Is Sports the Future of Television?

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Time Warner (NYSE: TWX), the media and entertainment giant reported its third quarter earnings on Wednesday with a 2% increase in profit in comparison to last year’s figures. Company’s network segment performance offset the weak performance of the film and TV business.

Time Warner reported net income of $838 million, up from $822 million from last year’s quarter. Revenues in the current quarter decreased 3% to $6.84 billion from $7.07 billion in the year-ago period. Adjusted earnings per share for the quarter are $0.86, excluding certain items compared to $0.79 per share from last year’s quarter. In the current quarter fewer shares were outstanding compared to the prior-year period.

Network revenues from Turner Broadcasting and HBO grew by 4% to $3.34 billion in the third quarter. Subscriptions rose 7%, mainly due to higher domestic rates and not due to an increase in domestic subscribers at HBO and international growth. Advertising revenues declined by 1%. Company’s Film and TV Entertainment segment revenues, from Warner Bros., declined 12% to $2.90 billion. Revenues in company’s publishing segment, Time Inc., declined 6%, to $838 million.

The Prospects

Time Warner has delivered pleasing performance so far and is looking forward for another strong year. The investment in content and technology in the previous years is reaping benefits, and is expected to do so in 2013. The company will benefit from the launch of new originals and is looking forward for the launch of Cougar Town.  Time Warner will also bring back originals like Rizzoli & Isles and Leverage and have more originals on TNT, double what they had during the first quarter of 2012.

CNN is a challenging area for Time Warner; ratings have improved in recent months due to its distinguished election coverage. The efficiency can be noted by the fact that last week CNN doubled its audience during its coverage of the hurricane, thereby surpassing its competitors.

HBO continued its top performance this year. The international growth with HBO subs up by about 30% so far . Earlier this year, HBO Netherlands was launched and is doing very well. HBO Nordic includes a linear service and first direct-to-consumer over-the-top HBO offerings to be launched later this year. HBO will soon debut the first premium network in India, world’s largest emerging market.

A Look Around

Walt Disney’s (NYSE: DIS) ESPN, the leading cable-sports network, provides about 75% of the operating income generated by Disney’s cable networks. ESPN’s advertising hasn’t really changed, while programming costs for sports are rising. The company having 98 million subscribers has its major rights secured through multi-year deals with the NFL, Major League Baseball, Wimbledon and the big college football conferences. ESPN is locking up rights early to avoid competition. The plenitude of sports channels seeking higher subscriber fee is a cause of tension. Time Warner has entered into a new contract with Major League Baseball for TV and expanded digital rights through 2021. Along with the NBA and NCAA rights, having baseball on TBS into the next decade helps better company’s position. The competition for ruling the market will be interesting.

News Corp. (NASDAQ: NWS) is looking to strengthen its position in Australia's pay-tv industry. The Australian Competition and Consumer Commission (ACCC) have cleared the road for News Corp's Australian wing News Ltd to takeover ConsMedia, which owns half of Fox Sports and 25% of Foxtel. The acquisition will provide 50% ownership of pay-tv provider Foxtel and full ownership of the Fox Sports suite of channels. Fox News Channel & other regional sports networks helped News Corp. generate $953 million in operating income. News Corp. has also been tying retransmission-consent deals with TV Everywhere agreements that would allow them to offer their subscribers to access full-length versions of The Simpsons, Fringe and other hit series on the Web and mobile devices.

Final Words

Acquiring multi-year sport’s rights seems to be the need of the hour but spending so much on acquiring those leaves Companies in a soup in generating revenues from cable and dish operators. Time Warner has also bagged good sports deals and HBO seems to have regained better momentum with many new originals lined up. Diverse business, growth prospects and footings in emerging markets add to the strength of the company. The company has a strong operating cash flow generation and its financial objectives seem to be on track. I have faith in the performance of the company making Time Warner a YES for my portfolio.


tarunbachhawat has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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