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Time Warner CFO: Studio ‘Purposely’ Delaying Q4 Titles at Retail

10 Sep, 2009 By: Erik Gruenwedel


With the all-important fourth-quarter rapidly approaching, Warner Home Video has decided to release its tentpole titles later than usual, anticipating consumers will delay holiday purchases until the last minute, said a Time Warner senior executive.

The move would explain why among Warner’s top three movies at the box office this year, only Terminator: Salvation has been given a release date: Dec. 1.

Packaged media and digital release dates for Harry Potter and the Half-Blood Prince ($298 million domestic box office) and The Hangover ($272 million) are still pending.

Speaking at an investor confab in Marina del Ray, Calif., Time Warner CFO John Martin said the No. 1 home entertainment studio (in market share) continued to scrutinize the entire business, which he said included Blu-ray Disc, electronic sellthrough, video-on-demand (VOD), rental kiosks and Netflix, in an effort to extract the maximum margins in the various distribution channels.

“We are purposely putting our titles into the retail channel later in the fourth quarter to try and take advantage of what we believe will be the optimal foot traffic trends in retail,” Martin said.

The CFO said overall home entertainment industry revenue was down about 2.5% through August, which he said was an improvement from the 4% decline through June.

“Going through the end of the year the comparisons should be getting easier,” Martin said.

He said the shift from standard DVD to Blu-ray continued to expand with year-to-date BD revenue for the industry up more than 75%. Martin added that the first season of the HBO vampire hit “True Blood” has sold more than 1 million DVD and Blu-ray Disc units to date.

That said, Martin reiterated that company executives continue to stress the bottom line. He said electronic sellthough can generate 25% to 30% greater margins than physical sellthrough and the margin on VOD compared to physical rental is anywhere from 250% to 300% better.

The CFO said the combination of VOD and electronic sellthrough as a percentage of Warner’s home entertainment business from a profit basis is about 20%, which he characterized as “not immaterial.”

“We don’t know if [the shift from physical digital distribution] is a sustainable shift or whether that is reflective of the overall economy,” Martin said. “But it’s something we are watching. More and more we are paying attention to the dollar margin contribution of our titles relative to the box office revenue they generate.”

Martin said that margin in 2009 for Warner has been flat but could start to grow by the end of the year. The CFO said the rapidly evolving nature of new revenue streams involved staying abreast of a range of different margins.

“It’s hard to keep track of the overall profitability,” he admitted.

When asked about Warner’s very public stance toward $1-per-day rental kiosks and its changing relationship with online DVD rental pioneer Netflix, Martin said the studio continues to believe in a discounted rental offering and that it is just a matter of creating the right window for that.

Warner has mandated rental kiosks, spearheaded by Redbox, receive new-release titles 28 days after street date. Universal Studios Home Entertainment and 20th Century Fox Home Entertainment have mandated 30- to 45-day windows. Redbox has sued all three studios, citing antitrust violations.

Martin reiterated that the prospect of a $1 movie rental is damaging the value proposition of physical sellthrough.

“The history of this business is having the right release window,” he said. “As an owner of a material amount of intellectual property, however, over time we are going to have a lot to say about how new [business/distribution] models evolve and develop and how the economics get shared across the value chain. It is something we feel very strongly about, and we have no intention of backing down from that position.”

Martin characterized Warner Home Video’s altered approach toward Netflix as “clearly different” from its approach to kiosks. He said the Los Gatos-based service with 11 million subscribers and a burgeoning streaming service was “not unimportant” to the studio but mandated revisiting existing license agreements.

“We just don’t think we are getting enough economics out of this particular channel,” Martin said.

He said the studio had approached Netflix with a number of “levers and things” that included changes to the wholesale price, establishment of new windows and potential rev-share opportunities.

“At the end of the day we believe we ought to participate in a right way [with Netflix] and get the right economics out of our product,” Martin said.

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