Today Time Warner hosted an “investor day” where CEO Jeff Bewkes and the various division chiefs gave updates on the state of the business. The above slide is from the presentation delivered by Phil Kent, the chairman and CEO of Turner Broadcasting System, which oversees CNN.

Note that this slide includes CNN U.S., CNN International, HLN and CNN Digital, so it is the combined revenue of three television networks and their respective online properties.

Kent said that operating income for 2009 was approximately $500 million, slightly higher than the estimates made by SNL Kagan. CNN says this is the first time Time Warner has broken out financial numbers for its news division.

What does it mean? We take a look after the jump.



As you can see in the chart, and as we explained earlier this week, the heart of the CNN (and cable) business is subscription fees, which account for around 50% of total revenue. Advertising and ancillary revenue streams account for the other 50%.

CNN’s pitch to investors and the press is that its business is healthy despite declining ratings in primetime. While it is true that CNN U.S. primetime only accounts for about 10% of revenue, it is still responsible for a disproportionate amount of advertising revenue on the flagship network. CNN as a whole can thrive financially even if its primetime stumbles, but it has to work harder to make up for it through the other two channels or its digital division.

Primetime — across all television networks, not just CNN — is still the most valuable real estate for media companies and advertisers, because of its reach and the ease of monetizing it. It is also an important factor in carriage negotiations. If CNN’s carriage agreement with Cablevision is up for renewal, poor performance in primetime would be one of the cable company’s arguments against a higher fee, which SNL Kagan estimates is currently $0.48 cents. Considering that carriage fees are the heart of CNN’s business, it is not a fact to be taken lightly. Cablevision, Comcast or DirecTV are not interested in how well CNN.com is doing, because they are paying for the right to televise the channel and the rights to use CNN content on on-demand platforms, etc.

Of course, total reach and the perceived “brand” of a channel are also incredibly important when negotiating fees. In the case of CNN, the network’s 30 year history and track record of covering breaking news events would play a significant role. Still, the network’s primetime ratings struggles will likely play a part in any future talks with cable or satellite operators about raising CNN’s carriage fee.

The good news is that the company seems to be having success in driving new revenue streams. Digital advertising and sales (like the CNN iPhone app) account for about 10% of total revenue, the same as CNN U.S. primetime, and the company is looking to grow its wire service this year and next, selling CNN and CNN.com content to affiliates in need of content.

In the pie chart, the service is represented as “Domestic Linear Content” and “International Linear Content.” It is also one of the four pillars for growing the news division, according to Kent’s presentation. Kent refers to the wire service when he spoke of monetizing “content ownership.” The other pillars: continued investment in journalism, managing costs, and extending its multi-platform reach.

The information revealed by CNN serves to confirm the fact that, at least for now, the dual revenue stream cable business model is strong enough to drive profits at a network, even if the programming isn’t working. But as we argued, that cannot continue forever. CNN can do well even with primetime ratings troubles, but it will have a much easier time generating advertising revenue and negotiating for higher sub fees if its programming connects. Especially if the programming is from 8-11 p.m.

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