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Cable, Ad Gains May Drive Big Media

CNBC’s Jim Cramer described media, and cable in particular, as potential bull markets on his show last week, and if the latest earnings reports are any indication, he might have gotten that one right.

News Corp. and Time Warner numbers beat the Street; the companies also increased their dividends and raised guidance for the full year. Analysts are seeing positive signs as well for companies like Discovery and CBS, which are among those releasing numbers in the next two weeks.

News Corp. said operating income for its fiscal full year, which ends June 30, could rise upward of 20%, while Time Warner gave guidance that earnings would be up in the mid-teens in 2010. So it would seem at least for now that the billion dollar writedown era is closed.

Much of that optimism comes courtesy of cable. News Corp.’s cable unit saw operating income rise 35% in the quarter ended Dec. 31, while HBO and Turner had their biggest profits ever in 2009. Subscription increases largely drove the gains.

But if there was a key takeaway for those who watch earnings for hints of the future, it may have come from outside the boundaries of television. Book publisher Macmillan won the upper hand in negotiating more favorable pricing models with Amazon, thanks to the imminent arrival of Apple’s iPad.

Laura Martin, senior media analyst with Needham & Co., agreed with News Corp.’s Rupert Murdoch and Time Warner’s Jeff Bewkes that the old “content is king” adage is holding up. “Both CEOs stated a belief in the pricing power of content over digital platforms. I think that is now clear,” she said. “The last two weeks have shown us that in competitive markets with multiple paths to the consumer, the pricing power of premium content will remain intact.”

Martin was also upbeat on the advertising environment. Executives on calls said 2010 was off to a good start, though Wall Street’s tumbles late last week dragged down the media sector as well. The Street gets more information this week as Walt Disney Co., Discovery Communications, Scripps Networks Interactive and Viacom roll out earnings.

Morgan Stanley is penciling in a 5% uptick in ad revenue at Discovery for 2010 and 10% earnings growth. As for Viacom, Benjamin Mogil, Internet and media analyst at Thomas Weisel Partners, is expecting its networks to show a 4% decline in ad revenue for fourth quarter, on par with what Time Warner’s cable-networks unit turned in last week.

CBS won’t present until Feb. 18, but after seeing a good performance from the Fox Stations Group, Barclays Capital raised estimates for CBS, giving that stock a bounce mid-week.

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