Media and entertainment giant, Time Warner (NYSE:TWX), will report its Q4 2015 earnings next week in the midst of a rally in the stock price, M&A rumors, and increasing pressure from streaming services. Two weeks ago, streaming service Netflix (NASDAQ:NFLX) reported record high revenues and recorded large subscriber figures that demonstrated the increased popularity of cord-cutting media service providers. Traditional media and cable companies like Time Warner, Walt Disney (NYSE:DIS), Twenty-First Century Fox (NASDAQ:FOX), and Comcast -A (NASDAQ:CMCSA) are ambivalent about the rise of streaming services. On one hand, the new streaming services produce original content that reduces the demand for new content by the big studios. However, on the other hand, all major media companies sell a lot of content to the streaming services, and each of them owns a service. So, in the end, it is a question of whether the media companies generate more revenues from streaming content than they lose to streaming services. Of course, studios make a lot of money from blockbuster franchise movies, distribution rights, and other initiatives, but to keep these businesses profitable, the media companies need to sell the rights to streaming services.

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To deal with the pressure from streaming services and try to shift the market towards a more profitable model for Time Warner, the company’s CEO announced in November that the company will consider holding the rights to its shows for its video-on-demand platform for longer periods before selling them to Netflix, Hulu, etc. This model will enable Time Warner to generate more revenue from its content at the beginning and, with time and as the demand for a specific show on VOD starts to decline, the company will sell its rights to the streaming services and generate a decreasing amount of revenue. This way, Time Warner could increase its revenues from original production in the long run. However, I’m not sure the market is moving in that direction.

Time Warner is experiencing significant difficulties due to the intensifying competition from the other traditional media companies as well as from Netflix, Amazon (NASDAQ:AMZN), and Hulu, and this is reflected in the hardly changed level of revenues presented in the chart below. Even though Time Warner’s revenues have stagnated across all segments, operating income is slowly improving each quarter due to decreased distributing and programming costs as well as higher licensing and video game revenues.

These days, Time Warner is negotiating terms with Hulu, Netflix’s competitor, which is owned by Disney, Fox and NBCUniversal, to change its working model and stop offering full, current seasons of shows from its network. This is Time Warner’s first attempt to accomplish its goal to shift the industry towards a more profitable business model for the company.

Since the beginning of the year, Time Warner’s stock has outperformed the S&P 500 and the NASDAQ indices mainly due to the number of rumors related to a potential takeover by Fox,AT&T (NYSE:T), and even Apple (NASDAQ:AAPL). This speculation fueled a 12% rally year-to-date supported by speculations of a possible spin-off in which Time Warner will split its divisions (with HBO in the focus) to standalone public companies. Sell-side analysts declined the rumors, claiming such a mega-merger in the media business was not on the company’s radar, as well as spinning off one of the divisions, including HBO.

Source: Time Warner stock price data by amigobulls.com

With these rumors in the background and intensifying competition, Time Warner Q4 2015 earnings will hit the market on Feb 10, before markets open. The street expects Time Warner to report $7.53B in revenues and an EPS of $0.35, which reflects a 4% annual revenue growth and 7.5% annual EPS growth, YoY. In terms of the segment revenues, the market expects Time Warner to keep growing HBO and Warner Bros. while slowing down the decline in Turner. Also, the uptrend in the segments’ adjusted operating income margin will be in the spotlight to see whether it’s sustainable and durable. During the call, investors should pay attention to any hints or clues related to a potential merger, acquisition or spin-off, which might be cooking in the background.

These are the comparable figures to watch in Time Warner Q4 2015 earnings: