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DVD — Not Batman — Helps Fuel Time Warner Q2 Film Profit

6 Aug, 2008 By: Erik Gruenwedel

DVD continued to bolster Time Warner Inc.'s the bottom line, with sales of I Am Legend, The Bucket List, 10,000 B.C. and Fool's Gold contributing to a 16% rise in filmed entertainment's second-quarter (ended June 30) operating income.

Income topped $94 million, from $81 million during the same period last year.And that didn't include box office juggernaut The Dark Knight, which was released in the current quarter, but did include flop Speed Racer.

Time Warner's film entertainment unit includes Warner Bros. Entertainment, Warner Bros. Pictures, Warner Home Video and the remnants of shuttered New Line Cinema.

Theatrical releases of Sex and the City and Get Smart helped filmed entertainment total revenue climb 14%, to $2.6 billion, from $2.3 billion last year.

In a call with investors, Time Warner CEO Jeff Bewkes said home video sales were up 6% year-to-date compared to flat industry wide. He said retailers continue to increase DVD shelf space, including incrementally for Blu-ray, at the expense of music CD and accessories.

“We think between the combination of standard DVD and Blu-ray sellthrough, the market will be up modestly next year,” Bewkes said.

The CEO said he remained confident Warner Bros. can realize greater margins releasing movies through video-on-demand the same time as DVD. He said the strategy was to circumvent traditional rental without cannibalizing sellthrough.

He dismissed an analyst's contention that Peter Chernin, president of News Corp. Inc., was not in favor of same-day VOD/DVD releases due to the impact on packaged-media sales.

“We essentially don't agree with the overly cautious view,” Bewkes said.

The studio plans to release 20 to 25 theatrical feature films, compared to about 40 when Warner Bros. and New Line operated separately.

“If you were to look through or exclude the New Line restructuring costs, we are very confident that we will be posting positive year-over-year growth from the film segment, and this will obviously be bolstered by the phenomenal success of The Dark Knight,” said CFO John Martin.

Combined sales from AOL, cable, filmed entertainment, networks, publishing and others, contributed to Time Warner generating $11.5 billion in overall revenue — up 5.5% from $10.9 billion last year.

However, the ongoing challenging ad sales climate in publishing and declining profits at AOL (the site lost 604,000 subscribers) resulted in Time Warner posting a 26% drop in quarterly profit to $792 million from more than $1 billion last year.

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