Time Warner CFO Sees More Profit Upside at Studio Unit, CNN
John Martin also discusses Warner Bros.' film rental trial with Facebook, saying it is an early test, but "social media might advantage the type of content that we make."
NEW YORK -- Time Warner expects another record profit for CNN this year and sees continued profit growth opportunities in its filmed entertainment unit, thanks to possible upside in TV production and consumer products and from new franchises, TW CFO John Martin said Tuesday.
Speaking at Credit Suisse's Global Media & Communications Convergence Conference in Miami, Martin also explained that Warner Bros.' decision to offer film rentals on Facebook is only an early stage trial. (link)
"This is early, early days," he said. The companies are "trying to understand consumer behavior and what could make sense," but it would be "imprudent" to already speculate about next steps, Martin said when asked what kind of release window the studio envisions if the trial with the social network goes well.
In a world with more and more content choices, there is a migration to the biggest hits, "and social media is a big component of that," Martin said. "There are likely over time going to be some really, really interesting ways that social media might advantage the type of content that we make."
He added that TW continues to see new forms of digital distribution, including a recently launched streaming video service from Amazon.com, as an opportunity to strike deals that are "additive" to the company's financials.
Asked about CNN, Martin said the company is "quite pleased" with the early performance of Piers Morgan Tonight. He also said that CNN's primetime ratings were up 50% in February amid breaking news coverage of developments in the Middle East.
CNN posted its seventh straight year of record profitability in 2010, and "we predict 2011 to be another year of record profits," Martin said.
The Turner cable networks are likely to once again come out at the top end of industry performance in this year's upfront, the CFO said.
Discussing the outlook for HBO, Martin predicted "very, very stable" U.S. paid subscriber figures this year and continued growth in international markets but said the number of promotional U.S. customers, which saw a decline last year, remains hard to predict.
Martin reiterated that TW remains confident in its "ability to grow the profitability of the film business" in the coming years, even though it has been performing at a high and pretty stable level.
He said 2011 will be a "big" and "terrific" year in TV production for TW, and the company's burgeoning video games business should also bring in a stronger year. Plus, he cited a strong film slate that includes the final installment of the Harry Potter franchise, Happy Feet 2, The Hangover 2 and Green Lantern.
Beyond 2011, Martin predicted continued "nice growth" in the games business at least for three to five years and said TV production is seeing strong secular trends, such as broadcasters' increasing retransmission fee dollars, which they can spend on new programming, a good syndication market and strong international demand. Investments in local TV productions in foreign markets, especially in local reality TV productions, are one growth opportunity in the coming years, he said.
Martin also highlighted upside potential in the consumer products arm and reiterated management comments that people may underestimate Warners' ability to create new franchises after the final Potter film is out.
Potter may be the most profitable franchise in movie history, but Martin said its end may mean "less of a hole than you might have thought," pointing to TW's recent focus on developing new franchises based on DC superheroes. He also said that Warners could take 100% participation on more franchises in the future, which could strengthen its financials.
Meanwhile, the consumer products business that is part of TW's film unit is No. 2 in the industry behind Disney, but growth by an increased focus on franchise films and on leveraging them across businesses is "a real opportunity for us," Martin said. "We have realistic expectations. We are not thinking we are going to catch up with Disney. We won't need to do that," he said. "But I think it could be a nice source of incremental profits as we move ahead and approach the business somewhat differently."