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Executives

John Martin - Chief Financial Officer and Executive Vice President

Jeffrey Bewkes - Chairman and Chief Executive Officer

Douglas Shapiro - Head of Investor Relations

Analysts

Imran Khan - JP Morgan Chase & Co

Spencer Wang - Crédit Suisse AG

Anthony DiClemente - Barclays Capital

Benjamin Swinburne - Morgan Stanley

Richard Greenfield - BTIG, LLC

Michael Nathanson - Sanford Bernstein

Jason Bazinet - Citigroup Inc

Douglas Mitchelson - Deutsche Bank AG

Time Warner (TWX) Q3 2010 Earnings Call November 3, 2010 10:30 AM ET

Operator

Welcome to the Q3 2010 Time Warner Earnings Conference Call. My name is Keith, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Doug Shapiro, SVP, Investor Relations. Please proceed, sir.

Douglas Shapiro

Thanks a lot. This morning, we issued two press releases, one detailing our results for the third quarter and the other updating our 2010 full year business outlook. Before we begin, there are two items I need to cover.

First, we refer to certain non-GAAP financial measures, schedules setting out reconciliations of these historical non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and trending schedules. These reconciliations are available on our website at timewarner.com/investors. Reconciliations of our expected future financial performance are also included in the business outlook release that's on our site.

And second, today's announcement includes certain forward-looking statements, which are based on management's current expectations. Actual results may vary materially from those expressed or implied by these statements due to various factors.

These factors are discussed in detail in Time Warner's SEC filings, including its most recent Form 10-K and Form 10-Q. Time Warner is under no obligation and, in fact, expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Thank you, and I'll turn the call over to Jeff.

Jeffrey Bewkes

Thanks, Doug. Thanks, everyone, for listening this morning. We had another strong quarter, and we're on track for another terrific year. More important, we're positioning ourselves to take advantage of the opportunities that digital distribution will bring. This quarter, Turner, again, posed a double-digit advertising growth. We're continuing to benefit from strong demand for our inventory on TNT and TBS. And while we have ratings challenges at CNN that we are addressing, we've had solid ratings growth at several of our other Networks, including truTV, Turner and Adult Swim.

We saw outstanding results from our most important new content this quarter. On TNT, our new show, Rizzoli & Isles, became the number one original series of all time on ad-supported Cable. On HBO, Boardwalk Empire is on track to become the most watched first year series in the network's history.

At Warner Bros, our blockbuster movie, Inception, generated over $800 million at the global box office, and we're having a great start to new television season. In addition to the success of our returning shows like Two and a Half Men, The Big Bang Theory and The Mentalist, a new show, Mike & Molly, is the number one new comedy on TV.

Looking forward, we expect improved ratings performance at our biggest entertainment Networks in the fourth quarter, driven by our strong lineup of original, the debut of Conan's new show next Monday and outstanding recent performance from our sports program. In fact, our coverage of the Major League Baseball American League championship series was the most watched league championship ever on TBS. And NBA Opening Night was the most watched regular season NBA game ever on Cable TV. This should enable us to continue capitalize on the solid demand in the scatter market, with pricing up 15% to 20% over the healthy prices that we saw in the 2010, 2011 upfront.

And we're excited about the films that we're premiering this month. As you all know, Harry Potter and the Deathly Hallows opens in a few weeks. And just this weekend, we're opening Due Date from the Hangover Director, Todd Phillips, which could be another sleeper hit. All that momentum gives us the confidence to, again, raise our full year outlook. We now expect adjusted earnings per share to grow at a rate in the high 20s over 2009. And last year was a year when we grew adjusted earnings per share by 29%.

John will walk you through the results in detail in a few minutes. But overall, it's shaping up to be another very good year. I'd like to shift gears now and update you on a bigger picture issue that has made plenty of headlines in the way and that's the impact of digital distribution on our businesses. Clearly, digital distribution present some new challenges for the industry, but we believe that the opportunities significantly outweigh the risks. The unequivocal good news is that digital distribution offers consumers a better experience, with more choice, more convenience and more control. As a result, there's more demand than ever for the kind of high-quality content that we make, and it's a testament to that demand that so many companies are devoting so many resources to finding new ways to distribute and monetize our films and our TV shows and magazines.

The question, of course, is how do we take advantage of these opportunities in a way that both enhances the consumer experience and enhances our economics. First, we're supporting an array of Networks to allow consumers to access Time Warner content on whatever device they want, wherever and whenever they want in a way that's attractive and convenient for them and economically beneficial for us. In other words, buy our content once and use it in multiple places. Think of it as content everywhere. I'll talk more about this idea in a moment.

And second, we're experimenting with new business models that enable consumers to use and access our content in ways they couldn't before. As just one example of that, we will help lead the industry to launch a premium video-on-demand service that will enable consumers to watch recently released theatrical movies at home in high definition and eventually, in 3D. We're near agreement with our distributors on the right window and the right price point, and we expect to start offering our movies this way nationwide by the second quarter of next year.

