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Warner Operating Income Surges 17%

29 Apr, 2009 By: Erik Gruenwedel

Elimination of New Line Cinema, related personnel and 7% reduced overhead costs resulted in Time Warner Inc. reporting a 17% increase in first-quarter (ended March 31) filmed-entertainment operating income to $214 million from $183 million during the prior-year period.

Filmed entertainment, which includes Warner Home Video, saw a 7% decline in revenue to $2.6 billion from $2.4 billion due to lower theatrical ticket sales and DVD sales — the latter negatively impacted by fewer home video releases and reduced catalog sales.

Specifically, the prior-year quarter included theatrical and home video revenue from I Am Legend, in addition to 12 other home video releases compared to only five releases this year, including Body of Lies and Nights in Rodanthe, coupled with box office revenue from Gran Torino, The Curious Case of Benjamin Button, Yes Man and Watchmen.

The company cautioned that second quarter results would be impacted by the release of five home video titles compared to 10 releases last year.

“Home video has improved somewhat since the fourth quarter but remains challenged,” said CEO Jeff Bewkes in a call with analysts. “Our home video comparisons [in the second quarter] are expected to remain challenging.”

When asked how Warner would accelerate transition distribution from packaged media to digital given the lukewarm response by consumers, Bewkes said the studio’s strength of catalog and distribution channels helped it garner stronger margins through Blu-ray Disc, iTunes and VOD rental — the latter representing 70% margins (40% for sellthrough).

“We always try to be at the forefront of leading the new [business] models,” he said. “The results we are getting, we think, will get the rest of the industry to follow us.”

The CEO said the company would continue with internal restructuring at AOL and Warner Bros. through the year.

“This isn’t a matter of one-time reductions, we will remain focused on improving our efficiencies and productivity across the entire company,” Bewkes said.

The company admitted that an unnamed co-financier for four films in the pipeline was having trouble meeting funding obligations, which could impact available cash going forward.

Time Warner, for the first time, separated home video and electronic sellthrough revenue from theatrical and TV fare.

Movie revenue in packaged media and electronic distribution totaled $477 million, down 42% from $810 million last year. Packaged media and electronic revenue from TV content totaled $157 million, up nearly 10% from $160 million last year.

Intersegment revenues of Warner filmed-entertainment product from other Time Warner properties, including Turner Broadcasting and HBO, totaled $138 million, down nearly 18% from $167 million last year.

Bewkes outlined several areas the company would focus on expanding, including multiplatform distribution of brands and stronger global presence, specifically in Eastern Europe.

He cited the recent launch of HBO Go, an online extension of subscription-based HBO that allows members access to more than 650 hours of content (three times the programming available on HBO On Demand) over the Internet.

The CEO said Warner, which pioneered the concept of DVD sellthrough, is continuing to realize increased revenues from same-day VOD/DVD new releases.

Overall, Time Warner reported revenue of $6.9 billion, down 7% from $7.4 billion during the prior-year period.


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