Following a January $24.2 billion writedown, Time Warner today announced its Q4 earnings and the company reported a net loss of $16.03 billion, down from a net income of $1.03 billion a year ago.
We’re posting live during the company’s conference call.
Catch up on the story so far:
- Time Warner Cable Bandwidth Caps Coming To More Cities (TWC)
- AOL Q4 Ads Plummet, No Wonder Lynda Clarizio Got Canned
- Time Warner Cable Subscriber Growth Tanks (TWC)
- Click through for the release.
- Google Demands Time Warner Buy Back AOL Stake (GOOG)
(Everything not in quotes is a paraphrase)
10:12, I’m on the call a bit early. Music: Smooth jazz.
10:31, Excited? I hear people clearing their throats.
10:32, Investors relations guy Doug Shapiro takes the line. Brings on the legalese.
10:33, Here’s CEO Jeff Bewkes. “We are well-positioned relative to the rest of the industry. Our goal is to be the world’s leading content company.”
10:33 Operational priorities: We’re streamling overhead and we’re reallocating those resources into high-quality content that defines our brand. Excluding cable, they’ll reduce capital spending in 2009 but will invest more in content.
10:35: In 2009 there were will be thirteen new series. Trust Me, Men Of A Certain Age, etc.
10:36: CNN had an outstanding 2008, beating all the other broadcast and cable networks on election night.
10:36: 27 million people watched video on CNN.com on inauguration day.
10:37, HBO has more original series on tap in 2009 than in any prior year. Last month, it won more Golden Globe than any other network. True Blood became the third highest rated HBO series of all time.
10:37, At Warner Bros., we’re trying to reduce operating costs and extend leadership. Finished $1.8 billion in domestic ticket sales. Ended the year number one in Blu-Ray, VOD and sell-through.
10:38, Harry Potter, Terminator, Sherlock Holmes and the Watchmen are movies “we’re deeply excited about.” DC comics characters coming too.
10:39, Warner completed a re-org of New Line cinema and closed Picture House. Two weeks ago, announced elimination of 800 jobs. That’ll cost $800 million in restructuring, which will pay for itself in a year.
10:41, In publishing, Time Inc. sites saw uniques climb 24% in 2008. Time Inc also completed its most aggressive re-org in history. WIll generate savings of $175 million in 2009.
10:41, AOL had problems with sales integration and a soft ad-market. Pageviews in the publishing unit went up 69%. MediaGlow will launch 30 sites in 2009.
10:41, AOL reduced its cost structure in 2008 by more than $600 million. Last week’s cuts will reduce AOL headcount by 10%. Restructuring charge of $150 million. The cost-savings will exceed $250 million when the process completes.
10:43, Goal to complete the cable separation in 2009 — IRS and FTC will approve it soon and let the deal close before the end of the quarter.
10:45, We’ll have capacity for strategic M&A, but we’ll be cautious about that. We’re aware of our industry’s faulty track record with that, especially in deals that were supposed to be transformative. (Ahem, Ahem).
10:46, We think we can deliver adjusted EPS in 2009 about flat with last year. We expect to emerge from this period in an even stronger position.
10:47, CFO John Martin takes the phone.
10:47, Everything ended in-line with Time Warner’s January warning.
10:48, Free cash flow ended up $500 million higher than they expected.
10:49, $400 million pre-tax charges reduced EPS. It shoulda been $.32 says John.
10:49, Free-cash flow ($6b) was up 20% over 2007. This is net of pensions and John says: remember the writer’s strike!
10:51, At the networks advertising was up 7% due to news and baseball and higher CPMs. In the scatter market, volume is low, but pricing is flat or up a little over the upfronts.
10:52, We expect advertising to be flat in Q109 in the networks. We can’t see much beyond that, but we’ll outpace the industry. Expenses will be “in the flat range.”
10:52, HBO completed a great year with its highest subscriber base ever. OBITA was up in double digits.
10:53, Yes Man, Gran Turino, Four Christmases and Dark Knight on DVD were big releases.
10:54, We’re optimistic about the film slate, particularly Harry Potter and the Half-Blood Prince.
10:54, New Line moving into Warner Bros. is only starting to show its benefits.
10:55, We remain cautious in DVD sales. We expect to be down considerably in first quarter this year with only 5 releases compared with 13 last year (I Am Legend was in that bunch, too).
10:56, At AOL display advertising was down 25% y/y due to declines in technology, finance, autos and retail. Yield declined as a larger proprotion of inventory was monetized. Higher CPC was offset by fewer queries in search.
10:57, AOL’s access business lost 500,000+ subscribers in the quarter.
10:58, In 2009, subscribers will continue their recent declines. Access revenues should be down between $500 and $560 million. Access will continue to remain a very large business. Significantly more than the audience business.