Let me come back to this idea of content everywhere. It means something slightly different in TV, film and magazine, so I'd like to touch on each of those. In TV Networks and production, it means TV Everywhere. And as you know, TV Everywhere is a framework to provide TV subscribers with a huge array of TV content, everything on the dial and have it on demand on a wide variety of devices for television, the PC, tablets, mobile devices at no extra charge. TV Everywhere promises to give consumers that flexibility while also bolstering an ecosystem that has produced such high-quality programs and so much choice.

A year ago, there was vibrant debate about whether free was a good business model. TV Everywhere was just a concept, and many argued that it wouldn't work. So where are we now? TV Everywhere has made tremendous progress in a very short period of time. Today, there is widespread acknowledgment among content providers that free ad-supported websites cannot replace powerful dual revenue stream business models. But it's being adopted across the industry faster than anyone expected.

Every major programmer has announced plans to participate. CBS, Discovery, Disney, Liberty, NBC Universal, News Corp, Scripts, Viacom, among others. As one important step, just last week, Disney launched authenticated versions of ESPN and ESPN 3 in most Time Warner Cable markets. In the last few weeks, we've launched TV Everywhere versions of TNT and TBS across the entire footprints of both Comcast and Dish, and we have many more announcements pending.

We also have several deals pending for HBO GO and MAX GO, and now expect the services to be accessible to the vast majority of our HBO-Cinemax subscribers within a few months. In fact, some form of TV Everywhere is now available to over 50 million homes, and we expect it will be available to 70 million by the second quarter of next year. That's six months ahead of plan.

In Film, content everywhere means enabling consumers to buy a movie once and then access it everywhere on a wide variety of devices. As we talked about with you before, digital is good for the Home Entertainment business. It's more convenient for consumers, and it generates higher gross profits for us. Video-on-demand movie rentals have been growing at a rapid rate recently but so far, electronic sales have lagged. The problem is it just isn't convenient for consumers to buy digital movies and then try to watch them on their TVs and move them from device to device. So we're leading the industry on several initiatives that seek to change that by improving the buying experience and expanding the suite of rights that consumers get when they purchase a movie or a television show.

One of these is the ultraviolet consortium. Ultraviolet, which has broad backing from studios, consumer electronics manufacturers and retailers, will allow consumers to buy movies from a huge variety of retailers and then to access them at no extra charge across a broad array of apps and devices, wherever and whenever they want. It should make digital ownership just as compelling and convenient as owning a DVD, if not more so. We can't be more specific about the plans for ultraviolet today, but you can expect to hear a lot more about it and related initiatives in the coming months.

Finally, in magazines. Content Everywhere means offering our subscribers a convenient, attractively priced way of enjoying our titles in prints and enhanced electronic versions across as many devices as possible. If you download an iPad version of one of our Time Inc. magazines, you know that it's a rich and compelling consumer experience. As you'd expect, we want to offer our customers a range of purchase options, including single copy sales, digital subscriptions and combined print and digital subscriptions. Right now, for example, subscribers to People's print edition can now access the People iPad app for free.

In the near future, we expect to announce deals with other tablet makers that offer our readers flexible ways to access all our electronic titles. We're confident that as the competition increases in that space, every tablet manufacturer will want to give its consumers the same range of choices and the same value.

Speaking of Publishing, before I pass it off to John, I'd like to comment on an important management change that we made during the quarter. We recently appointed Jack Griffin as the new CFO of Time Inc. As you know, Jack is succeeding Anne Moore, and Anne is retiring after for more than 33 years of outstanding service to the company. Over her tenure, Anne grew and launched some of the biggest, most important and most profitable titles in history titles like People, In Style and Real Simple. She made an indelible mark on both Time Warner and on the magazine industry.

Now Jack just started a month ago, but all of us are excited about the energy and expertise he brings. It's already clear to everyone who has met him why he's one of the most highly regarded executives in the Publishing business.

So wrapping up, we're performing very well on the near term, and we're very focused on the decisions that we make today that will drive value over the long term. Digital distribution clearly present some challenges to our company and to the industry, but we think it clearly offers even greater opportunities. We're excited about the progress we're making, and we're looking forward to sharing more of the details in the coming months.

Now I'd like to hand it off to John.

John Martin

Thanks, Jeff, and good morning. I'm going to begin by referring to the first slide, which is now available on our website.

Heading into this year, we laid out for you our goals of delivering superior financial performance and prudent capital allocation, particularly with regard to returns to shareholders. We've continued to execute on both fronts, and we are very, very pleased with our progress to date. Because of some tough comparisons coming into the quarter, we expected that the third quarter would be the slowest quarter of the year for us in terms of year-over-year growth, yet it ended up that we posted some pretty good results for the quarter. Adjusted operating income grew 5% year-over-year and just a quick note, those results did include the benefit of a $58 million or $0.05 per share related to the reversal of a litigation reserve at Turner.

