2011 Profitability: Studio vs. Studio
Overseas box office and digital deals with Netflix and Amazon offset shrinking DVD sales and sluggish U.S. moviegoing in 2011, allowing the filmed entertainment units of publicly traded Hollywood studios to post profits. THR's analysis of studio profitability is based on recent financial records -- though it's not an exact comparison because some lump merchandise, music and TV sales into their film units. Still, the figures shed light on how 2011 compared with 2010.
All hail Harry! Harry Potter and the Deathly Hallows Part 2, the lucrative franchise's final installment, grossed a series-best $1.33 billion, helping Warner Bros. surpass $4 billion in worldwide box office and Time Warner's filmed entertainment unit report a 15 percent profit boost in 2011. The company, which uses the metric "adjusted operating profit," also had the year's best-selling DVD title in the latest Potter. Its film segment is biggest among Hollywood congloms because it includes video games (Batman: Arkham City has shipped 6 million units) and Warner Bros. Television, which makes 30-plus shows including The Big Bang Theory and Two and a Half Men. Can Warners hit its numbers in 2012 without a Potter? The Dark Knight Rises and the first Hobbit film should help.
As in 2010, Rupert Murdoch's filmed entertainment unit was second in profitability only to Time Warner's. The segment, which reports "operating profit," notched a 9 percent gain to $1.2 billion in 2011 after posting an 8 percent decline a year earlier. Box-office hits led by Rise of the Planet of the Apes ($482 million worldwide) dovetailed with strong home entertainment numbers for Black Swan and The Chronicles of Narnia: The Voyage of the Dawn Treader and the 20th Century Fox Television studio hits Glee and Modern Family. Films licensed to pay TV and free TV helped, as did digital content-licensing deals. The latter, estimates Wunderlich Securities analyst Matthew Harrigan, contributed $200 million in sales during the final two quarters of 2011.
Sony Corp.'s pictures unit, which reports the metric "operating income," notched a 95 percent improvement in 2011 to $763 million. The segment was a bright spot at the conglomerate, which lost $2 billion overall in its fiscal third quarter alone. A big boost came from the sale of Spider-Man merchandising rights that netted the segment a one-off gain of $278 million. The conglomerate's international TV channels also are included in its filmed entertainment unit, and they were a key contributor. Theatrically, the 2011 box-office success of The Smurfs ($564 million worldwide), Bad Teacher and Just Go With It made up for the underperforming Arthur Christmas. The division also benefited from stronger-than-expected DVD sales of The Green Hornet and Battle: Los Angeles.
Fittingly for the theme-park operator, 2011 was a roller-coaster ride for Disney's creative output. After an "operating income" decline in 2009 and a rebound in 2010 courtesy of billion-dollar grossers Alice in Wonderland and Toy Story 3, the studio division saw profit shrink 21 percent to $656 million in 2011. Such hits as Pirates of the Caribbean: On Stranger Tides, The Muppets and Marvel's Captain America: The First Avenger (distributed by Paramount) were offset by underperformers including Mars Needs Moms and Cars 2. "They need to make better movies," says Susquehanna Financial Group analyst Vasily Karasyov. Disney has been downsizing its slate to focus on titles with the most franchise potential, like March's big-budget gamble John Carter.
Viacom's Paramount Pictures celebrates its 100th anniversary in 2012, and the asset helped the conglomerate's filmed entertainment segment post a hefty 128 percent profit jump in 2011. That's a big victory considering its 57 percent decline in 2010. "Viacom has a strong Transformers franchise, and its 51-percent-owned Epix started getting $45 million per quarter from Netflix about five quarters ago," says Miller Tabak analyst David Joyce. Viacom CEO Philippe Dauman is keeping the studio "focused on a strategy of releasing a streamlined slate of franchise tentpoles and reasonably priced films," he has said. An example of the latter is The Devil Inside, a movie produced for $1 million that has taken in $61 million worldwide.