(Reuters) - Comcast Corp and Time Warner Inc reported stronger quarterly results on Wednesday, confirming that it pays to have a solid lineup of cable networks — at least while advertisers keep spending.
Against all odds, advertisers continue to scoop up commercial time on television, and cable networks including Time Warner’s TNT and Comcast’s USA have been major beneficiaries. Subscription fees have only helped.
That point was driven home on Wednesday when Time Warner reported revenue from its cable networks rose 7 percent. Comcast, whose cable business is run through its majority interest in NBC Universal, posted a 12 percent increase.
“Cable networks drive the profitability of NBC Universal and they continue to perform well,” said Comcast Chief Executive Brian Roberts, who has staked his reputation on last year’s $30 billion deal for NBCU.
Comcast’s cable network results stand out even more compared with the performance of its flagship broadcast TV network NBC, whose prime-time schedule has struggled for years. Already NBC has canceled two shows it just rolled out for the new TV season, “Playboy Club” and “Free Agents.”
“The cable networks like USA are firing on all cylinders. Unfortunately, the public face of NBC Universal is the broadcast network, and that is just struggling,” said Sanford Bernstein analyst Craig Moffett.
At Time Warner, where CEO Jeff Bewkes wants to focus the company squarely on creating content for TV, movies and magazines, advertising sales climbed 6 percent.
It cited strong pricing at its Turner networks, home to original shows such as “The Closer,” the late-night talk show host Conan O’Brien, news on CNN and sports including basketball and auto racing.
Bewkes also continued to champion TV Everywhere, an initiative to bring more TV shows online for paying cable subscribers, especially those who subscribe to HBO and other premium channels. HBO Go, the mobile version of the channel, has reached so-called authentication deals with most major carriers except Time Warner Cable Inc and Cablevision Systems Corp to date.
“We have made a lot of progress with the two major affiliates who don’t yet have authentication agreements. I’m hopeful for their sake they will be up and running in the next few months,” Bewkes said on a call with analysts.
Overall, Time Warner Inc’s adjusted earnings rose a better-than-expected 27 percent to 79 cents a share despite a dip in adjusted operating profit at its cable networks. That dip caused Time Warner Inc’s shares to fall as much as 3.7 percent on Wednesday.
“Although we appreciate this concern, we view this as a slight over-reaction given the 7 percent growth at the cable networks and the strong, 18 percent overall adjusted operating income growth,” said Collins Stewart analyst Thomas Eagan.
Time Warner also raised its full-year outlook for earnings per share growth to “high teens” percentage points from “at least low teens”.
Along with its cable business, the company got a big lift from the latest installment of the Harry Potter movie series.
It is not just Comcast and Time Warner whose results are enjoying the one-two punch of cable advertising and cable subscription fees. Discovery Communications Inc, the company behind hit cable TV shows “Storm Chasers” and “Deadliest Catch,” reported quarterly results late Tuesday that surpassed Wall Street expectations.
Next up is News Corp, whose cable networks should emerge from the long shadow cast by its troubled newspaper arm when it reports earnings later on Wednesday. Walt Disney Co, with some of the best cable brands in the business, including ESPN, reports next week.
Today’s stubbornly bad jobs and housing markets — coupled with Europe’s debt crisis — would seem the sort of troubles that would have advertisers once more slashing budgets.
Advertisers instead appear to be betting that the best way to jump-start sales is to keep their brands in front of consumers with billboards, digital campaigns and, particularly, TV commercials.
Heading into Wednesday, the economy was a major question facing media companies, particularly Comcast. Not only does Comcast rely on advertising from its TV networks, but its chief business of selling broadband, video and telephone services relies heavily on the housing market and consumer confidence.
Overall, it added 229,000 telephone, video and Internet customers. That satisfied Wall Street and calmed worries that arose last week when Time Warner Cable and Cablevision Systems posted disappointing subscriber numbers.
Comcast reported third-quarter net income of $908 million, or 33 cents a share, up from $867 million, or 31 cents a share, in the period a year ago.
Shares of Comcast were up 0.5 percent at $23.08 on Wednesday afternoon.
Reporting by Paul Thomasch and Yinka Adegoke in New York; additional reporting by Jim Finkle in New York; editing by Derek Caney and Matthew Lewis