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Bewkes: Warner to Expand Early Electronic Sellthrough for Theatrical Titles

7 Nov, 2012 By: Erik Gruenwedel

Warner seeks to up sellthrough and rental viability to consumers

In a sign of the times, Warner Bros. is aggressively targeting incremental revenue opportunities from alternative retail channels, in addition to greater focus on rental, including subscription video-on-demand services such as Netflix, Amazon Prime Instant Video and Hulu Plus.

Speaking Nov. 7 to analysts in Time Warner's fiscal call, CEO Jeff Bewkes said Warner, through SVOD, Blu-ray Disc and with release windows has sought to appeal to a rapidly changing consumer interaction with movies and TV shows. Bewkes applauded 20th Century Fox Home Entertainment's Digital HD electronic sellthrough platform as a model worth adopting. He said the previous four Warner theatrical titles have had early two-week EST windows.

"We continue to approach it case by case, but we are moving in that direction," Bewkes said. "What we’re trying to do with UltraViolet and some of our other plans is to try and the make the choice between rental and sales [to consumers] viable on both. We’re trying to make the experience easier and better for both. And we think pricing will follow the convenience and demand."

Meanwhile, Warner Bros. reported third-quarter (ended Sept. 30) operating income of $328 million, which was down 37% from operating income of $524 million during the previous-year period. Revenue dropped 12% ($400 million) to $2.9 billion.

Parent Time Warner’s film and TV entertainment unit, which includes Warner Home Entertainment Group and Warner Television, cited tough year-over-year comparisons with the global box office and home entertainment results from the final Harry Potter movie, Harry Potter and the Deathly Hallows — Part 2 and television license fees from the off-network availabilities of "The Big Bang Theory" and "Friends," among other issues, for the decline.

Indeed, the third quarter in 2011 represented Warner's most profitable fiscal period in the studio's history — a milestone Time Warner CFO John Martin said would not be easily replicated. That said, Time Warner expects Warner to generate its second best result by the end of the year.

A bright (or “dark”) spot in the current third quarter was the theatrical performance of The Dark Knight Rises, director Christopher Nolan’s final Batman film. The Dark Knight Rises has surpassed $1 billion at the global box office exceeding its predecessor, The Dark Knight. Rises will be available on disc and UltraViolet Dec. 4.

Home entertainment revenue from movies, which includes packaged media, electronic sellthrough, transactional video-on-demand and subscription VOD, dropped 11% to $374 million from $421 million last year. Year-to-date, revenue is down 21% to $1.3 billion from nearly $1.7 billion last year.

Meanwhile, home entertainment revenue from TV content skyrocketed 81% to $291 million from $161 million last year. Year-to-date, revenue is up 47% to $617 million from $419 million last year — underscoring Warner’s increased embrace of SVOD for select TV content.

Two-thirds of the $250 million in SVOD revenue year-to-date comes from TV content compared to movies. Netflix comprises 40% to 45% of the total, according to CFO John Martin.

"We’ve sold meaningful amount of product to Amazon and Amazon-owned LoveFilm Instant in the U.K.," Martin said. "A third of the revenue has been international."

The studio also recently reversed its 28-day embargo on new releases to video stores and struck a distribution agreement with Redbox.

Warner continues to be the leading supplier of programming to the broadcast networks, with 25 primetime series announced for the 2012–2013 season. Including cable, animated and first-run syndicated series, Warner is producing nearly 60 shows.

"Our studio faced difficult comparisons in the third quarter, but Warner Bros. Television is having a terrific broadcast season with a successful mix of new and returning shows,” Bewkes said in a statement. ”The studio is off to a great start to the fourth quarter with the critical and audience acclaim for Argo, which we'll follow with the highly anticipated release next month of the first installment of The Hobbit. Overall, I'm very confident about how we're positioned heading into next year and beyond.”

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