'Stand-down year' for TW movies

But Parsons is bullish on film unit's 4th quarter, '07

Time Warner Inc.'s film unit might see its first financial decline in a half-dozen years, 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 fourth-quarter figures "will be good" thanks to the success of "Happy Feet" and what he predicted will be a good showing for "Blood Diamond," which the CEO said he feels has created Oscar buzz.

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

Plus, Parsons signaled that a slight reduction in the size of Warner Bros. Pictures 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 also should 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. He predicted that there will be a collapsing of windows to make DVD releases day-and-date with such download-to-burn options.

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

Parsons lauded TW's recent stock run-up but signaled that 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 their 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 homes.

Parsons added that he still is 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."

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.

Staggs 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 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 — about 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 "Pirates of the Caribbean: Dead Man's Chest" DVD 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.

He said Disney's digital download business, where 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.

Georg Szalai reported from New York; Paul Bond reported from Los Angeles.
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