Day & date's time is now
TW's Bewkes challenges biz to get in sync on VODTime Warner Inc. president and COO Jeffrey Bewkes, in some of the clearest words to date, said Wednesday that Hollywood studios should start releasing more broadly films day-and-date via cable VOD.
The world's largest entertainment conglomerate's film unit has had "very encouraging" day-and-date trials with Time Warner Cable and Comcast Corp., and "the whole industry should move and adopt" day-and-date releases, he said during the company's second-quarter earnings call.
Bewkes cited as key positives the additional revenue stream from such releases and higher customer satisfaction as well as margins that are about three times those of physical rentals.
Bewkes again mentioned that film buy rates in the trials are up about 50%, adding that DVD sell-through has seen 5%-10% increases for product used in the trials. Only physical rentals have been hurt "a little bit" by the day-and-date releases in trial markets, he said.
"It seems to be a win all the way around," Bewkes said in summarizing the day-and-date business prospects.
Meanwhile, Time Warner reported a 5.2% increase in its second-quarter profit as film-unit earnings and revenue declines were lower than expected while its cable unit disappointed in terms of subscriber momentum.
Based on the results, TW reaffirmed its full-year 2007 financial expectations, though management during the conference call reduced its advertising revenue growth outlook for AOL, citing a shift of ad dollars to third-party networks.
The entertainment giant also unveiled a new $5 billion stock-buyback program to return more money to shareholders after a recent increase of its quarterly dividend. However, analysts said some investors will be disappointed that the buyback wasn't bigger.
Chairman and CEO Richard Parsons said TW also "will continue to invest in organic growth, as well as in attractive strategic opportunities," a hint that it wants to keep some of its powder dry for possible acquisitions.
TWC management in a separate call confirmed that it is participating in the auction of small cable operator Insight Communications. The Wall Street Journal reported this week that TWC also is looking at a possible bid for U.K. cable firm Virgin Media, though brass didn't discuss the issue Wednesday.
While analysts lauded the overall solid results at TW and the better-than-predicted film figures, a weaker-than-expected advertising revenue gain at AOL and slower-than-projected subscriber momentum at TWC — including of high-speed Web users — caused concerns.
TW's profit rose from $1 billion a year ago to $1.07 billion. Revenue increased 6% to $11 billion.Adjusted operating income before depreciation and amortization jumped 20% to $3.1 billion, driven by double-digit gains in the cable, networks and publishing units.
The company's film unit reported a 24% year-over-year decline in operating income before depreciation and amortization to $174 million, driven by higher print and advertising expenses — including for "Harry Potter and the Order of the Phoenix," which came into theaters after the end of the quarter — and lower TV contributions. Film revenue fell 5% to $2.3 billion on tough year-ago home entertainment comparisons.
Parsons predicted that the film unit would bring in growth for the full year and be "up strongly" in the second half, saying the latest "Potter" film had made for "a great start," making $700 million in worldwide boxoffice so far. Parsons cited "Rush Hour 3," "The Golden Compass" and "I Am Legend" as key upcoming releases.
At TW's TV networks unit, revenue declined 1% in the second quarter to $2.6 billion as advertising revenue fell 11%, with TW blaming the shutdown of the WB Network. Turner networks advertising increased 6%.
Asked about this year's TV upfront market and general advertising trends, Bewkes said the cable upfront should be up in the mid-single-digit percentage range, with the Turner networks at the high end of that. TBS and TNT are up in the high-single to low-double digits in ad rates and volume, with truTv (the former Court TV) also up significantly, he said. Only the overall kids upfront is "pacing lower than last year," Bewkes said, adding that this will mean that Cartoon Network will be the only Turner net that won't see gains.
Adjusted OIBDA for the TV unit climbed 10% to $746 million, though. That figure included $16 million of restructuring and severance charges at HBO. The company didn't detail those charges, but several executives, including Chris Albrecht, have had to depart HBO this year.
For the 14th consecutive quarter, TWC was the conglomerate's fastest-growing business. Operating income before depreciation and amortization at the unit jumped 52% to $1.4 billion, with revenue up 59% to $4 billion thanks to continued subscriber growth and the addition of cable systems acquired in the Adelphia Communications transaction.
In a separate conference call, TWC management expressed disappointment about basic subscriber losses of 57,000 that were higher than Wall Street estimates and included rare declines in systems beyond newly acquired ones. Brass promised to stem losses in acquired systems by year's end.
At AOL, revenue dropped 38% to $1.3 billion as the Internet unit lost 1.1 million subscribers in the quarter. AOL's online advertising revenue climbed 16%; the unit's adjusted OIBDA dipped 2% to $485 million.
TW shares fell 3.2% on Wednesday to $18.64.