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Time Warner CEO: Foreign Margins Sank New Line

11 Mar, 2008 By: Erik Gruenwedel

Studio economics that predicate fewer annual releases coupled with an inability to capitalize on burgeoning foreign revenues contributed to the demise of 41-year-old New Line Cinema, according to Time Warner Inc. president and CEO Jeff Bewkes.

In one of his first acts since assuming former CEO Richard Parsons' position Jan. 1, Bewkes last month folded New Line — known for theatrical and home video franchises “Nightmare on Elm Street,” “Austin Powers” and “The Lord of the Rings,” into Warner Bros. Entertainment.

A majority of the independent's 600-employees at offices in New York and Los Angeles are expected to lose their jobs.

The future of New Line Home Entertainment and president Stephen Einhorn remain unknown.

Speaking March 11 at the Bear Stearns 21st annual media conference in New York, Bewkes said New Line had fallen victim to an independent studio's Catch-22 predicament: Mortgaging foreign rights in order to finance new productions.

He said overseas box office receipts have become the economic majority of a film. New Line was pre-selling the foreign rights in order to finance (or reduce the financial risk to) their production slate, he said.

“We don't need to reduce the risk,” Bewkes said. “We wanted to keep the overseas' returns. You can name a number of films — 300, Golden Compass, etc. — you make a lot more money outside the country than inside. Why give that up?”

The CEO said with Warner possessing the largest distribution (theatrical, TV, VOD, DVD) channel in the world, the studio was able to take on distribution and marketing of titles they no longer had to finance themselves.

New Line, by comparison, had transitioned from a reliable independent subsidiary to a studio in need of reducing its film operating expenses, according to Bewkes.

“So we were going to cut the New Line slate,” he said. “It is far more profitable to put that through one theatrical distribution system. We wanted Warner's.”

He said that made New Line's corporate infrastructure unnecessary. The CEO said Warner Bros. last year integrated theatrical and home video marketing. He said lagging overall margins at New Line over the past year were merely a coincidence and not related to the studio's downsizing.

“You really don't want or need to have a separate corporation of all the different functions,” Bewkes said.

He said New Line would remain as a label with a reduced staff on par with what the studio did with HBO and New Line's 2005 Picturehouse label.

“We think we'll be able to walk and chew gum [at the same time] and the result we'll be substantial increase in profitability and probably predictability of the financial results,” Bewkes said.

Savings are expected to be in the hundreds of millions of dollars, according to Bewkes.

He said he wants to redesign Time Warner into new revenue opportunities, which he said includes digital, international and branded content.

The transition includes a probable sale of its profitable Time Warner Cable subsidiary.

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