Parsons foresees good year for TW film unit

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NEW YORK -- Time Warner Inc.'s film unit may see its first financial decline in half a dozen years this year, but chairman and CEO Richard Parsons said here Tuesday that it will be "a good year for our filmed entertainment group" in 2007, which will include early moves into the download-to-burn business via kiosks and further moves to address what he called the "tough" film business.

Appearing at the annual Credit Suisse Media and Telecom Week investor conference, Parsons said 2006 was "a bit of a stand-down year" for the studio, but the fourth-quarter figures "will be good" thanks to the success of "Happy Feet" and what he predicted would be a good showing for "Blood Diamond," which the CEO said he felt has created some good Oscar buzz.

Next year, the latest Harry Potter film, the first installment of the His Dark Materials saga, "Ocean's 13" and "Rush Hour 3" along with the "Happy Feet" DVD should do strong business, Parsons predicted. In addition, a handful of TV shows will go into syndication, he added.

Plus, Parsons signaled that a slight reduction in the size of the WB and New Line film slates to about 25 and about half that, respectively, and the increased use of film financing partners to alleviate Hollywood's high production costs should also help TW.

He said TW expects to start offering download-to-burn at kiosks in Wal-Mart and other retail stores in 2007, with potential online options to follow down the line. He predicted there would be a collapsing of windows to make DVD releases day-and-date with such download-to-burn options.

Parsons also said other studios will make similar moves next year, adding TW's and other studios are also looking at subscription models for films that get electronically delivered during current windows.

Parsons also lauded his company's strong balance sheet, which he said gives TW all sorts of options.

He wouldn't detail the likeliest uses of TW's capital next year, even though a current stock buyback program is likely to be completed in 2007, but he signaled that acquisitions, especially in the online ad technology space, are of interest to management. "I must sit with the board to decide the best use of capital," he said, hinting that more buybacks, dividend increases and potential acquisitions are all options.

But Parsons later told reporters that given its current financial capacity, "nothing is too big for us" to buy, but he emphasized management will remain cautious and prudent if it strikes any deals. He wouldn't discuss specific companies that could be attractive for TW.

Parsons lauded TW's recent stock runup but signaled he sees further upside for the world's largest media conglomerate. The stock "still has a little bit of a discount," while in the old days TW shares used to command a premium over its peers, Parsons said.

Discussing TW's AOL unit, Parsons faced the recurring question of a potential sale of the business to an online firm or private equity group. "I wouldn't look for such a transaction...any time soon," he said, emphasizing that, among other things, AOL provides TW a pipe into people's home.

Parsons added that he is still not sure if a spinoff of AOL in an initial public offering might make sense. He argued that the best reason for an IPO would be to create an acquisition currency, but added: "We are still evaluating it. We debate that periodically."

Asked later about recurring rumors that he could leave his post to run for political offices, such as mayor of New York, Parsons signaled he wasn't on his way out. "There is nothing to any of this rumor stuff," he told reporters on the sidelines of the investor gathering.

Asked about the recent hiring of Randy Falco as chairman and CEO of AOL, Parsons said his team found in Falco a leader with "superior execution," who also fits into TW's collaborative corporate culture. He also shrugged off the often-raised question about why a TV veteran was chosen for the top job at an Internet company. "This is an ad business we are trying to build," Parsons explained about AOL. "He has the relationships" and experience in this space.

Walt Disney Co. chief financial officer Tom Staggs said at the Credit Suisse gathering that he's "very bullish" on Disney's prospects. His remarks came just hours before Disney shares closed at a 52-week high of $37.49.

The CFO was optimistic on several fronts -- theme parks, video games, digital opportunities, etc. -- and noted that the integration of the Pixar acquisition is a bigger success than Disney executives anticipated.

Addressing the company's recent decision to lay off 160 people from its Burbank animation facility, Staggs said the "relatively modest trimming" will help rein in costs while the unit still helps the company to churn out about two animated feature films a year.

He said that "Cars" is poised to do the kind of DVD business that "The Incredibles" did -- roughly 17 million units sold in the U.S.

Staggs also spoke Tuesday at a competing UBS conference, where he said "Cars" should have "long-lived potential" for a franchise by way of things like merchandising and maybe theme-park attractions. He added that it's important that the same Pixar team that created the movie also spearhead those kinds of franchise efforts.

Staggs made the investor conference circuit in New York on the same day the DVD "Pirates of the Caribbean: Dead Man's Chest" hit stores. That movie, as well as next year's theatrical releases "Wild Hogs" and "Underdog" will be "big things to watch in our studio business," he said.

The CFO said Disney's digital download business, whereby it sells content via Apple Computer's iTunes, will garner about $25 million in annual revenue this year and that it is not cannibalizing the far more lucrative DVD business, which ought to generate about $3 billion in fiscal 2007 sales. "It's early days for that business," Staggs said.

Also presenting at Credit Suisse was DreamWorks Animation SKG, which plans on concentrating its efforts at developing sequels, according to chief financial officer Kris Leslie.

Noting that DWA's "Shrek the Third" is scheduled to open in May around the same time as sequels to "Pirates of the Caribbean" and "Spider-Man," CEO Jeffrey Katzenberg said he has no plans to shift the film's date.

"We have never seen a competitive landscape like it," Katzenberg said. "But at the same time, we have done the right thing for Shrek."

Also at the Credit Suisse on Tuesday, Vivendi chief financial officer Jacques Espinasse reiterated that his company sees its 20% stake in NBC Universal as a non-core holding and expects to sell it step-by-step over the coming years. He didn't provide a specific timetable.

Georg Szalai reported from New York. Paul Bond reported from L.A.
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