On a year-to-date basis, we've grown adjusted operating income 18% and adjusted EPS 36%. That's ahead of our own expectations, allowing us, once again, as Jeff said, we're raising our 2010 outlook for adjusted EPS to grow in the high 20s. So we're on track to deliver well north of 60% EPS growth in just the last two years.

From a capital plan standpoint, we're also executing according to our plan. For the first nine months, we generated about $2 billion in free cash flow, and we've returned more than 100% of that to our shareholders through dividends and share repurchases so far this year. And if you look at over the past 12 months, we've returned nearly $3 billion in dividends and share repurchases.

Moving on to the next slide, which shows our consolidated third quarter financial results. Total revenues were up 2%. And underneath that, Subscription revenues continues to be a very consistent growth driver for us, up 7% in the quarter. Advertising growth was strong again, up 9%. Content revenues fell 5% in the quarter, but that was largely due to some very difficult theatrical comparisons that we had in our film studio.

Total expenses, which include cost of revenues, SG&A and depreciation and amortization were almost flat in the quarter, and this is continued evidence of our focus on improving our operating efficiency. We've been keeping a lid on SG&A, allowing us to invest even more in Content and Other revenue generating areas. Adjusted operating income margins were also up modestly year-over-year in the quarter, and margins are up a full 200 basis points on a year-to-date basis. And we expect them to increase, again, in the fourth quarter.

Adjusted EPS grew 17%, benefiting from earnings growth, a lower tax rate and fewer shares due to ongoing repurchases. We lowered our recurring effective tax rate due to a larger share of our earnings now coming from international territories, as well as some successful proactive tax planning. So we now expect our effective tax rate to be closer to 37% on a go-forward basis as opposed to the 38% that we previously anticipated.

Let me now turn to our segment highlights, and let me begin with our Networks division. Here, we saw another quarter of really, really terrific revenue growth at both Turner and HBO, as well as strong adjusted operating income growth of 17%. Our results at this segment remain consistently strong, and we've grown revenue year-over-year every quarter since the beginning of the recession in 2008. That's a testament to the strength of our Networks and the consistency of its Subscription revenue base, which grew 9% in the quarter.

We did have about 200 basis points of that growth being contributed from the consolidation of certain international operation, so I just wanted to quickly highlight that. Let me take a moment now to comment about HBO specifically where we're, once again, on track for another record year of both revenue and profits. Looking at the subscriber picture for a moment, however, right now, we expect our year-end subscriber count to be approximately 1.5 million lower than what we reported at the end of 2009, and let me go into why that's the case.

That's due largely to unusual promotional activity by two of our distributors. First, the majority of that loss was from non-revenue-generating Cinemax subscribers that are rolling off a very aggressive retail promotion at Dish last year; and second, we've also experienced declines at another major distributor where we're currently out of contract, so we haven't benefited from normal and usual promotional activity, and we're hopeful that this situation resolves itself in a positive way in the not-too-distant future. And of course, the tough economic backdrop isn't helping.

This year, we're not seeing the usual positive impact on subscribers from normal household formation as we've seen in most years as household formation has been quite a bit lower this year in the U.S. So importantly, these subscriber losses are almost all non-revenue-generating subscribers and by contrast, our revenue-generating HBO subscriber base has been stable over the past year. And you can see that, that's evident in our Subscription revenue growth, once again, this quarter. I also want to stress that we haven't really seen any evidence of court cutting relating to over-the-top competitors. And to the contrary, we continue to see increasing penetration from those distributors and affiliates that are focused on premium TV. And I'd also just -- one more quick highlight, HBO does have, as a quick note, over 80 million subscribers worldwide with more than 40 million outside of the U.S., and we're continuing to see very vibrant growth there.

Turning to Advertising for a minute where we saw revenues grow 10% in the quarter. And here, international transactions contributed several hundred basis points to that growth. Our domestic Networks continue to benefit from strong scatter demand and ongoing yield management. Domestic entertainment Networks, together with kids and young adults, grew Advertising in the high-single digits. This was partly offset by a decline at domestic news due to the audience declines.

Core Advertising growth at our international Networks was approximately 25%. Adjusted operating income, again, grew significantly faster internationally than domestically, and that's a trend that we expect will continue in the coming quarters and years. Our international margins also expanded approximately 700 basis points year-over-year.

Looking ahead for the fourth quarter, we expect to see Advertising growth accelerate as the benefits of this year's strong upfront kick in. Demand from advertisers remains robust, pushing scatter pricing up 15% to 20% overall most at recent upfront. Adjusted operating income was up 17% in the quarter with margins expanding nearly 250 basis points year-over-year.

Looking ahead, we expect margins to expand modestly at the Networks division in the fourth quarter. For the year, we continue to expect programming costs growth to be in the mid-single digits as we continue to execute on our strategy of investing in high-quality content. So to sum up here, given the strong top line performance to-date and the encouraging Advertising trends that should translate into very strong profit growth at our Networks division for our 2010, and in its entirety.

