November 4, 2010 / 12:26 AM / 9 years ago

WRAPUP 1-Media sector wrings hands on 2011 outlook

* News Corp maintains profit forecast, remains ‘cautious’

* Time Warner shares close 1 percent lower

* Analyst: Time Warner U.S. TV networks ad revenue up 5 pct

By Yinka Adegoke and Jennifer Saba

NEW YORK, Nov 3 (Reuters) - Time Warner TWX.N and News Corp (NWSA.O) beat quarterly earnings expectations on Wednesday but having surfed the advertising recovery wave this year could be hard pressed to sustain the momentum in 2011.

News Corp’s 16 percent rise in U.S. cable TV advertising revenue and Time Warner’s 10 percent jump in total cable networks ad revenue will be challenged by a sluggish economy from skittish marketers to penny-pinching consumers.

“The economy has stabilized but it’s growing at a snail’s pace and advertising will reflect that,” said Benchmark & Co analyst Fred Moran.

Even News Corp, which said it saw no signs of weakening advertising growth beyond Jan. 1, broke a string of operating profit forecast improvements after it reaffirmed its earlier outlook calling for growth in the “low double digits.”

News Corp Chief Operating Officer Chase Carey told analysts the company remained “cautious and alert for risks” to the advertising economy.

The company that owns the Twentieth Century Fox movie studio, the Fox News Channel and the Wall Street Journal newspaper, reported adjusted profit of 27 cents for the quarter ended Sept. 30, beating analysts’ average forecast of 24 cents, according to Thomson Reuters I/B/E/S.

CORD CUTTING?

Both media giants reassured investors that they saw no signs of consumers dumping pricey pay-TV subscriptions, known as cord cutting.

“I don’t get this cord cutting issue,” News Corp Chief Operating Officer Chase Carey said on a conference call. “I feel it is a fundamental service that for American households is a fundamental part of what they do with their time, and what they value in their life.

But early signs that U.S. consumers were seeking to cut discretionary spending in a weak economy or were simply fed up with ever increasing pay-TV bills are beginning to emerge.

Time Warner said is will lose 1.5 million HBO customers this year, blaming it on a lack of promotions and possibly the economy. HBO generates close to 30 percent of Time Warner’s annual profit.

Consumers are also looking to newer digital services like Netflix Inc’s (NFLX.O) streaming option as an alternative to cable.

Time Warner Chief Executive Jeff Bewkes said during a conference call that HBO Go, a service that allows paying subscribers access to HBO content like “True Blood” on computers, is in “solid shape” and there are no plans to offer the service to nonsubscribers.

“We do have the ability to do that but it’s not something we have decided to do today,” he said.

To prevent Internet companies from seizing control of content distribution, Time Warner is gathering partners including Verizon (VZ.N) and Comcast (CMCSA.O) to offer its content on any platform at no extra cost to subscribers, known as TV Everywhere.

“Digital distribution ... presents some new challenges for the industry,” Bewkes said.” We believe the opportunities outweigh the risks.

The third quarter was also the first time in recent years that Time Warner said low ratings at CNN, the pioneer in 24-hour cable news that has trailed News Corp’s Fox News for years in ratings, had begun to hurt financials.

“While (Time Warner’s) ad revenue at the networks business is up 10 percent, it looks like the domestic advertising was only up about 5 percent,” said Evercore analyst Alan Gould.

Time Warner earned 62 cents a share before items, beating analysts expectations of 53 cents.

Even supposedly high growth areas like News Corp’s MySpace, which made social networks a household name, have suffered badly and may now face an uncertain future after Carey said a close evaluation of MySpace would come in the coming quarters.

“We know we need to make real headway in the coming quarters to get this business to a sustainable level,” Carey said on a conference call. (Reporting by Yinka Adegoke and Jennifer Saba; Editing by Kenneth Li, Phil Berlowitz)

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