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Time Warner Earnings Buoyed by Subscription Revenues

Time Warner's full-year results, released February 3,
continue to show just how reliant the cable content providers are on
subscription revenue from distributors. With consumers buying fewer DVDs, advertisers
cutting back and CNN suffering a post-election-year ratings drop-off, the
bright spot out of the media giant's networks unit was again subscription

In 2009, subscription revenue at the networks unit rose 10%,
while advertising revenue fell by 3% and revenue derived from content sales
such as HBO DVDs dropped by 10%. In the fourth quarter, subscription revenue
was up 11% while ad revenue was off 4% and content revenue fell 22%. The ad
revenue performance in the quarter, however, beat Morgan Stanley's projection
of a 4.5% decline for the period.

The extent to which cable content owners can continue to
demand double-digit fee increases from distributors is up for debate given the
recent battles between Time Warner Cable and News Corp. and between Cablevision
and Scripps Networks Interactive. For now, it looks like the content side is

Wall Street is wondering just how much longer big media
companies can rely on subscription increases to grow their cable channel revenue.
Bernstein Research analyst Michael Nathanson posed the question to News Corp.
on its Feb. 2 earnings call, though management did not see it as an issue.

Time Warner's networks unit, which includes Turner Broadcasting
and HBO, saw a 3% decline, to $87 million, in advertising revenue for the full
year. The drop is largely attributed to the fall-off in ad revenue and ratings
at CNN compared with the previous year's bumper political season. Full-year
revenue in the unit rose 5%, to $11.7 billion, thanks to a 10% bounce in
subscription revenue. Content revenue was down on lower sales of HBO original

The unit took an $8 million restructuring charge along with
a fourth-quarter write-down of $104 million at Turner related to a licensed
program from sibling studio Warner Bros. The financial statement did not detail
the expense further.

Programming costs were up $316 million because of Time
Warner's consolidation of HBO Latin America and also at Turner, which is investing
in more original material. Sports costs were lower, however.

In the fourth-quarter period, revenue at the networks unit
was up 4%, to $3.1 billion, thanks to an 11% increase in subscription revenue,
though advertising revenue was off 4%, or $37 million. Content revenue was also
down 22%, or $59 million, reflecting consumers increased desire to rent rather
than buy DVD programming. Operating income was up 32%, to $772 million, the big
rise largely attributable to a Q4 2008 charge the unit took related to a
judgment against Turner over the sale of winter sports teams.

Company wide, Time Warner fourth-quarter revenues were up 2%
from the year ago period, to $7.3 billion, while operating income was $1.2
billion on growth at the networks and the filmed entertainment division. Time
Warner recorded a $7.2 billion non-cash impairment charge for the fourth
quarter 2008.

Revenue for the full year was off 3%, to $25.8 billion,
because of lower revenue at the publishing and studio units. Operating income
was $4.5 billion versus a loss of $3 billion in the year ago period.