Bewkes: TWC Split On Track


Time Warner Inc. CEO Jeffrey Bewkes said that the planned split-off of its Time Warner Cable unit is going ahead as planned, despite some concerns that the MSO might run into snags raising the necessary debt for the transaction.

As part of the planned split, TWC will pay out a $10.9 billion cash dividend—$9.25 billion of which goes to Time Warner Inc. Earlier this year, TWC raised about $5 billion in debt for the dividend and apparently has the rest in place.

On a conference call with analysts to discuss Time Warner Inc.’s third quarter results, Bewkes said the split is making progress.

“It [TWC] has more than sufficient committed financing in place. From a timing perspective, the gating factor continues to be the regulatory process,” Bewkes said on the call. “We still think we are on pace to close [the deal] by early next year.”

While the spin-off is on track, Time Warner Inc. reported a strong third quarter with domestic advertising revenue at its cable networks up a stellar 9% in the period. That compares to its cable network rival Viacom, which reported a 3% decline in third quarter domestic ad revenue on Monday.

Overall, revenue was flat at $11.7 billion, but adjusted operating income before depreciation and amortization (AOIBDA) was up 9% to $3.5 billion, as growth at its cable networks and movie studios more than offset declines at its publishing and AOL units.

Time Warner also reported its best quarter ever in terms of free cash flow—$2.1 billion for the period.

At the cable networks—which includes Turner Broadcasting and Home Box Office—revenue  was up 7% to $2.7 billion and AOIBDA rose 21% (a new record) to $1 billion, fueled mainly by increased revenue and lower programming expenses.

At its movie studios, revenue was down 9% to $2.9 billion, but AOIBDA rose 66% to $381 million, reflecting lower costs.

Those gains more than offset the continued decline at its publishing unit—revenue down 7% and AOIBDA down 19%—and AOL (revenue decreased 17% and AOIBDA was down 7%).

On the conference call, Bewkes said that despite the sluggish economy, Time Warner has proven its resilience by having little or no exposure to the much maligned local advertising market and through its ability to make compelling content on a consistent basis.

That is reflected in the strong ad revenue growth. On the same call, chief financial officer John Martin said that at the networks, “essentially every dollar of revenue growth fell to the adjusted OIBDA line in the quarter.”

While Martin said that Time Warner cannot gauge how much the broader economy will be affected over the long term—and pointed out that Turner would not likely be immune to a protracted economic slump and that certain segments including the automotive and financial services sectors—he is cautiously optimistic that the fourth quarter advertising market should be similarly strong.

“Having said all of that, the benefits of this year’s strong upfront are kicking in this quarter—cancellation rates are running at normal levels—and while the current scatter market is moving cautiously, it is still running modestly ahead of upfront pricing,” Martin said.