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Time Warner CEO: UltraViolet Users 'Love' Platform

5 Feb, 2014 By: Erik Gruenwedel

Jeff Bewkes lauds cloud-based content locker for spearheading first annual home entertainment revenue increase in eight years

Consumer spending on home entertainment in 2013 may have inched up less than 1%, but to Time Warner CEO Jeff Bewkes the uptick underscores growing consumer acceptance of UltraViolet and owning digital (electronic sellthrough).

During the Feb. 5 fiscal call, Bewkes said UltraViolet — the cloud-based content storage locker — continues to resonate with increasing numbers of consumers. He said that while overall consumer awareness of UltraViolet needs to improve, to the 15 million registered UV accounts at the end of 2013, a majority of their experiences is positive.

“They love it. We think more and more consumers will enjoy its benefits as retail support continues to increase,” he said.

Bewkes said the improvement for UV contributed to a 50% increase in year-over-year electronic sellthrough throughout the industry.

“That helped drive an increase in domestic consumer spending on home entertainment for the first time in eight years,” the CEO said. “With UltraViolet now available in five countries outside the U.S., we’re hopeful we’ll also see stabilization in international home video revenue over the next few years.”

Indeed, Warner Bros. generated nearly half of its 2013 revenue outside the United States, including $3 billion at the international box office, and $1.5 billion from TV show productions. The studio currently has 61 TV series in production.

Warner Bros. Home Entertainment Group reported fourth-quarter (ended Dec. 31) revenue of $1.2 billion, which was down 6% from revenue of $1.3 billion during the previous-year period.

The home entertainment division, which includes Warner Home Video, attributed the decline in part to difficult year-over-year comparisons with the fourth quarter retail release of The Dark Knight Rises in 2012.

“In addition, we have seen some softness in catalog,” CFO Howard Averill said. “However, we are seeing very positive trends in digital across both theatrical and TV product.”

Specifically, WBHG reported $885 million in Q4 revenue from packaged media and electronic distribution of movies, which was down 11% from $985 million in 2012. The division generated $378 million in revenue from TV shows, which was up 5% from $358 million.

For 2013, WBHG generated $3.2 billion in revenue — down 3% from 2012. Movies accounted for $2.2 billion in revenue compared with $2.3 billion in 2012. TV content generated $984 million in revenue in 2013 compared with $1 billion in 2012.

When separated, digital revenue from movies and TV product grew almost double digits to $1 billion in 2013, which CFO Averill said should again grow by double digits in 2014.

Indeed, Warner generated about $375 million in subscription streaming license revenue in 2013, up slightly from 2012. Bewkes said the tally does not include “pretty significant” SVOD license revenue from The CW Network, the joint venture with CBS.

“We think we can grow above that in 2014, with a fair amount of that coming from international territories,” Bewkes said, adding that SVOD remains a small portion of Warner’s revenue — about 10% of TV syndication revenue and 3% of total film and TV revenue in 2013.

“What’s very clear is that there is a consumer demand for this content in an on-demand environment,” the CEO said.

Warner Bros. upped fourth-quarter operating income 4% ($21 million) to $573 million on a 7% ($273 million) revenue increase to $4 billion, mainly due to stronger theatrical and videogames slates.

The fourth quarter included the theatrical releases of Oscar-nominated Gravity (Best Picture, Director, Actress with Sandra Bullock, Best Cinematography, Best Visual Effects) and The Hobbit: The Desolation of Smaug, and the video game release of Batman: Arkham Origins. The growth was partially offset by a decline in home video revenue and lower television licensing revenues from theatrical product.

Bewkes said he remains open to licensing content to virtual (broadband based) multichannel video program distributors reportedly being created by Sony, Verizon, Dish Network and Disney, so long as the platforms don’t cannibalize existing channels.

“There’s been more talk than action [about virtual MVPDs],” Bewkes said. “We’ll evaluate each as they come. We’re not philosophically opposed to it. But we haven’t seen anyone come forward with a viable, powerful consumer offering yet.”

Finally, HBO and Cinemax added 2 million combined subscribers in 2013 to end the year with more than 43 million domestic subs. The pay-TV channels have a combined 85 million subs internationally — or 130 million globally. HBO Go, the channel’s TV Everywhere platform, is now available in 23 countries.

That said, Bewkes believes Cinemax remains an “underappreciated” asset. He said in 2013 viewer ratings at Cinemax were higher than at Starz and Showtime.

“We think there’s an opportunity to make Cinemax stronger,” Bewkes said. “And original programming clearly becomes important to premium customers as VOD use increases.”

Cinemax’s biggest hit continues to be “Strike Back,” the British-based action series that averaged 2.75 million viewers an episode during its third season. The second season of “Banshee” averaged more than 2.5 million viewers an episode.


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