executive vice president and chief content officer, reporting to CEO Joe Ripp.
Revenue at the publishing unit fell 2 percent to $818 million in the third quarter, the company said.
Revenue at its cable business, including Turner Broadcasting channels such as CNN as well as HBO, increased 5 percent to $3.5 billion. Advertising was up 11 percent to $96 million.
"A strong advertising demand environment has helped," said Bernstein Research analyst Todd Juenger. "But the main story for the stock has been, and continues to be, anticipated acceleration of subscription fees."
Time Warner has forecast significant percentage gains in subscription fees when it renews contracts with pay TV operators through 2014 and 2015.
Revenues fell 7 percent to $2.7 billion at its Film and TV Entertainment unit that includes Warner Brothers. It blamed the decline partly on a tough comparison to a year ago, when it benefited from the strong box office from the Batman movie "The Dark Knight Rises."
Net income for Time Warner was $1.18 billion, or $1.26 cents per share, up from $822 million, or 84 cents a share, a year ago.
Adjusting for discontinued operations and other items, earnings per share were $1.01, which beat Wall Street estimates by 12 cents.
Revenue rose 0.2 percent to $6.86 billion. Analysts expected $6.94 billion, according to Thomson Reuters I/B/E/S.
Time Warner shares fell 17 cents, or 0.2 percent to $68.06.
(Reporting by Liana B. Baker; Editing by Jeffrey Benkoe)