Now let me move on to Film. Coming into the quarter, we expected that adjusted operating income at this division would decline year-over-year, and that was due to top theatrical comparisons. And you may recall that last year's third quarter benefited from having Harry Potter and the Half-Blood Prince and the late June release of The Hangover.

G&A was also higher in the current quarter due to the timing and mix of theatrical releases and the shift toward international self-distribution of new line titles. Nevertheless, this comparison masks some really bright spots in the quarter. And as Jeff said, Inception was a blockbuster, and it's generated more than $800 million now at the global box office. And we benefited from the off network television sales of Two and A Half Men and the New Adventures of Old Christine. Just as importantly, the success of The Big Bang Theory on Thursday nights has further solidified the outlook for our television revenues in the coming years.

And again, as Jeff mentioned, we're seeing some very promising performances from several of our new and returning TV shows. Home entertainment revenues were up slightly in the quarter, and they're now up 8% on a year-to-date basis, and we remain very focused on driving higher margin products, and we've seen it pay off in recent quarters, and that's evidenced by growth in Blu-ray, Video-on-Demand and electronic sell-through. Warner Bros. has been building on its leading position across all of these categories, increasing its share of the home entertainment category by well over 200 basis points year-to-date. As these revenue lines continue to grow, we expect home-video margins to further improve as well.

Looking forward, we are very, very optimistic about our fourth quarter theatrical slate, which includes Harry Potter and Deathly Hallows, that's the first part and then Due Date. And with adjusted operating income up 1% on a year-to-date basis here at this division despite very, very tough comparisons against record results in 2009, we believe we're on track for another great year at Warner Bros.

Let me move on to Publishing where we've continue to drive up margins through effective operational improvements and cost controls. Advertising revenues continue to recover, increasing 5% in the quarter and there, digital Advertising was particularly strong, growing over 20% in the quarter. Looking across Time Inc.'s three primary operating units, its style and entertainment unit and the lifestyle units grew Advertising in the quarter, and that was offset by a modest decline at news, and that was largely due to magazine closures that occurred in the prior year.

Style and entertainment continues to be our strongest performing group by far. Our Advertising growth comparisons do get more difficult in the fourth quarter, and I also wanted to highlight that in addition, based on a deal that was completed a little bit earlier this year, Turner is now managing SI.com and Golf.com for Time Inc. And as a result, Time Inc. is not going to be booking the Advertising revenues generated by these sites starting in the fourth quarter. So that, coupled with the difficult comparisons, may make year-over-year growth in Advertising, tough to achieve at this division.

However, we still expect Advertising to be up for the full year. As we've anticipated, Subscription revenues were down 5% in the quarter and about half of this decline was due to unfavorable FX. Domestic Subscription and newsstand sales also fell modestly.

Looking ahead to the next quarter, we expect FX once again to be somewhat of a drag on description revenue, and we also expect continued pressure on Subscription and newsstand comparisons are going to get more difficult. So all in all, we anticipate a similar year-over-year decline in Subscription revenue in the fourth quarter at Time Inc.

Operating income was up 45% in the third quarter, and margins increased 500 basis points year-over-year. This is the fourth quarter in a row of margin improvement at Time Inc, and so we're pleased with that. Total expenses were down almost $60 million year-over-year, and that was reflected operational improvements and cost initiatives, including lower pension expenses.

We should continue to see the benefit of those initiatives in the fourth quarter, and restructuring charges will also be down significantly year-over-year in Q4. So we expect another quarter of solid growth in operating income at Time Inc.

So with the division review completed, let's look to the consolidated outlook. We continue to be very encouraged by the strength of our results for the first nine months, and we're continuing to invest more in programming in TV and film production, and that investment should make the company stronger for the future. But at the same time, we've been able to deliver very strong near-term financial results. Our solid execution has given us confidence once again to raise the full year outlook. And as we put in our release this morning, we now expect adjusted EPS to grow in the high 20s, and that's off of a base of $1.83 last year. Our full year outlook has continued to strengthen throughout the year, and we now expect to grow revenues by more than $1 billion year-over-year in 2010, and that's the best result we've had in several years.

We're also aggressively managing our expenses and investments, and so let me talk about what I mean by that. Overall for the year, expenses will likely be up only in the low-single digits. But we're fully investing in our best businesses to drive growth, and this is evidenced by a high single-digit increase in our investment in programming, including originals and sports, television and film production and marketing. And at the same time, we expect the rest of our expenses to be down in the low- to mid-single digits, and that's how we're improving margins and that's how we're improving returns, while we're still investing for the future.

