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Ad-Sales Recovery Picks Up Steam

5/11/2010 6:37 AM Eastern

Advertising sales, in the
pits for more than a year, appear
to be climbing back into positive
territory, with four top cable
programmers announcing gains
in the past several weeks.

Viacom kicked off the optimism
on April 28 when — after
more than a year of declines — it
reported a 1% increase in domestic
ad revenue in the first quarter
and that the upward trend was
continuing. That was followed
by Discovery Communications
— the only publicly traded cable
programmer to show domestic ad
gains in 2009 — reporting a 9%
first-quarter increase on April 30.

The good news continued to roll
in last week, as News Corp. and
Time Warner Inc. each reported
increases in ad revenue (up 19%
and 9%, respectively) and adding
fuel to the growing optimism that
a recovery is in the works.

News Corp. reported overall
fiscal third-quarter revenue up
19% to $8.8 billion and an operating
income increase of 55% to
$1.25 billion, on May 4.

UPFRONT OPTIMISM
The increases were fueled by
strong gains in its cable channels
and a big boost in box-office receipts at its film division,
spurred by the biggest grossing
movie of all-time, Avatar.

The film division had the largest
percentage gain in operating
income — 76%, to $492 million.
At the cable networks, advertising
revenue was up 19% and operating
income rose 38% to $588
million, representing nearly half
of the total operating income
generated by the company. Fueling
that growth was a 31% increase
in operating income at
Fox News Channel (its highestever
quarterly profit). At News
Corp.’s other cable channels, like
its Fox Sports regional sports networks
and FX, operating profit increased
42% due mainly to higher
affiliate fees.

At the television group, which
includes TV stations, MyNetwork-
TV and Fox Broadcasting, operating
income rose more than 4
times to $40 million from $9 million
in the prior year.

On a conference call with analysts,
News chairman Rupert
Murdoch said a combination of a
recovering advertising market and
higher affiliate fees drove results.

“There is a lot of money out
there on the boards,” Murdoch
said on the conference call. “Our
advertising people are very optimistic
about the upfront and the
network.”

Murdoch said that while the
broadcast audience is shrinking
— he claimed Fox is shrinking less
that the competition — that bodes
well for the cable networks.

“That money is finding its way
across into the cable networks,”
Murdoch said.

On the broadcasting side, retransmission
consent is proving
to be a big boon for the Fox broadcast
network, although the media
giant stopped short of quantifying
it.

“Retransmission is a real breakthrough,”
Murdoch said.

Affiliate fees also have been a
big driver. News Corp. said that
renewal agreements are expected
to begin coming up for Fox News
Channel at the end of the year.
The channel has enjoyed hefty increases
in affiliate fees in the past
— with some distributors agreeing
to pay as much as 75 cents
per subscriber per month for the
channel. That was up by some estimates
from old deals that were
priced as low as 25 cents per subscriber
per month.

News Corp. chief operating officer Chase Carey said the company
did not wish to negotiate deals
publicly, but he hinted that the
next round of Fox News renewals
won’t be cheap for distributors.

“I think Fox News network and
the power and importance of it
is, maybe with ESPN, second to
none,” Carey said. “It is a channel
that has built an enormous
following, an enormous audience
and is tremendously important to
a major segment of the country.
And heading into a complicated
political arena that probably gets
more complicated between now
and 2012, I think the importance
of that channel and the value of
that channel probably has never
been higher. What we are going to
do is get fair value for that channel.
We will pursue that appropriately
and aggressively.”

At Time Warner, ad revenue
rose 9% at its cable networks —
including Turner Broadcasting,
TNT and Cartoon Network.
Chairman and CEO Jeffrey Bewkes
said on a conference call
with analysts May 5 that during
the first quarter, scatter-market
pricing was 20% to 30% above the
upfront and “remains strong.”

Turner has been making moves
on the programming front — it
signed a 14-year deal with CBS
and the NCAA to carry the Men’s
basketball tournament, beginning
in 2011. And its TBS network
also scored a coup in signing former
Tonight Show host Conan
O’Brien to the network beginning
in November.

Bewkes said on the call that the
NCAA deal is a “game changer”
for Turner and “will dramatically
increase the appeal of TNT, TBS
and TruTv with viewers, advertisers
and affiliates, and will achieve
all that at what we consider to be
a relatively moderate annual cost,
which is locked in over a very long
period of time.”

He added that coupled with
The George Lopez Show, the addition
of O’Brien to the schedule
cements TBS as the No. 1 comedy
network.

“TBS will eventually own late
night,” Bewkes said.

Bewkes had little to say about
speculation that its CNN news
network was in talks with broadcaster
CBS about possibly combining
news operations. While
that speculation has been around
for years, recent reports have stated
that the two are close to a deal.
Bewkes wouldn’t comment directly
on CBS, but said that CNN
continues to be profitable and any
structural change would have to
be of benefit to both CNN and a
broadcaster.

Bewkes said that it is no secret
that Time Warner has spoken
with broadcasters over the years
about possible efficiencies.

“We have long been in discussions
with all candidates to see if
there is a way to create rational
improvements for both parties,”
Bewkes said. “We don’t have anything
defi nitive to tell you about
that now.”

Still, Bewkes added that it was
“entirely possible” that the cable
news channel could come to
some sort of structural agreement
with a broadcaster in the next 12
months.

Overall, revenue was up 5% to
$6.3 billion and adjusted operating
income increased 37% to $1.4
billion (its highest level ever), fueled
mainly by growth at the cable
networks and film division.

TIME WARNER IMPRESSES
At the networks, which includes
Turner Broadcasting and Home
Box Office, revenue increased
9% to $3 billion and adjusted operating
income increased 22% to
$1.1 billion.

Collins Stewart media analyst
Tom Eagan was particularly encouraged
by Time Warner’s performance.

In a research note, Eagan called
the results “impressive” and that
the gains at the cable networks
were particularly noteworthy
given ratings declines at several
channels, most notably CNN.

“As we had expected, it appears
that the Street’s concern over the
decline in CNN’s ratings was
overdone,” Eagan wrote.

Bewkes also touted a recent
deal with DVD rental outlets
Netflix and Redbox, extending
the rental windows on new releases
to 28 days. While that extra
time is expected to have a big
impact on increased DVD sales
— Bewkes said that about 75%
of DVD sell-through occurs in
the first 4 weeks after release —
it could also have an effect on
high-margin video on demand
sales. He noted that joint cable
and studio marketing efforts to
drive VOD usage are just getting
underway.

“As VOD gets more important,
that is going to be the bigger part
of this equation,” Bewkes said.

 

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