The HBO brand has become synonymous with the highest quality television and not coincidentally, it is grown to be one of the most profitable networks in the world and is three times larger then its next largest competitor in paid TV.
- Time Inc. is clearly feeling the effects of the advertising market, with ad revenue down 8% this quarter.
- The firm is organizing its US Magazines and companion websites into three business units that have like readership and like advertisers.
- This will enable similar titles for the first time to share some editorial and sales infrastructure and will also streamline management substantially, and speed up decision- making, integrating as well, digital with traditional print operations.
- Through these steps, the firm expects to reduce Time Inc’s workforce by about 6%, and to generate at least $150 million in annual run-rate savings, which will be realizing starting next year.
AOL has seen increasing weakness from certain advertising categories, specifically in mortgage finance, and domestic autos.
- Usage continues to grow rapidly, which is an important indicator of the underlying health of the business.
- Page views were up 14% in the quarter, fueled by more than 100% growth at the content channels, providing more evidence that the redesigns of the last two years, and the new niche sites AOL has launched are succeeding.
- AOL has also re-launched AOL.com, featuring access to outside email services and social networks.
- In September, AOL.com traffic, according to comScore, was up more than 30%, and uniques were up 11%.
Business Outlook:
- Adjusted OIBDA growth is now expected to be around 5%, off a base of $12.9 billion.
- Diluted EPS now is expected to be in the range of $1.04 to $1.07.
Key questions and answers from the third quarter earnings call conducted by Time Warner Inc. (TWX) on November 5, 2008.
Spencer Wang (Credit Suisse Banc):
Can you just talk a little bit about how you’ll be deploying your excess financial capacity?
John K. Martin, Jr.: First we have got to focus on actually achieving the separation and getting that done, and then once we get the cash, we take very seriously how we deploy that capital to make sure that we are earning attractive returns.
We are closely monitoring the financial crisis impact on both access to, as well as the cost of capital. And over time, our leverage decision is going to be influenced by both of these factors, and frankly, as we sit here today, we feel extremely fortunate that we have such a strong balance sheet, and we have such flexibility at this point.
Michael Nathanson (Sanford C Bernstein & Company, Inc.):
Is this current cost base a good run rate going forward at AOL?
Doug Shapiro: Some of the cost reduction AOL tracks access as it declines, and AOL has been continuously putting through not restructuring in the formal accounting sense, but reorganizing and reducing costs.
John K. Martin, Jr.: There is clearly the benefits due to active management. We saw a pretty meaningful decline in costs of service which is lower personnel related and overhead costs.
There were lower costs in the member services group, there were lower costs in product development, there was some benefits found year-over-year from prior year decisions to close some call centers, and there was also lower marketing and just general G&A and personnel costs, and it was all of the above.
And it’s been anticipated, which is one of the reasons why we expected the year-over-year OIBDA comparisons to improve in the back half of this year at AOL as we continue to try to actively manage to make sure that the costs are measuring up appropriately against the revenue opportunities.
Doug Mitchelson (Deutsche Bank):
Is there as of today, any specific quality interest from peers in merging with AOL?
John K. Martin, Jr.:We don’t speculate on any potential deal. We do think that we have adequate scale domestically in AOL, but we have said that if there was a strategic opportunity to put AOL in a stronger position, we would look at it closely.
Benjamin Swinburne (Morgan Stanley):
Any change in your view of potential cost savings?
Jeffrey L. Bewkes: If you take our film slate and focus it and we have moved from what was combines in the 40 to 50 film release number between New Line and Warner before if you include Picturehouse and WIP, all those have been consolidated and we are now more in the 25 film slate release category.
With film slates being more focused and with solid access to capital, we are not at all concerned about our ability to finance films going forward. Essentially, Warners has done a great job in the lining up and producing results for finance partners.
We always retain world wide distribution rights but our existing finance arrangements cover multiple films to be produced over a multi-year time frame even now and given Warners’ advantage position in film and TV.
