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Time Warner CFO: Q4 Home Entertainment Sales ‘Challenged’

5 Jan, 2012 By: Erik Gruenwedel

CFO John Martin says Warner Bros. is well-positioned to face 2012 transformations in home entertainment

Warner Bros.’ adoption of alternative distribution channels in home entertainment should help the studio weather continued challenges to the home video sellthrough market, Time Warner’s CFO told an investor group.

Speaking Jan. 5 at the Citi Global Entertainment, Media & Telecommunications Conference in San Francisco, CFO John Martin said promising third-quarter results in home entertainment spearheaded by a resurgence in Blu-ray Disc sales appeared to have hit a wall in the just-completed fourth quarter.

“We had encouraging industry results in the third quarter and I understand the results coming out for the fourth quarter look a little bit more challenged, although we’re just getting them now,” Martin said.

The Citi moderator said internal data suggested Warner's home video sales tallied $2.6 billion in 2011 — down from a peak of $3.5 billion in 2007. At the same time, the studio, which includes Warner Home Video, has seen its box office revenue increase from $1.4 billion in 2007 to $1.8 billion last year.

Martin pointed out that Warner Home Video continues to top the annual home video sellthrough chart since such tabulation began. He said that when the final Q4 numbers come in, he believes WHV will have “dramatically” taken additional market share in home entertainment.

“Look, the challenges still exist [in home video],” he said, adding that the perceived secular challenges prompted the studio to embrace alternative distribution strategies such as street-date transactional video-on-demand and premium VOD, among others. “Warner Bros. has been the leading studio at trying top move toward embracing new technology, advantaging channels that are higher margin and disadvantaging those channels that are lower margin.”

Martin said it is that mindset that propelled Warner to spearhead rollout of digital locker UltraViolet, which he said is designed to spur sellthrough and make it easier for consumers to manage their content in a cloud-based format.

He said current adoption of UltraViolet is “not where we want it to be” but that Warner took the leadership position at the time when ongoing technological challenges mandated action.

“Somebody’s got to try and move forward because the industry has to move more quickly to embrace these higher-margin opportunities,” Martin said.

He said the studio has high hopes for Christopher Nolan’s new “Batman” movie, The Dark Knight Rises, which bows theatrically in the summer and in home entertainment channels thereafter. Martin said recent release of the title’s trailer on YouTube generated more than 12 million views — an industry record, he said.

Finally, Martin reiterated Time Warner’s view on subscription video-on-demand and Netflix in general is that it continues to be a “very interesting way” for consumers to watch older product that cannot be better monetized through other windows, including syndication. He said the studio continues to talk to “any number” of SVOD players about content licensing.

“We have 7,000 movies, 75,000 TV episodes and all of them need to be watched, and all of them need to be paid for,” he said. “We have a lot of stuff that has yet to monetized. And if you look outside of the U.S., virtually nothing has been monetized.”

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