If we’ve learned anything about the media this year, it’s that this is Donald Trump’s world — and Time Warner Inc‘s (TWX) cable news channel CNN is cashing in on it.
In a contentious political race in which precious few things are spared from vitriolic attacks, coverage of the presidential candidates has arguably yielded more entertainment value than most television programs. With nothing in the recent past to suggest that the trend will change, Time Warner is essentially getting free money to bolster its turnaround campaign.
This was especially conspicuous in the second half of 2015, when CNN hosted two Republican primary debates.
The first one in September drew 23.1 million viewers, while the follow-up garnered 18.2 million. Undoubtedly, Donald Trump was a major draw for the Republican debates. When CNN hosted a Democratic debate in October, the viewership haul was 15.8 million — respectable, but still notably down from the other side of the political spectrum.
Thanks to Donald Trump’s copious volume of sound bites, and Ted Cruz’s borderline delusional campaign, we are virtually assured the most controversial political race in modern U.S. history. Seeing the writing on the wall well before most people did, CNN president Jeff Zucker promptly raised advertising fees.
The strategy helped boost the network’s bottom line, while the media circus surrounding The Donald added to the top.
TWX and the Evolving Media Landscape
While Time Warner has considerable assets in the “old media” sphere, it hasn’t been quick to adapt to the digital era. That aspect received a shot in the arm recently when TWX made two announcements: First, Time Warner Investments — the venture capital division of TWX — put down an undisclosed but “sizable” amount of money in Kamcord, a specialist in live-streaming applications. Second, TWX, through its Turner division, will launch FilmStruck, the network’s first foray into an online-only medium.
The new ventures for Time Warner speak to the company’s need to adapt to new conditions while not alienating its core business. The investment in Kamcord, for example, helps supplement an electronic gaming league that was formed between TWX and media company IMG. As for FilmStruck, Time Warner hopes to capitalize on a surprisingly young audience that has an affinity for independent and foreign films.
The balanced strategy allows for Time Warner to target niche audiences while servicing the general public with traditional programming — an area where the company extracts the most profit. With programming costs sending consumer cable bills through the roof, adding more channels to broadcast content with limited appeal simply would not have made sense. But the current approach, in theory, allows Time Warner to generate revenue in both old and new media platforms.
However, it will be tough to beat out fierce rivals in the crowded sector. Earlier this year, NBCUniversal, a division of Comcast Corporation (CMCSA
), announced its first online-only programming featuring A-list comedian Amy Poehler. CBS Corporation (CBS) already has multiple online streaming options, and other networks are steadily jumping on the bandwagon.
Likewise, the cable news industry presents difficult competitive challenges for Time Warner. While CNN has clearly been the most improved news network over the past year, it still falls short to dominant market leader Twenty-First Century Fox Inc‘s (FOXA) Fox News. And, TWX will certainly need an exit strategy once the Donald Trump furor dies down.
Bottom Line for TWX Stock
Nevertheless, momentum favored Time Warner, as evidenced by the company’s earnings report for the first quarter of fiscal year 2016. TWX is on an eight-hit winning streak, often besting consensus estimates by double-digit percentage points. Time Warner has outstanding profitability margins thanks to its focus on cost control, and those efforts — particularly involving Warner Bros. — helped TWX beat earnings expectations once again.
Overall, Time Warner is in an exciting phase of its business turnaround.
On one hand, the media circus surrounding Donald Trump and the race for the White House has boosted CNN’s ratings at a time when the network risked collapsing into irrelevancy.
But TWX has also made deliberately smart choices, embracing streaming technology as a means to broadcast specialized content while staying true to its traditional roots.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
