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Cable Stays Up Amid Big Media Losses

The downgrades, writedowns and red ink may be sinking big media companies' balance sheets, but cable operations are looking increasingly bouyant.

At News Corp., which lost $6.4 billion in the final quarter of 2008—and wrote down the value of its assets by $8.4 billion—cable networks reported a $91 million jump in operating income to $428 million when compared with the same period last year. Fox News Channel and Big Ten Network, among others, helped the 27% growth.

Similarly, Time Warner, which recorded a $16 billion loss in the fourth quarter, reported that television network ad revenue was up 10% for the year and 7% fourth quarter. Full-year operating income at the segment, which includes TNT and TBS, was up 3% to $3.1 billion, while revenue was up 9% to $11.2 billion.

Strip out political spending on CNN, and UBS analyst Michael Morris estimates the unit still had a 3% increase in ad revenue in the fourth quarter. HBO and its multiple services even recorded the company's biggest-ever subscriber numbers at 40 million.

Even smaller players are bucking trends. Scripps Networks Interactive also reported a quarterly loss last week, but its Lifestyle Media segment, which includes HGTV, Food Network and Fine Living, increased ad revenue by 3.3% (affiliate revenue was up 21%).

“Led by HGTV and Food Network, the company had a very good fourth quarter, especially when considering the strong macro-economic headwinds we were facing,” said Ken Lowe, CEO of Scripps Networks, in a statement.

Asked to explain the anomaly at his company during an earnings call last Thursday, News Corp. CEO Rupert Murdoch said, “People are spending more time at home, watching more TV and enjoying wonderful choice.” Though, he added, “The fragmenting audience is hurting over-the-air.”

There is no doubt the broadcast networks are suffering. One ad agency chief said that among the big four networks, ratings are down 10% on average for commercial ratings, known as C3, which is the industry currency. Those numbers do not include the Super Bowl.

The exception to the cable rule was Disney's ESPN, which has been hurt by its exposure to automotive and financial advertisers along with rising rights fees. Operating income at Disney-owned cable networks dropped 12% for the quarter, while the broadcasting unit dropped 60%, down by $205 million to $138 million.

This week, the TV marketplace will have a better handle on how much ad coin will remain in both broadcast and cable coffers. Procter & Gamble has already exercised an option to take back as much as 50% of its ad buys. Executives both on the buy and sell sides suggest that figure is in the $50 million to $80 million range.

At Fox, the second-quarter cancellation options are expected to end up in the 11% range, said News Corp. President and COO Peter Chernin. The past several years, cancellations were 7%-8% for the period, he added.

On Feb. 6, Mel Berning, A&E Television Networks' ad sales chief, predicted cancellations would be in the low to mid-teens.

However well cable networks have been doing, they're unlikely to be shielded from advertiser cutbacks. “National cable is running fairly similar to broadcast networks,” said Chernin on the subject of marketer cancellations. It is unclear whether money pulled out will reappear in the year-round scatter marketplace. Viacom reports fourth-quarter results on Feb. 12.

“There's a tremendous amount of pain and lost revenues,” said NBC Universal CEO Jeff Zucker in New York last week at a conference. “In figuring that out, we're going through an unbelievable transition, and so the economic problems that we're all experiencing now, on top of the transition, is almost a double whammy.”