Let me turn now and look at free cash flow very, very briefly. So let's turn to the next slide. Year-to-date, we've generated $2 billion of free cash flow, that's a healthy conversion over 40% of adjusted operating income before depreciation and amortization, and it's almost 100% of adjusted income from continuing operations. The increase in working capital as you see here includes a $250 million payment related to the resolution of some litigation, as well as a $70 million payment made to the NCAA tied to the beginning of the March Madness contract, which will be next year. Factoring out these two payments, our free cash flow actually compared to last year is down only very slightly, and that's due to an increase in accounts receivable tied to revenue growth, as well as higher cash taxes and cash interest.

We expect and we'll continue to maintain a high conversion rate of both adjusted OIBDA and adjusted income from continuing operations and some free cash flow. So let me move on to the final slide here, which looks at our net debt. We ended the quarter with about $12.5 billion in net debt, and that's up about $1.1 billion compared to the end of last year, and it's up slightly compared to the second quarter. The increase is a result of us returning more than 100% of our free cash flow to our shareholders year-to-date, and we've also spent almost $600 million to date on acquisitions. And we paid premiums and transactions costs that total about $370 million, and that's related to the redemptions of debt securities previously announced.

International expansion remains one of our top priorities as a company, and that's reflected in how we're allocating capital. About 80% of our M&A activity has been on international Cable Networks, and we've continued to invest in international Cable Networks at Turner, which closed recently on two acquisitions. The first was a company named MMG. It's a Scandinavian channel group where we see a nice opportunity to strengthen our position in the region. And we've also recently added Chilevisión one of the leading broadcasters in Chile to our already strong Latin American business.

Warner Bros. also expanded its international footprint with the recent acquisition of Shed Media, a leading TV producer in the U.K., and this acquisition is part of its strategy to grow international local language production. All of these acquisitions were done at attractive prices and for reasonable multiples, and they should help drive further international growth.

So with only one quarter left in the year, we are on track to achieve our capital plan priorities and objectives. First, we'll continue to invest in our businesses to improve their strategic position and drive long-term growth. That's evidenced by our increased investment and programming production and marketing this year.

Second, we're committed to providing direct returns to stockholders through dividends and buybacks, and as I previously mentioned, we've now returned over $2.2 billion so far this year, including $1.5 billion in share repurchases. And including our regular dividend, we've had a fairly consistent return of approximately $750 million a quarter recently, and we may look to grow that over time.

And third, we're focused on our capital structure and carefully managing our debt maturities. Our leverage ratio is now about 2x. That's still a bit below our long-term target of 2.5x. But today, we consider the strategic flexibility to be a competitive advantage in the current environment. So we remain comfortable operating in this range at least for the time being. Looking out over the next five years, we have less than $2.5 billion in total debt maturities, so we feel really good about how we're positioned there as well.

So that concludes my proactive remarks. Let me turn the call back over to Doug, and we'll be ready to start the Q&A portion of the call.

Douglas Shapiro

Thanks a lot. Keith, let's get the Q&A started please. [Operator Instructions]

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from the line of Spencer Wang with Crédit Suisse.

Spencer Wang - Crédit Suisse AG

I just have one two-part question on Cable Networks because obviously, a lot of discussion or debate around potential cord cutting. So my first question is for John. Could you just give us a little bit more color on the subscriber growth you saw for some of the fully distributed domestic Networks like TNT or TBS, and you guys are basically fully distributed and have distribution across all the different distributors either on a year-over-year or sequential basis, so that's the first part. And then the second part is for Jeff. If at some point cord cutting does emerge, how would you change the strategy at either HBO or Turner to adapt?

John Martin

It's John. I'll take the first part of the question in the order which you asked. The first thing I guess I would say just to repeat what you said is part of the question, which is just a reminder for everybody that the majority of our Networks are fully distributed in the U.S. And so over time, we would expect that they will follow, in terms of numbers of subscribers, what ends up happening as it relates to the overall multi-channel household universe, which has been mature for some time. In terms of giving additional clarity with respect to recent trends, though, I'm afraid we'll probably not going to be able to do that. In fact, I would suspect that the distributors themselves would be the first to report that because the way that we get our information at the Networks from the distributors tends to be on a couple of month lag basis. And so while we would fully expect to be up year-over-year, I'm just not sure that we have the most recent information as it relates to sequential trending. So I would say we'll have to wait and get better information over the next couple of months because the last information we have is probably really just the beginning of the third quarter.

Jeffrey Bewkes

On the cord cutting, we're not seeing -- we doubt that we're going to see it, although we'll all watch for it. If you look at TV viewing across all the different Networks, it's a very healthy picture, ratings, programming quality, the strength of these brands. So I guess the most important thing and we've been fairly outspoken about it is that if you take all of these Networks, not just ours but the industry, and you have them on demand, we've seen how powerful it is at HBO. I think we're about to see how powerful it is when you can watch whatever your favorite network is on all kinds of devices on demand and on your TV set, that's going to strength in TV viewing. It's probably going to not lead to any cord cutting. Now in the long run, with viewers preference is being clear that they love all these Networks, if you have to reach them through some other distribution than the one that we currently have, then that's how the content industry will evolve. But I don't think that's likely to happen. If it does happen, we think that the Network business is very strong in either case.

