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Warner Home Entertainment Group Acquires Flixster/Rotten Tomatoes

4 May, 2011 By: Erik Gruenwedel

Warner Bros. posts 49% profit decline in Q1

Warner Bros. Home Entertainment Group May 4 said it agreed to acquire Flixster.com and its popular Rotten Tomatoes movie ratings service. Purchase price and terms were not disclosed.

The studio intends to incorporate Flixster’s 25 million registered users to help drive digital acquisitions of filmed entertainment, including the recently announced cloud-based consumer app “digital everywhere.” The pending app allows users to organize and access their entire digital library from anywhere on portable devices, as well as to share recommendations.

“Driving the growth of digital ownership is a central, strategic focus for Warner Bros.,” said Kevin Tsujihara, president of Warner Bros. Home Entertainment Group and Office of the President at Warner Bros. Entertainment. “The acquisition of Flixster will allow us to advance that strategy and promote initiatives that will help grow digital ownership.”

The Flixster team will stay in San Francisco, and the Rotten Tomatoes team will continue to work autonomously in Los Angeles.

In a conference call, Time Warner Inc. CEO Jeff Bewkes said the Flixster acquisition underscores studio efforts to drive sellthrough of movies.

"We’ll use the Flixster initiative to dramatically enhance the ownership benefits of digital movies," Bewkes said.

Separately, Time Warner reported a 49% drop in first-quarter (ended March 31) operating income in filmed entertainment to $158 million compared with operating income of $307 million during the same period a year ago.

Time Warner’s filmed entertainment segment, which includes Warner Bros. Studio and Warner Home Video, among other assets, cited a decline in home entertainment releases and unfavorable comparisons to The Blind Side and Sherlock Holmes released in the previous-year period.

Filmed entertainment quarterly revenue declined 3% ($90 million) to $2.6 billion. Home entertainment revenue dropped 21%. CFO John Martin said initial home entertainment sales for Harry Potter and the Deathly Hallows — Part 1 underscored strong consumer demand for the studio's event films.

These declines were partly offset by higher television license fees, benefitting from a greater number of series, timing of deliveries and improved worldwide syndication, as well as higher video games revenues driven by LEGO Star Wars III: The Clone Wars.

In March Warner Bros. Entertainment became the first studio to offer consumers the ability to rent films directly through Facebook. Last month the studio launched its test of premium VOD by offering Hall Pass through satellite operator DirecTV.

Bewkes said addtional premium VOD titles would be released shortly with complete analysis of the upstart platform to be determined then. When asked whether he would consider offering premium VOD four weeks after theatrical release, Bewkes said the jury remained out how the platform affects current windows. He said releasing home entertainment VOD titles earlier than eight weeks would only exacerbate current concerns.

"It's a little early to say," Bewkes said.

Finally, when asked to clarify recent comments that indicated a warming up to Netflix, Bewkes agreed that the online disc rental pioneer has become a personal favorite topic.

"I want to talk about Netflix," Bewkes said, adding that he has warmed up to licensing content to subscription-based VOD services. However, the executive said parameters to doing that include whether Netflix and other services increase the overall bids for secondary content and how it affects the home entertainment ecosystem.

“We think there's definitely a role for subscription VOD services, library services and Netflix in the ecosystem. And what is the role? Well, clearly, it's a way to give consumers access to a deep library of content that they couldn't easily get before, particularly older shows although they're probably going to be able to get them more easily in other places now as time goes on,” he said.

Bewkes says Netflix and others have created “utility” for viewers being able to access serialized TV shows that don't play as well on traditional cable networks or in syndication. He said the nascent subscription-based VOD market monetizes content that couldn't be monetized before and it monetizes it better than it was monetized before.

“In that sense you can add to the ecosystem, and that's good for everybody and performs a useful function,” he said.

The CEO reiterated his belief (echoed by Netflix CEO Reed Hastings) that subscription VOD services are not prompting cable households to scale back pay-TV channels. Bewkes cited internal data that suggests the number of broadband households (4 million) without multichannel video access has remained unchanged since Netflix launched its streaming service in 2008.

“So even though people seem to like the Netflix service, evidenced by the number of subs, it hasn't led to very many Netflix subs cutting the [cable] cord,” he said.


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