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Hightlights from Time Warner 1Q07 Earnings Call May 2, 2007

Posted by David Card in Media.
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As usual, I’ll focus on industry-related bits, rather than the financials themselves. Slides and releases are here.

Overall revenues were up 9% to $11.2 billion, but it’s really all from cable acquisitions. Cable’s up 61%, but 10% pro forma. AOL revenues were down 25%, though advertising is up 40%. Filmed entertainment, Networks, and Publishing were all flat to down 1%. But CEO Dick Parsons is justifiably pleased by 1) AOL’s transition from dial-up subscription business to an ad-based one, 2) cable, and he added a 3) that he was confident about the outlook for 2007. TWX confirmed guidance and raised EPS outlook.

AOL
– Advertising up 40% to $549 million. Fourth quarter in a row with that growth rate. There was an accounting change; so growth was really 35%. It will slow during 2007, but execs expect to outgrow the industry, and all the big guys but Google.
– Domestic, ex-TAC (meaning, minus the revenue shared with Advertising.com partners) was $345 million, up 25%. Display on AOL grew 32%; search on AOL grew 26%.
– Advertising.com partner site revenue grew 81%, but if you subtract a big customer (almost certainly MySpace), growth was 29%. Google’s “owned & operated” business continues to grow faster than its partner business. I’m not sure I love this trend for AOL.
– AOL has about 8 million registered free users, about half of whom changed over from paid access, and half are new. It still has 12 million dial-up customers, and the decline (1.2 million) was slower than in recent quarters. TWX execs said 80% of the churners were maintaining a free registered account.
– Execs continue to believe that going from dial-up to broadband increases usage dramatically (Jupiter agrees). That’s why they’re bullish on getting AOL page views and “engagement” up, and thus growing O&O ad dollars. I have to say, though, I wish page views and pages per visitor were starting to go up. They’re not. TWX execs are confidant they will.
– Responding to a question about investing in AOL, execs said, yes, they would (meaning no, they’re not shopping AOL) and that the aborted acquisition of TradeDoubler was “a fairly good indication of what we’ll look at.” That strikes me as a bit odd. A pure media company thinking more about investing in infrastructure than in other media properties. Yes, portal plus ad network is the second best online media business model these days — after Google — but one would think Time Warner core competencies were more about audience and programming (and selling ads) than about business services.

Cable

– The acquired customer base is beginning to show improvement in churn and ARPU. Just beginning.
– Triple play penetration is 12%. VOIP will be available to the entire cable footprint by the end of 07.
– 276K net adds in digital; 7.5M total; penetration at 56%
– 356K net adds in broadband; 7M total; penetration at 27% of capable homes
– 234K net adds for VOIP; 2M total; 12% penetration of capable homes
– Parsons: “We like cable…those guys are shooting the lights out.”

Other Tidbits

– TV: strong scatter market they think usually precedes a strong upfront. “No one knows” how DVRs and measuring ad minutes will play out, but “We’re not worrying about it much.”
– Filmed Entertainment has a tough comparison quarter because of strong DVD sales a year ago. Strong lineup coming, though.
– It’s too early to tell, they said, but initial results of day-and-date VOD trials seem to be eating into rental, not DVD or theatrical. And it seems to help the take rate.
– More or less denied that DVD sales were slowing, or that box office is in permanent decline. Blamed both on the whimsy of the “slate”: i.e., good movies will restore $$. I remain totally unconvinced, esp. on DVD sales. Box office and DVD sales will definitely ebb and flow and never completely go away, but the initial DVD library stocking is done.
– Execs were very pleased with magazines’ online ad sales, which offset print declines. People, CNN Money, and Sports Illustrated were strong online.

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