TimeWarner Q3 2015 Quarterly Earnings Report

NEW YORK, November 4, 2015 – Time Warner Inc. (NYSE:TWX) today reported financial results for its third quarter ended September 30, 2015. Chairman and Chief Executive Officer Jeff Bewkes said: “We had another very good quarter, with Revenues up 5% and strong growth in Adjusted Operating Income, which totaled $1.8 billion. Our revenue growth was led by Warner Bros. and Home Box Office, and illustrated how our investments in great content have been paying off in our traditional television businesses, as well as in newer areas such as videogames. In September, HBO received a record 43 Primetime Emmy Awards, the most of any network for the 14th consecutive year. That included 12 awards for Game of Thrones, setting a record for a series in a single year.”

Mr. Bewkes continued: “Warner Bros. solidified its position as the leading producer of broadcast series on television with the debuts of Blindspot and Supergirl - the two most-watched new shows among adults 18-49 this broadcast season. Supergirl represents one of the eight shows on television this season based on IP from DC Entertainment, which is also a driver behind the record year Warner Bros. is having in videogames. Through the first three quarters of 2015, Warner Bros. was the top videogames publisher in the U.S. At Turner, buoyed by our coverage of the Major League Baseball playoffs, TBS is the #1 ad-supported cable network in primetime among adults 18-49 year-to-date. Cartoon Network continued to gain share, ending the third quarter as the #1 ad-supported cable network in total day among kids 6-11. Adult Swim also stood out as ad-supported cable’s #1 total day network among adults 18-34 for the 30th consecutive quarter. And CNN continued to grow its primetime ratings across all key demographics in the quarter. Further demonstrating our continuing commitment to shareholder returns, so far this year we’ve returned $4.2 billion to our shareholders through share repurchases and dividends.”

Company Results
Revenues increased 5% to $6.6 billion due to growth at Warner Bros. and Home Box Office, partially offset by higher intercompany eliminations and a decline at Turner. Adjusted Operating Income grew 85% to $1.8 billion due to growth across all operating divisions, reflecting the absence of programming charges incurred in 2014 at Turner and lower restructuring and severance charges across all segments, partially offset by higher intercompany eliminations. Revenues and Adjusted Operating Income included the unfavorable impact of foreign exchange rates of $290 million and $160 million, respectively, in the quarter. Operating Income increased 89% to $1.8 billion.



TURNER
Revenues decreased 2% ($48 million) to $2.4 billion, due to declines of 15% ($18 million) in Content and other revenues, 1% ($17 million) in Subscription revenues and 1% ($13 million) in Advertising revenues. Content and other revenues decreased due to lower subscription video-on-demand revenues. The decline in Subscription revenues was due to the impact of foreign exchange rates and a decline in domestic subscribers, partially offset by higher domestic rates and local currency growth at Turner’s international networks. Advertising revenues decreased due to the impact of foreign exchange rates and the absence of NASCAR programming, partially offset by local currency growth at Turner’s international networks. Domestic advertising was flat in the quarter.

Adjusted Operating Income increased 206% ($721 million) to $1.1 billion, as the decline in revenues was more than offset by lower expenses, including decreased programming costs and lower restructuring and severance costs. Programming costs decreased 45% primarily due to the absence of the prior year quarter’s $482 million of charges related to Turner’s decision to no longer air certain programming. Excluding these charges in the prior year, programming costs decreased in the high-single digits mainly due to the absence of NASCAR programming. Operating Income increased 218% ($735 million) to $1.1 billion.

TNT’s NBA Opening Night doubleheader averaged 2.9 million total viewers, up 24% over last year, and generated double-digit growth across all key demographics. TBS’ Major League Baseball postseason coverage averaged 6.3 million total viewers, up close to 50% compared to last year, and was the network’s most watched postseason ever. For the 30th consecutive quarter, Adult Swim was ad-supported cable’s #1 total day network among adults 18-34, and it was #1 among adults 18-49 in the third quarter. CNN’s recent coverage of the Republican presidential debate garnered over 23 million average viewers - making it CNN’s most watched program ever - and the Democratic presidential debate reached over 15 million average viewers - making it the most watched Democratic debate ever on cable. CNN continued to grow primetime ratings across all key demographics, up 39% and 35% for adults 18-49 and 25-54, respectively, in the third quarter. Cartoon Network was once again the only top 3 kids network to grow ratings in the quarter, and ranked as the #1 ad-supported cable network in total day ratings among kids 6-11.

HOME BOX OFFICE
Revenues increased 5% ($63 million) to $1.4 billion, due to increases of 4% ($44 million) in Subscription revenues and 13% ($19 million) in Content and other revenues. Subscription revenues grew primarily due to higher domestic rates, partially offset by lower international revenues, which included the impact of the transfer to Turner of the operation of HBO’s basic cable network in India. The increase in Content and other revenues primarily reflected higher domestic licensing revenues.

Adjusted Operating Income increased 37% ($139 million) to $519 million, reflecting higher revenues and lower expenses. The decrease in expenses was mainly due to lower restructuring and severance costs as well as decreased distribution and programming costs, partially offset by higher marketing and technology costs. Programming costs decreased 6% primarily reflecting lower acquired theatrical programming costs. The higher marketing and technology costs related to HBO NOW, HBO’s stand-alone streaming service.

Operating Income increased 37% ($139 million) to $519 million.

In September, HBO received a record 43 Primetime Emmy Awards, the most of any network for the 14th consecutive year, with Game of Thrones receiving 12 awards, a record for a series in one year, and Olive Kitteridge receiving eight awards, the second-most of any program. HBO recently added Roku as a distributor for HBO NOW and added support for streaming HBO NOW to Google’s Chromecast and Amazon’s FireTV. In October, HBO Latin America Group announced plans to launch a new streaming version of HBO GO for broadband-only subscribers in Latin America and the Caribbean.

WARNER BROS.
Revenues increased 15% ($415 million) to $3.2 billion, reflecting higher videogames and television licensing revenues, partially offset by the impact of foreign exchange rates, the absence of revenues from a patent license and settlement agreement in the prior year quarter and lower theatrical revenues. The increase in videogames revenues was primarily due to the releases of LEGO Dimensions and Mad Max, as well as carryover revenues from several titles, including Mortal Kombat X and Batman: Arkham Knight. Television licensing revenues benefited from the initial cable and off-network availability of 2 Broke Girls and the initial cable availability and subscription video-on-demand licensing of Person of Interest.

Adjusted Operating Income increased 61% ($147 million) to $388 million, due to the increase in revenues, lower theatrical and videogames valuation adjustments and decreased restructuring and severance costs, partially offset by higher print and advertising costs. Operating Income increased 62% ($148 million) to $385 million.

Season-to-date among adults 18-49: Blindspot and Supergirl ranked as the top two new series, The Voice ranked as the #1 non-scripted series and The Big Bang Theory ranked as the #1 comedy and #2 series overall in primetime on broadcast television. For the first nine months of the year, Warner Bros. ranked as the top U.S. videogame publisher, and Mortal Kombat X was the #1 videogame.