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Time Warner, Disney Post Strong Gains

Posted on Thursday, May 20th 2010

Ad spending growth has triggered earnings increases in all media companies. Time (NYSE:TWX) Warner recently delivered the highest quarterly profits in the company’s history. During the quarter, it also announced the biggest revenue gain in nearly two years.

Q1 revenues grew 5% over the year to $6.3 billion driven by 9% growth in networks revenues. EPS for the quarter came in at $0.61 compared with $0.38 a year ago. The market was expecting revenues of $6.38 billion with EPS of $0.49.

By segment, networks revenues grew 9% to $3 billion driven by a 7% increase in subscription revenues, 9% growth in ad revenues, and 22% growth in content revenues. Recently, Turner announced a tie-up with CBS to acquire exclusive U.S. television, Internet, and wireless rights to the annual NCAA Division I men’s basketball tournament for 14 years, beginning in 2011, for $10.8 billion. Time Warner is also broadening its international presence and recently increased its majority position in HBO Latin America. It bought an additional 21% stake in HBO Latin America from Sony for $217 million. Earlier, it had purchased a stake in HBO Central Europe for $45 million.

Time Warner is also in talks with CBS News and other news organizations to work on a possible news-gathering partnership to help improve ratings for CNN. The management is hopeful of leveraging CNN’s financial strength and the available economies of scale to work out a partnership with other players in the industry.

As part of its TV Everywhere initiative, the company recently announced a tie-up with Verizon to make its content available online to FiOS TV subscribers. Beginning this June, FiOS TV and broadband customers will receive free, unlimited online access to content from Time Warner’s Turner networks TNT and TBS. The two are also working together to provide access to their content on mobile devices.

Filmed division revenues increased 2% to $2.7 billion, reflecting the improved performance of theatrical home video releases. Publishing revenues fell 1% to $799 million despite 5% growth in advertising revenues and 2% growth in subscription revenues. The group is working to drive subscription revenues online for Time magazine. Time magazine is selling its iPad application for $4.99 a week, the same price it charges for the print version, and is also launching on Sony’s and Barnes & Noble’s e-reader devices. As of now, the application does not enable subscriptions, and Time Warner is working on enabling the feature. It is planning to launch at least one magazine a month on the iPad application while maintaining rates similar to newsstand prices. It may be difficult for even the most seasoned magazine veterans to predict the success of the venture: While print subscriptions and circulation for some monthly titles are increasing, in newsweeklies the situation is grim. U.S. News & World Report and Bloomberg BusinessWeek both suffered declines in subscriptions from 2008 to 2009. The Washington Post Company is selling 77-year-old Newsweek, which has been losing money and subscriptions even after becoming a biweekly in 2008.

During the quarter, the company repurchased 22 million shares of common stock for approximately $666 million.

The stock is trading at $30.67 with a market capitalization of $35.06 billion. It touched a 52-week high of $34.07 earlier last month.

Meanwhile, Disney’s (NYSE:DIS) Q2 revenues grew 6% over the year to $8.6 billion compared with the market’s projected $8.39 billion target. EPS for the quarter of $0.48 grew 12% over the year and exceeded the market’s target of $0.46.

Disney seems to be raking in earnings by driving its movies segment. Revenues for the segment grew 7% over the year and earnings reported 17-fold growth over the year. The motion picture “Alice in Wonderland” grossed over $962 million in the global box office, making it Disney’s second-highest performing film ever, both in the United States and worldwide, and the number seven movie of all time.

Disney is benefiting from its acquisitions of Marvel and Pixar, which are helping the company to put together strong releases. The recently released “Iron Man 2” has already gathered rave reviews, and Disney expects the performance to continue with the upcoming summer releases of “Prince of Persia,” “Toy Story 3” and “The Sorcerer’s Apprentice.” The company is working out a digital media strategy for Marvel and recently launched a mobile app on the iPhone and the iPad for the unit. The Marvel iPad comic book application lets fans buy digital versions of more than 500 Marvel comic books for $1.99 each, and readers can swipe through the bright replications of the pages.

Media networks’ revenues grew 6% over the year to $3.8 billion. ESPN continued to invest in generating content and benefited from the surge in advertising. ESPN’s ad revenues grew by mid-single-digit percentage points in the quarter. Disney is working toward improving ABC’s prime time ratings, which plunged in the recent quarter. Disney recently announced a joint venture with SK Telecom in South Korea to launch two Korean-language Disney Channels in the region. Disney is planning to have the channels operational by the spring of 2011.

Parks and resorts revenue grew 2% to $2.4 billion, but income fell 12% over the year primarily on account of the nearly 80% rise in fuel costs. This segment will be interesting to watch this summer since Disney will try to pull the plug on the promotions that it had been offering to attract tourists.

Interactive media revenues grew 20% to $155 million. Part of the growth was driven by growth in Club Penguin subscription revenues. However, Disney claims to have seen 20% growth in unique visitors and an increase in the number of paying subscribers. Club Penguin already has a presence in over 190 countries and is available in four languages with two more being developed. Disney is working on expanding its offerings of online worlds and will launch a World of Cars this summer.

Disney is working to adapt its business model to suit the demand created by “exciting new devices like the iPad, the growth of social media platforms and the choice demanded by consumers in how and when they enjoy their entertainment.”  The company has already launched a streaming iPad application for ABC that is one of the more popular apps for the device.

Their stock is trading at $33.39 with a market capitalization of $65.4 billion. It touched a 52-week high of $37.98 earlier this month.

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