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Time Warner warns on ad revenue as ratings fall, shares plunge

A woman walks past the Time Warner Center near Columbus Circle in Manhattan, New York July 16, 2014. REUTERS/Adrees Latif

By Anya George Tharakan and Arathy S Nair

(Reuters) - Time Warner Inc (TWX.N) - the owner of cable channels TNT, TBS Cartoon Network - said ratings for its "key" domestic entertainment networks have dropped more than anticipated, which will result in a fall in ad revenue next year.

The warning, which echoed a similar one from ESPN and ABC-owner Walt Disney Co (DIS.N) in August, sent Time Warner's shares plunging more than 10 percent on Wednesday.

Cable companies and broadcasters have been hit by a shift of viewers to online services such as Netflix

Time Warner said it was evaluating whether it should retain rights on its content for a longer period before licensing it to third-party streaming services.

Disney's shares, along with those of Viacom Inc (VIAB.O) and Discovery Communications Inc (DISCA.O), also fell. Shares of Twenty-First Century Fox Inc (FOXA.O), which reported lower-than-expected quarterly revenue on Wednesay, fell 7 percent.

Time Warner, which also owns ad-free HBO and news channel CNN, also cut its 2016 adjusted profit forecast, citing a strong dollar, and said it would not meet its 2018 earnings forecast of $8 per share.

Chief Executive Jeff Bewkes said Time Warner expected the impact of a stronger dollar to be about the same in 2016 as in 2015, at around 50 cents per share.

Bewkes said that with consumers shifting online, it was important to provide even more on-demand content.

"It's critical that we push on the accelerator because every day it becomes clearer that the trends we anticipated are happening, and in some ways they are happening even faster than we expected," he said on a call with analysts.


At the shares' low, the selloff wiped out about $6.5 billion of market value.

Time Warner said it now expected adjusted earnings of $5.25 per share for 2016, down from its earlier forecast of "close to $6". Analysts on average had expected $5.60.

The company's shares were down slightly in earlier trading after the company reported better-than-expected third-quarter profit and revenue, boosted by higher HBO subscription fees and a rise in licensing revenue at its Warner Bros. studio business.

Revenue at Warner Bros. rose about 15 percent in the quarter ended Sept. 30, helped by the releases of the "LEGO Dimensions" and "Mad Max" videogames.

The syndication of TV shows "2 Broke Girls" and "Person of Interest" also boosted revenue at the studio, which accounts for about half of Time Warner's total revenue.

Revenue at HBO rose 4.8 percent as more people signed up for popular shows such as "Game of Thrones" and "True Detective".

The company, which has exceeded profit estimates in the first three quarters of 2015, kept its full-year adjusted profit forecast of $4.60-$4.70 from continuing operations.

Time Warner's total revenue rose 5.1 percent to $6.56 billion in the three months ended Sept. 30.

Net income attributable to shareholders rose 7 percent to $1.04 billion, or $1.26 per share.

Excluding items, Time Warner earned $1.25 per share.

Analysts on average expected earnings of $1.09 per share on revenue of $6.51 billion, according to Thomson Reuters I/B/E/S.

Up to Tuesday's close of $70.77, Time Warner's stock had fallen about 9.5 percent this year.

(Reporting By Arathy S Nair and Anya George Tharakan in Bengaluru; Editing by Savio D'Souza and Ted Kerr)