Operator

Your next question is from the line of Michael Nathanson with Nomura.

Michael Nathanson - Sanford Bernstein

I have two. One for Jeff and one for John. Jeff, a question would be on HBO GO, what's the reason for the delay of the rollout? We've expected you to be further rolled out by now. And is it a function of a new HBO affiliate deals that have to be signed, just give a little background on HBO GO?

Jeffrey Bewkes

No. There is no real hangup on it. It's currently being distributed by Comcast and Verizon. We've got several very big distributors you're going to see very soon on a matter of weeks. We think as far as we know, every one of our distributors whether satellite, Cable or telco is launching this as vigorously and as quickly as they can. So you're going to see it fairly widespread by the end of this year and in the early first quarter, second quarter of next year, I think we'll have it everywhere. And I think it's going to perform very strongly. It is the indication we've gotten so far.

Michael Nathanson - Sanford Bernstein

And then for John, one of the questions we have is do you know offhand what percentage of TBS TNT audience is coming from original and sports where you put more investment versus the syndicated content. Have you done analysis on the audience flow at TBS and TNT?

John Martin

Yes, I mean, of course, we have that information. They've got it down there. I just don't know it right off the top of my head. We'd have to get back to you.

Jeffrey Bewkes

It occurs to me one thing I should add on the HBO GO question, at the same time, we're going to be rolling out all these deals and HBO GO to all our subs to all our distributors, we're also going to roll it out through consumer electronic and mobile devices with authentication. And one of the things you've already seeing, which is Google TV is just one of the first steps in that process. And I think you're going to see it on all CE and mobile devices with a fair amount, of course, behind it.

Operator

Your next question is from the line of Richard Greenfield with BTIG.

Richard Greenfield - BTIG, LLC

Ron Sanders spoke yesterday, the videoconference in L.A. He mentioned that the 28-day window that you all have imposed on Netflix and Redbox is actually not long enough. I presume he was talking relative to the discount you're giving them and the need to kind of to protect or enhance your sell-through business. Could you give us a sense on how soon this could change, meaning how long could we see, when will we see a longer window and what the right window might be? And then just kind of attached to that, there was a discussion in the conference about potentially cutting back on the amount of catalog movies and TV shows that you make available to Netflix. What are your thoughts about, first, kind of the near-term revenue and profits to kind of protect the long-term health of your business and prevent cord cutting?

Jeffrey Bewkes

We're always going to focus on our long-term profits and sustainability over any short-term ones. So I think it's a good question. And basically, we're not religious about any of this. And we're just trying to maximize the value of our content as we see these alternatives develop. What we think is that so far the 28-day window has clearly been a success versus no delay. The vast majority of sales do occur in the first 28 days put there and it helps sales. So that's been good at least to go that far. The question of whether we ought to go longer is very much under scrutiny. It may well be a good idea. We haven't reached that yet. We will be able to do that because if we decide to change it, we can do that next year because that's when our deals all come up for a decision by us.

Operator

Your next question is from the line of Ben Swinburne with Morgan Stanley.

Benjamin Swinburne - Morgan Stanley

Questions for both of you on back on HBO, and John, I don't know if you're willing to do this but the 1.5 million I think that's the Subscription number and so I was curious if you have a sort of household number. I'm trying to understand how much of those Cinemax sort of free Dish subs or Dish subscriptions are also HBO customers. If you're seeing a spillover into terms of losses on the HBO side as well. And I don't know if you'd be willing to carve the 1.5 million up between Dish and DTV and the household element to it because obviously, those are two different elements to what's happening. And then as a follow-up to all the HBO stuff, Jeff, is it direct to consumer offer on the table or off the table or under consideration? How do you think about that in relation to HBO's long-standing model, which has been, obviously, a big success in their relationships with distributors and the other studios and just would love to hear your thoughts on that front.

John Martin

So, Ben, with respect to your question, we don't disclose historically, and we're not going to start at this moment household figures for the HBO Cinemax Subscription relationships. And just going back to what we said on the call, the majority of the loss is coming from an aggressive promotion that was down at the DISH Network, and that was Cinemax. And that was non-revenue-generating. So I mean, as we look at it, obviously, the subscriber numbers are instructive and illustrative, but they're just subscriber figures and what we're really more focused on is making money and driving revenue growth. And if you look at the Subscription revenue trends at HBO, they have been and continue to be extremely healthy. And so we wanted to provide some transparency with respect to the direction of the subscriber numbers. But we do not believe it's going to translate into any softness or weakness in Subscription revenues. And so that's what's most important. So I understand your question. We just don't break it out at that level of detail.

