Time Warner’s Q3 earnings call is underway, with CEO Jeff Bewkes pushing the mega-media company’s resiliency as the theme of the day. You could probably write the script: times are tough, we’re well positioned, we’re focusing on our great brands, “ability to make compelling content on a consistent basis.” No announcement of an AOL (NYSE: TWX) sale for anyone who still thinks that’s imminent.
In his prepared comments, Bewkes compared the Time Inc restructuring announced last week to the first quarter “hard look” at New Line, calling it “the most comprehensive overhaul in Time Inc history” enabling “similar titles for the first time to share some editorial and sales infrastructure.” It will “streamline management” and speed up decision making” by integrating digital and print. And aligning like titles will allow Time Inc to ensure that resources are being concentrated on the “biggest and most promising brands” at scale. His example: People, the division’s most profitable title, which delivered a modest gain in print and online advertising “despite its size in a difficult third quarter.” TW expects to generate “at least $150 million in annual run rate savings starting in 2009.
— Economy & advertising: Bewkes: “We have been as surprised as anybody else by the speed and the magnitude of the financial crisis and it’s hard to predict the ultimate impact on the economy.” Even so, Time Warner had its strongest quarter of the year. Bewkes attributes Time Warner’s resilience to its diverse revenue streams with less than 20 percent of revenue coming from advertising. Without Time Warner Cable (NYSE: TWC), that number would be about 15 percent. On the ad side, more than 30 percent comes from cable networks with almost no local advertising exposure. (Funny how something an industry has trouble achieving can be waved like a flag at the right time.)
— Mission statement: He didn’t call it this but the restructuring at New Line, Time Inc, even AOL, all comes back to this: “We fundamentally believe that we can position our company structurally to make better, more popular content on a more consistent basis.”
— AOL: Bekes mentioned weak advertising sectors like mortgage financing and autos but offered a batch of traffic stats to show “more evidence that our redesigns over the last two years and the new niche sites AOL has launched are succeeding.” CFO John Martin got down to the nitty-gritty of the unit’s mixed results– strong usage growth mixed with disappointment on the ad side and dash of hope. Display advertising dropped 15 percent to $181 million and the total ad drop of 6 percent almost took AOL below $500 million in ad revenue for the quarter; total advertising consists of roughly one-third each of paid search, display and third-party networks. Third-party numbers continue to be slammed by the loss of major customer Apollo, which swallowed any advantage from acquisitions, dropping 12 percent to $144 million. Apollo’s loss cost Platform-A $55 million for the quarter while acquisitions brought in $29 million over Q307. Take out Apollo, which they’ll be able to do after it haunts again in Q4, and third-party revenues would have been up 7 percent. In keeping with the mixed messages, that 7 percent is still lower than the growth AOL had been seeing “due to both the decline in branded advertising as well as lower consumer response to our performance advertising.” Paid search was up 12 percent on increases in revenue per query.
Q&A: Sure enough, the AOL-Yahoo (NSDQ: YHOO) question comes up and Bewkes knocks it back: “We can’t really and don’t speculate on any potential deals.” He said they think AOL is in good position but added the usual caveat — if there is a strategic deal to put AOL in a better position, they’d look. He mentioned today’s breaking news — without naming names — about the collapse of the Yahoo-Google (NSDQ: GOOG) ad deal as an example of how “opportunities and possibilities remain open” to consolidate in this business and “build adequate scale to compete with whoever is in the lead position.” And he added that Microsoft (NSDQ: MSFT), Yahoo and “even Google” have been looking to bulk up.”
— M&A: With the expected $11 billion dividend from the TWC spin confirmed again today and some other moves, TW’s piggybank is going to gain considerable weight. What will they do with the money? Possibilities include some shopping. Martin: “We’d be looking to do a few things, one, potentially doing acquisitions that we believe would add and create value once they’re put through a disciplined filter or process to make sure that they actually are additive. There’s nothing that we see as a must have and we don’t see any strategic holes in our portfolio right now. Jessica Reif Cohen tried again by asking about the asset mix over the next three years. Bewkes, in the understatement of the day: “In the media business we all know there’s been a lot of value destroyed through poor acquisitions and poor capital allocations. So any acquisition we do has to meet some pretty stringent return requirements.” Possible areas include cable networks, film and TV production, a stress on international — and small game publishers.
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