(Bloomberg) -- Time Warner Inc., owner of the Warner Bros. studio, is showing how to survive cord-cutting, posting third-quarter earnings that beat expectations.
The entertainment giant, which is being acquired by AT&T Inc., managed to keep pay-TV subscription revenue growing at HBO and at its Turner networks, where advertising fell, while waiting for its merger with AT&T Inc. to close.
The results are a boost for the phone giant, which is awaiting approval of the $85 billion transaction. Time Warner, which owns cable networks CNN and TNT, is fighting for ways to retain subscribers as competition grows from digital distributors like Netflix Inc. HBO, the New York-based media group’s premium video service, was a profit driver with the return of hugely popular shows such as “Game of Thrones.”
Earnings excluding some items were $1.82 a share, Time Warner said in a statement Thursday, exceeding the $1.58 average of analysts’ estimates. Revenue rose to $7.6 billion, topping analysts’ expectations of $7.4 billion.
Time Warner rose 0.8 percent to $99.50 in early trading. AT&T gained as much as 0.7 percent to $33.73.
Earlier this week, the two companies extended the deadline for closing their merger, according to a regulatory filing. AT&T chief financial officer John Stephens said on its earnings call this week that the company still expects to complete the deal by yearend.
One area of strength was the Warner Bros. movie studio, which posted record third-quarter operating income. The studio is leading peers as measured by domestic box office grosses. While it is expected by some analysts to be overtaken by Walt Disney Co. by yearend, hits in the three months included horror feature “It” and World War II epic “Dunkirk.” In the fourth quarter, Warner Bros. will release another DC Comics movie, “Justice League.”
Total programming expense growth, especially from the new National Basketball Association contract, had been expected to ease and generate an increase in adjusted operating income for 2017, analysts at Bloomberg Intelligence said before the report. Time Warner has been benefiting from a new affiliate fee cycle at Turner and premium channel HBO is also become a key profit contributor in the second half on affiliate-fee gains.
The media group has hedged against the rise of cord-cutting, or people dropping their cable subscriptions, with investments outside the conventional pay-TV business. They include buying a 10 percent stake in the Hulu streaming service and introducing online channels like HBO Now for consumers who don’t pay for cable.
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