Jeffrey Bewkes

Let me add something to that because I was at HBO for years. I think that the sub trends at HBO, the underlying paid sub trends are healthy and good from my point by point of view looking forward. And we always have a band of promotional subs depending on what affiliates giving away Cinemax subs for very low prices. We are still in the band. We, basically, are used to, although our promotional subs is about 10% to 15%. And so this basically lines up with various deal renewals and some of the leverage that gets put into play. I think HBO is in very solid shape. It's just a function of promotional and deal renewal activity. So on the question you raised about HBO going direct, we do have the ability to do that. And it's not something that we have decided to do today because as you've said, we have a very good relationship and very good position where HBO occupies the position that it does in all of the TV and video packages for all the different distributors. There's a lot of marketing customer service and so on benefits that go with that. And I think the questions we already had about vigorous launch of HBO GO are important to seeing all of us get HBO out there and get it in the hands of all of our subs. If that doesn't work well, or speedily enough, then we have the option of adding a direct sale of HBO.

Operator

Your next question is from the line of Doug Mitchelson with Deutsche Bank.

Douglas Mitchelson - Deutsche Bank AG

One for Jeff, one for John. I mean, Jeff, you talked about digital distribution at length. I'm curious on one specific aspect, I think which was headed down this path. But how do you balance allowing greater access to your TV shows, I guess, your movies and their newer released windows versus the value of those shows might have in later windows or syndications. So is there a shift in value there? And how do you know if the benefit to the earlier windows is outpacing the damage to the later windows? So that's the first for Jeff and then for John, just I know you've been focused on rolling over the existing debt structure but high markets ridiculous right now, I think, you can issue 30s in a mid-single digit yields range. So in this market just too good an opportunity to pass up, wouldn't now be the time to stretch your leverage target higher?

Jeffrey Bewkes

Yes, you're absolutely right. When we or anyone is looking at selling licensing, let's say, our TV product, we could do movies, we could do TV, whichever. You have to look at the total largest pool to keep the value through all the different windows. So we absolutely evaluate everything from Apple TV rentals, we're not going forward to sales and licensing agreements within like Netflix or Hoovu [ph] in the context of what is best, in this case, for Warner's on providing the most healthy revenue support for the licensing that we do because there a lot of things that have been proposed in "digital" that are really not in the interest of the studio just thinking of studio interest alone. At the same time, we also have Networks, so we keep an eye on that too. So far, all the choices we made and what we've done, what we haven't done and this can vary show by show, have been we've actually found an alliance calculation between what's best for Warner and what, say, would be best for HBO and Turner in the long-term industry structure. So we haven't seen many things that conflict in that. And as you can tell by the things we've done and not done, we don't agree with some of the moves that our studio competitors have taken. We think it's bad for the value of their content.

John Martin

Your comment about the interest rate environment is, obviously, not lost on us. And in fact, last quarter, year-to-date, we've issued about $5 billion in the public debt markets at very, very attractive rates. And that has allowed us to push out our maturity on average by about four years, while at the same time, and this is rare when you can do this, we lowered our average interest costs by about $60 million a year. And all of that was done to take advantage of the interest rate environment and to frankly, increase our flexibility. And as I mentioned in my proactive remarks, you look out over the next five years, we've only got about two -- less than $2.5 billion of total maturities coming due. So we've got outstanding liquidity with no near-term maturities, which is a really nice place to be and more broadly speaking from a capital allocation standpoint, we think about our leverage target and the context of overall capital allocation, and it's really about making sure that we're preserving adequate flexibility, making sure that we have constant access to the capital markets at attractive prices and at the same time, optimizing returns. And if you look at how we approach capital allocation that's exactly what we've been doing, and we've taken a very consistent and balanced approach between strengthening the balance sheet, which we did mostly last year, having a meaningful buyback program, complement a meaningful dividend at the same time, engaging it to try to grow the businesses through M&A. So we've taken a balanced and consistent approach, and we're going to continue to maintain that going forward.

Operator

Your next question is from the line of Anthony DiClemente with Barclays Capital.

Anthony DiClemente - Barclays Capital

I have two questions. One on HBO and one on Turner. My HBO question is around digital rights on HBO GO. When it comes to digital distribution of the movie content that you have with your partners be it Fox, Universal, DreamWorks Animation. I think DreamWorks Animation is not currently licensing its films to HBO GO in digital format. I wonder if you could just talk a little bit about where the rights stand with your studio partners there.

Jeffrey Bewkes

Yes. No, DreamWorks rights are fully licensed to HBO. And if you want to turn on your HBO subscript your TV, which I know you all have, you can watch DreamWorks movies on demand on HBO right now.

Anthony DiClemente - Barclays Capital

No, I mean HBO GO, so for example, I have...

Jeffrey Bewkes

Yes, including on HBO GO or MAX Go...

John Martin

MAX Go...

Jeffrey Bewkes

So we do have all rights to our studios. We have all on demand rights for both TV and Internet for all our programming on HBO and all the movies, all the originals, everything.

