Jeff Bewkes jumps to Warner Bros.’ defense as Time Warner boosts outlook

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When it comes to talking smack about the movie business, just leave Warner Bros. out of it.

That’s the word from Time Warner Chief Executive Jeff Bewkes. On a conference call with analysts, Bewkes said Warner Bros. is marching toward its most profitable year ever.

There’s a ‘perception that film is inherently a low-return or volatile business,’ Bewkes said, referring to widespread negativity about the movie industry this year amid wrenching changes in consumers’ consumption habits and a rash of cost-cutting. ‘That’s certainly not true and hasn’t been true at Warner Bros.... In spite of softness in home video overall, this year Warners is on pace to report its highest profits ever.’

In a preemptive strike before any questions were asked, Bewkes pointed to the studio’s strong summer at the box office driven by hits including ‘The Hangover,’ ‘Harry Potter and the Half-Blood Prince’ and ‘The Final Destination,’ as well as its television successes including ‘Two and a Half Men’ and ‘The Big Bang Theory.’ Recent movie releases such as ‘Where the Wild Things Are’ and ‘The Informant’ have seen more modest results, although the studio has had no major flops of late.

Last year, Warner Bros. went through a major round of cost cutting, most notably by folding New Line into the main studio and shutting down its independent film division.

Bewkes told analysts that, outside of write-offs related to 2000’s disastrous merger with AOL, Warner Bros. return is ‘certainly well above the cost of capital, that its level of profit ‘consistently surpasses its peers by far,’ and its operating income excluding certain costs will top $1 billion by the end of 2009.

Studio revenues were down 4% to $2.78 billion in the quarter ended Sept. 30, although Time Warner’s chief financial officer, John K. Martin, said that was well above expectations given systemic problems in the home video business, a main driver of movie industry revenue, as well as a difficult comparison to 2008, when Warner Bros. released mega-hit ‘The Dark Knight.’ Operating income for Warner Bros. rose 6% to $291 million.

Total revenue for Time Warner was $7.14 billion, a decline of 6% from a year ago. Much of that was the result of continued weakness in the advertising market, as the company’s ad revenue fell a more substantial 12%. Net income plunged 40% to $661 million.

Major drags on the company were AOL and magazines. At magazine publishing unit Time Inc., Time Warner announced that it will take a $100-million restructuring charge as it lays off more employees and cuts back the frequency of some of its publications at Time Inc. Despite the doom and gloom, the company reiterated it has no plans to unload or shut down Time Inc. Publishing unit revenue was down 18% to $914 million, with advertising off 22% and subscriptions down 13%. In a sign of what qualifies as good news these days in the publishing business, Martin noted that those numbers were actually an improvement over the first half of the year.

As for AOL, Bewkes emphasized that a planned spin-off of AOL is on track to be completed by the end of the year. During the quarter, AOL’s revenues fell 23% to $777 million, driven by a 29% drop in subscription revenues and 18% drop in advertising.

Time Warner’s networks group, which include HBO, TNT, TBS and other cable networks, saw revenues rise a healthy 5% to $2.87 billion, due primarily to jumps in subscription revenues. Ad revenue at domestic networks excluding commercial-free HBO were up a ‘low-single-digit’ percentage, according to Martin, but CNN saw a drop compared to its election coverage last year, as did foreign channels. The network group’s operating income before certain costs grew 9% to nearly $1.1 billion.

Reflecting confidence in its current quarter results despite the write-down at Time Inc., Time Warner increased its guidance for the full year, increasing expected adjusted earnings per share from $1.98 to $2.05. The company’s stock was up a little less than 1% at $30.54 in late afternoon trading.

-- Ben Fritz