Advanced Television

Time Warner Q2 up 8%, HBO NOW not making money

August 6, 2015

Time Warner has reported financial results for its second quarter ended June 30th. Revenues increased 8 per cent to $7.3 billion (6.7bn) due to growth across all operating divisions. Adjusted operating income grew 15 per cent to $1.9 billion due to increases at Turner and Warner Bros, partially offset by a decline at HBO. Operating income increased 19 per cent to $1.9 billion. Adjusted operating income and Operating income margins were both 25 per cent in the second quarter of 2015 compared to 24 per cent and 23 per cent, respectively, in the prior year quarter.

Chairman and Chief Executive Officer Jeff Bewkes said: “We had a very strong second quarter, with revenues up 8 per cent and adjusted operating income growing 15 per cent to a quarterly record of $1.9 billion. Our results were led by Turner and Warner Bros, and were achieved at a time when we’re investing aggressively to position the company for continued growth, including the successful launch of HBO NOW, our standalone domestic streaming service. HBO and its sister service Cinemax recently received a combined 131 Primetime Emmy nominations, with a record 126 for HBO – the 15th year in a row that HBO has led in nominations. In addition to being nominated for Outstanding Drama Series, Game of Thrones‘ fifth season set a new record for viewers of an HBO series.”

Bewkes continued: “At Turner, TNT and TBS ranked as the #1 and #2 ad-supported cable networks, respectively, in primetime among adults 18-49, and together with Adult Swim claimed the top 3 spots in primetime among adults 18-34. Cartoon Network was again the only top 3 kids network to grow its 6-11 audience during the quarter and claimed the #2 spot for the first time. And CNN grew primetime viewership in its key 25-54 demo 25 per cent with the help of its award-winning original programming. Warner Bros concluded a very successful upfront, with 62 programmes slated for the upcoming television season, including 29 on broadcast networks. That includes a record 20 returning shows and makes Warner Bros. the top supplier of broadcast series again this year. In the quarter, Warner Bros’ games business also shined with releases of Batman: Arkham Knight and Mortal Kombat X helping make it the top video game publisher for the first half of the year. Reflecting our commitment to provide direct returns to shareholders, we have returned more than $2.6 billion in dividends and share repurchases year-to-date.”

Speaking specifcally abut HBO NOW’s contribution to the results, Bewkes said: “We’re extremely pleased with how well it’s been received”. He didn’t provide numbers on how many people have signed up, but noted it was the top grossing entertainment app on iTunes in May and June.

Time Warner CFO Howard Averill added that the company expects HBO Now to generate losses for the remainder of the year. “That’s typical for an early-stage subscriber business,” he said, adding that “our early experience suggests that HBO NOW will be a highly profitable revenue stream for us over time.”

HBO CEO Richard Plepler said that HBO Now is aimed primarily at the 10.7 million broadband only US homes. So far, HBO NOW has not been cannibalizing cable subscribers.

“With regard to any kind of cannibalisation, I can tell you, as we predicted and as our research indicated, we’ve seen less than 1 per cent of HBO subs leave the bundle to go get HBO NOW, which is exactly what we suspected was going to happen,” Plepler said.

Averill said that in the second quarter, HBO Now made only a modest contribution to HBO’s revenues because many of its subscribers were on a 30-day free trial. “We anticipate HBO Now will be a more material contributor to subscription revenue growth over time,” he said.


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