10:58, AOL display demand is down 24% so far this quarter. (Yikes!) RPS may come under pressure due to lower cost-per-click growth. Query growth may be hurt by users moving to AOL.com instead of the AOL client.
10:58, Google sent a demand registration notice. Options: buy back the stake from Google or…Woah. Big news.
11:02, Our 2009 results will benefit from all the restructurings. (They say this a lot, eh?)
11:05, Lots more on the cable business.
11:05, We expect to be a full cash tax payer in 2009.
11:06, Reminder about the reverse stock-split when TWX and TWC split.
11:06, Back to Doug. Q&A time.
11:06, Analyst asks: Broadcast landscape is rough. Are you concerned about future profitablity about TV production or Film?
11:07, Jeff says we feel very good about the TV production business. It’s very high profit and lower risk than film. We’re basically the supplier of second choice for all four broadcast networks after they buy from themselves. This helps us attract talent because they know they’ll be seen by all the networks. Warner TV had 5 of the top 20 shows in Prime Time. Due to the strength in int’l, where our average series is profitablity just after the first run in the US and Int’l even before home videos, we’re able to build more in local formats and local languages overseas. Production for original series on cable (like Nip/Tuck) is an increasingly attractive business.
11:09, Analyst asks: Your TV DVDs were down 24%. Is that because of online? Is it more than cyclical?
11:09, Jeff, our high-end DVD sales are holding up for Warner. It is true that home video sales were down for the industry as a whole. The B-titles haven’t done as well.
11:11, Analyst asks: Are you selling Bebo?
11:11, Jeff: No, we’re launching new products in Bebo (see our exclusive on this). Jeff says People Networks reaches 90 million people worldwide. Over the next few months you’ll see a new Bebo product roll-out. He mentions Timelines and the AIM integration. “It’ not going anywhere.”
11:13, Analyst asks about AOL’s future.
11:14 Jeff: It’s a scenario where we could spin off AOL. Or AOL could mashup its assets with another company. Or we could spin the AOL media assets into Time Warner and the rest off. “We’ve been pretty clear that we’ve been flexible looking at any otpion whether its in combination with someone, or spin-off.”
11:15, Jeff: I’m not going to give a time line for thee changes we’re considering.
11:19, Question about Time Inc restructurings. John says, we expect a run-rate savings to be about $175 million in 2009. It might be in excess of that, but I don’t want to commit.
11:22, Analyst asks about HBO. Do you still expect it to grow in 2009? You said it’ll be strong: Is that a base case or a bulk case?
11:22, Jeff: It’s not a base case its a bulk case. (Someone explain?) While its true that the lag going through receivables is slow there, we might see consumers cutting back there, probably HBO will do better than Cinemax or Starz. There’s a lot of deals with have that insulate HBO from slight downturns in subscribers. It’s just not likely to be a big problem in 2009.
11:24, At Turner, programming costs will be up, but up modestly, says John. To offset this, the Turner management team is going reduce costs.
11:26, Analyst asks about Dark Knight as a bellwether. It came through big, on Blu-Ray too. What was the strategy that worked there?
11:27, Jeff says Dark Knight was the second most profitable film in history. Close to Titantic. “The obvious thing we’re goign to take from it is more Dark Knight.” We look at Harry Potter It’s fantastic to have franchises that last that long. We want to do that with Batman and Superman and perhaps Sherlock Holmes. The sequals are as good, with new characters added, as were the originals. That wasn’t the case in the years ago. “Warners has more tentpoles as an on-going strategy taht very much lifts its distribution and peformance.” We think that’s going to hold up our slate in the 2009 – 2010 period. We’ve got four more big tentpoles coming this year.
11:30, Analyst asks will VOD will go day and date as physical DVDs. Jeff says probably.
11:30, Analyst: I was surprised it didn’t do much more for the bottom line.
11:31 John says, without Dark Knight the Q4 would have been worse, but also you can’t underestimate the scale of Harry Potter in the prior year.
11:31, Last question. Follow up on Google’s request. Does that mean their search deal expires in the first half in 2009.
11:32, Jeff says “the two are not linked. The search deal continues aside from AOL. As for what we might do with our search business we reserve all options on that.”
Here’s how revenues broke out by segment:
Three Months Ended December 31,
Year Ended December 31,
AOL $ 968 $ 1,251 $ 4,165 $ 5,181 Cable 4,402 4,089 17,200 15,955 Filmed Entertainment 3,113 3,508 11,398 11,682 Networks 2,938 2,704 11,154 10,270 Publishing 1,269 1,455 4,608 4,955 Intersegment eliminations (384 ) (365 ) (1,541 ) (1,561 )See Also: Ready For “The Dark Knight” Parts III, IV, V and VI?