Anthony DiClemente - Barclays Capital

I don't know if that was consistent with comments that were made on the DreamWorks call. But maybe we'll talk about that off-line. The second question I have is about Turner and I think it's great news that you've rolled out TNT and TBS on TV Everywhere across Comcast and digital prints. I'm wondering if you could talk a bit about the feedback that you get from your Advertising buyers, your advertisers about that transition whether or not ratings measurement or potentially the lower CPMs that our market rate online will be an issue there.

Jeffrey Bewkes

The advertisers love it, and you should ask all of them because particularly in this C3 window, which is the first window, they're able to basically sell in that branded high-CPM environment across platforms. So it's basically, I think you may have had either a question or a premise about different Internet at higher rates. That's not the case on TV Everywhere ad sales and remember the loads are going to be the same and on all the Networks whether you're watching a show on Turner on demand on TV or on broadband. In the C3 window, it's the same ads, it's the same feed. So we're agnostic and so are the advertisers. In the world of VOD, which is the more delayed, the last week or the last three or four episodes, the industry in general whether on TV or on broadband is supporting on an ad model. I think there's a lot to be figured out there, but it probably won't distinguish between watching an ad on a Turner show from whether it's on a TV VOD or an Internet VOD version of a TNT show will probably be the same box.

Operator

And your questions from the line of Imran Khan with JPMorgan.

Imran Khan - JP Morgan Chase & Co

I have a question about HBO as well and a Publishing question. HBO, it's my understanding that you get much more favorable revenue splits from MSOs compared to your competitors. So I was wondering as the -- there's a lot of contentious debate about content, how much content will get from the MSOs. Do you expect to see pressure from the MSOs in terms of your revenue splits from what you get and do you think it might go down? And secondly, in terms of Publishing business, this year you were benefited by some of the operational improvement that you made last year. As we look forward a couple of years, how should we think about the profitability of the Publishing business. Clearly, some challenge from the Subscription side. Are you seeing -- can we offset that from the digital distribution? Is there any further cost pending opportunities, how should we think about the Publishing business as we look out over the next couple of years?

Jeffrey Bewkes

I'll start with HBO. On the affiliate on the place that HBO occupies in consumer homes, consumer packages, it's going up. The program is getting stronger. So we think it's a very healthy upward trend in HBO GO. We'll just increase that. For the affiliate, in terms of their ability and willingness and happiness to pay increasing wholesale rates, we think that's there too, and we think that we will be strengthening our rates at HBO steadily as we have been.

John Martin

Imran, it's John. On Publishing, I guess, I would say a few things. First of all, as you think about the growth prospects of this division on a go-forward basis. We're coming at it from a position where we've retrenched in profits quite a bit as we went into the Advertising downturn. And so we've been able to maintain margin and grow this year's margin by virtue of a lot of the operational improvement initiatives that you highlighted in your question. If you think about it on a going-forward basis, I think there are numerous avenues of growth. First, I would say traditional print Advertising where we're still in I would say, hopefully the early days of what's a cyclical rebound and a cyclical recovery. And everybody knows that the economy has improved. Our print Advertising is not as strong as our TV Advertising. But nevertheless, we have a lot of confidence in our brands, and we think that we can drive Advertising over the foreseeable future in our print brands. I think Subscription trends are challenging but stable. And so I don't think that there's going to be any major source of downward trend there. It's going to be more stable, can we grow it. I think that's the challenge for our company in the industry. I think there's a huge longer-term opportunity in digital magazines, magazines on tablets, all sorts of brand extensions. But the too long an answer for this call. And then your question, which is really on operational improvements, the division has done a tremendous job over the last several years of reorganizing and re-engineering the way they do business and pulling out literally hundreds of millions of dollars of fixed cost that's not going to go back into the business. I think that operational engineering and improvement is a way of life at that division, and I would anticipate that there are further opportunities that we will explore over time. I would just note that with Jack Griffin now coming on board and just recognizing that he's only been at Time Inc. for a few weeks we'll obviously be working very, very closely with Jack and interested in his ideas as we look to continue to improve not only the top line, but margin opportunity there as well. And so I won't go into a lot of the detail, but there are opportunities.

Operator

Your final question is from the line of Jason Bazinet with Citi.

Jason Bazinet - Citigroup Inc

Maybe just building on where you left off, I think Meredith made significant inroads with your integrated marketing division with Mr. Griffin coming on board, do you think that's one area that you would consider investing in as a way to capitalize on the interest structure on asset that you have at Time Inc?

Jeffrey Bewkes

Yes, because Jack was the one who invented and built that at Meredith. And we've talked a lot about that. So yes.

Jason Bazinet - Citigroup Inc

And how long do you think that would take before it begins to show up in the top line, is it three to five years?

Jeffrey Bewkes

No, shorter than that.

Douglas Shapiro

All right. Thank you very much, everybody, for listening in.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Everyone, have a great day.

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