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Time Warner Holds On in Q1

While its ultimate fate hangs on whether U.S. District Court Judge Richard Leon believes its $108.7 billion merger with AT&T is in the public interest or the biggest affront to consumer protections in recent memory, Time Warner Inc., showed that it can still hold its own separately, with revenue up a modest 3% in Q1 while net income rose a strong 15%, due mainly to tax reform.

Judge Leon is expected to rule on the AT&T-Time Warner antitrust case in the next several weeks – the trial is currently in the rebuttal phase and should be completed before the end of April. Closing arguments were scheduled for Monday, April 30. Judge Leon has said that the trial must conclude before the end of this month if the parties want his decision to be rendered before their self-imposed deadline for the deal of June 21. 

While AT&T and Time Warner executives have testified that the deal is essential to their collective survival, both seem to be weathering the earthquakes of change in the media business – AT&T reported first quarter earnings Wednesday night, adding 312,000 new customers to its over-the-top product DirecTV Now, offsetting losses in its traditional satellite and IP video offerings. 

At Time Warner, overall revenue was up 3% to $8 billion fueled by gains at Home Box Office and Turner. Operating income fell 13% to $1.8 billion and adjusted operating income dipped 8% to $2 billion due to declines at all the company’s segments.

Net income increased 15% in the period to $2.07 per share, although about 49 cents of that performance was due to tax reform and the settlement of a federal tax audit.

On the TV side, revenue at Turner was up 8.3% to $3.3 billion, fueled by an 8% gain in subscription revenue. Ad sales were up 9% in the period, due mainly to a strong showing by the NCAA Men’s Basketball Tournament (March Madness). At HBO, revenue increased 3.3% to $1.6 billion in the quarter. Adjusted operating income at Turner was down 5% $1.13 billion and dipped 10% at HBO to $535 million in the period.

At its Warner Bros. division, revenue fell 4% to $3.2 billion and adjusted operating income was down 25% to $383 million, due to lower television and theatrical sales.

Time Warner chief Jeff Bewkes

Time Warner chief Jeff Bewkes

Time Warner managed to maintain its full-year guidance – it expects adjusted operating income to rise in the high-single digits company-wide, with mid-single digit increases in subscription revenue at Turner.

“We’re off to a strong start to 2018 and we remain on track to meet the financial goals we laid out at the beginning of the year, as we continue to execute our strategic objectives, including investing in and delivering the most compelling content to audiences around the globe and across platforms,” Time Warner chairman and CEO Jeff Bewkes said in a statement. “We look forward to the resolution of the legal challenge to our pending merger with AT&T and remain excited about the benefits of the merger, such as the potential to further strengthen our businesses by accelerating our innovation and increasing our ability to connect more directly with consumers.”