While Time Warner Inc (NYSE:TWX) realized solid growth from its Networks business last year, thanks to subscription gains at HBO and other units, the Television and Film segment didn’t fare as well. Aiming to transition those businesses as a widening selection of media take share from the company, Time Warner is looking to the video-on-demand market to provide an additional boost to earnings this year.
The idea is to monetize programming from its massive library consisting of TNT, TBS and other networks. Plus, it is aiming to alleviate the downturn in DVD demand through VOD receipts on feature films. That said, last year represented the first when electronic film sales grew enough to offset that DVD sales decline.
The company pointed to News Corp (NASDAQ:NWSA) striking a deal with Comcast Corporation (NASDAQ:CMCSA) for VOD services as a so-called “TV Everywhere” agreement. Making content available at any time on many platforms lifts distribution numbers, and thus advertiser interest.
Currently, HBO can be viewed on Google Inc (NASDAQ:GOOG)’s Android, Amazon.com, Inc. (NASDAQ:AMZN)’s Kindle, and Microsoft Corporation (NASDAQ:MSFT)’s Xbox. TWX posted $350 million in subscription VOD revenues last year, mostly from television services.
Meanwhile, its digital home video revenues were nearly $1 billion, and the company expects that figure to climb 20% this year. Because it has the largest film collection (numbering 6,000 titles), the business should be lucrative.
Time Warner Inc (NYSE:TWX) lists VOD and other expansion of distribution third among its key goals for 2013. The first it says is content improvement, while international investments rank second. Its overseas ventures are in combination with the VOD strategy. For instance, it is entering subscription VOD deals in markets such as Canada, Latin America, the U.K., and the Nordic region.
Subscription VOD offerings include the licensing of feature films and programming to broadband services. Netflix, Inc. (NASDAQ:NFLX) and Amazon are the two largest providers of those services for Time Warner. HBO and Showtime programming drive demand for its subscription. Its HBO Go product is an Internet-based VOD service.
Chairman & CEO of Time Warner, Jeffrey Bewkes believes the company can grow VOD revenues at a double-digit percentage annual rate through 2016.
Incidentally, Time Warner Inc (NYSE:TWX)’s fourth initiative for 2013 is to remove costs from the operating model. It noted IT, real estate, and overhead expenses as examples. In tandem with a slate of upcoming films and programming that should support profitability, it ought to be in store for a better year in 2013.
Speaking of the film schedule, it will release The Great Gatsby and The Hangover Part III during the spring, before embarking on the distribution of a solid group of summer theatrical films.
The conclusion is that Time Warner’s TV and film unit may well be a contributor to profit gains this year, rather than a detriment. It will continue to repurchase its own common stock at an aggressive rate, likely allowing for improved share earnings. Given a favorable ad environment, TWX shares, valued at a below-industry average P/E, hold appeal at this time.
The article Time Warner’s TV Growth Opportunity originally appeared on Fool.com and is written by Damon Churchwell.
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