2007 Corporate Scorecards
EmptyA sluggish economy and advertising market, a weakening DVD business, the global credit crunch and the continued digital transformation — 2007 has been a challenging year for the big seven media and entertainment companies.
While no two media conglomerates are alike, The Hollywood Reporter takes a look at their year-to-date performance in key business and financial areas. We examine their stock performance and operating profit growth (or decline) in key media and entertainment units for the first three quarters of 2007.
Results for the important holiday season don't arrive until late January or early February, but the analysis provides a first feel for how 2007 went for these media giants. Based on this examination, we offer an overall rating.
Today, we put News Corp., Time Warner, Disney and Sony under the microscope. Look for Viacom, CBS Corp. and NBC Universal on Friday.
NEWS CORP. ALL BUSINESS
News Corp. moved to reposition its asset mix this year. Its big play was the $5 billion acquisition of financial news powerhouse Dow Jones, which increases the conglomerate's exposure to the sluggish newspaper business. But News Corp. chairman and CEO Rupert Murdoch has said he wants to aggressively push to satisfy the growing global appetite for business news.
In other major deal moves, the company agreed to sell its controlling stakes in DirecTV and Gemstar- TV Guide, with deals also expected to close on the sale of eight Fox TV stations and News Corp.'s Eastern European billboard business.
An executive shuffle at News Corp. late in the year addressed the ever-present succession issue at the conglomerate, with James Murdoch taking on the role of chairman and CEO of News Corp.'s European and Asian operations — ostensibly becoming heir apparent to father Rupert's media empire.
Summary and outlook
News Corp. saw its shares move lower in 2007, with the voting stock down 1.5% as of Wednesday. Its market capitalization moved above Time Warner's during the year and but has since retreated. Plus, profit at its broadcast unit was down for the first three quarters of 2007.
However, film and cable networks unit operating profits were up double digits, and the company's Fox Interactive Media unit saw its operating performance for the same period swing to a profit of more than $34 million, compared with a year-ago loss.
Key challenges in the new year will include the integration of the Dow Jones acquisition as well as FIM's competition with online challengers.
TW PREPS FOR BEWKES ERA
Time Warner paved the way for new leadership this year, with CEO and chairman Richard Parsons increasingly moving out of the spotlight to clear the path for CEO-designate Jeffrey Bewkes, who takes the reins Jan. 1.
Management change already occurred during the year at the conglomerate's key HBO unit as longtime chairman and CEO Chris Albrecht was forced to to resign, with Bill Nelson taking over.
In a move that put the spotlight on a key asset, first-half 2007 saw Time Warner Cable become a public company.
Otherwise, TW management concentrated on further stabilizing the performance of AOL.
Summary and outlook
Time Warner shares lost more ground than most of its peers, falling 21.4% to $16.90 as of Wednesday. Film unit operating profit also was down for the first three quarters.
However, TV networks and cable systems profitability rose in the same period, and AOL remains a developing story.
In 2008, TW is expected to aggressively rejigger its holdings under Bewkes. TWC, the Time magazine unit and AOL are among the operations believed to be under review.
Because of Time Warner's volatile share price, it no longer is a slam dunk that the conglomerate is the world's largest entertainment company. But because of an expected restructuring — and what might be a stock price near rock bottom — analysts are warming up to Time Warner as a nice 2008 investment.
Its 2008 film slate includes "Harry Potter and the Half-Blood Prince," "Get Smart," "Speed Racer," "10,000 B.C." and "The Dark Knight."
'HSM' SOUNDS GOOD TO DIS
Disney is a world-class brand, so its products ought to say "Disney" on them. That concept has been the heart of Robert Iger's strategy since he took over as president and CEO two years ago.
One franchise alone, "High School Musical," has contributed $100 million in income in Disney's fiscal 2006 and 2007.
"HSM," along with DVD sales of "Desperate Housewives," "Grey's Anatomy" and "Lost," helped Disney's media networks business lead all others with an 18.7% rise in operating income. Plus, "HSM" and "Cars" helped drive 13.8% growth at the consumer products division.
In terms of assets, Disney sold ABC Radio, its stake in E! Entertainment and Us Weekly this year and purchased Club Penguin for $700 million.
Summary and outlook
Like most of its peers, Disney saw its shares drift lower this year, with the stock closing Wednesday at $32.82, down 3.2% year-to-date.
The company's studio entertainment — despite sizzling hot music sales from "HSM" and "Hannah Montana" — reported lower revenue for the first three quarters, ahead of the company's strong holiday season. But the operating profit for the unit was nearly on par with the same period in 2006.
Disney hopes to score big next year with "The Chronicles of Narnia: Prince Caspian," "Wall-E" and "Bolt."
Dragging Disney down a bit will be capital expenditures, which could increase up to $350 million as Disney spends money to enhance its California Adventure theme park and boost the company's digital capabilities.
SONY'S WEB RUNNETH OVER
Sony Corp. CEO Howard Stringer can look back at a year of progress. Sony Pictures Entertainment swung to an operating profit in the first nine months of the year compared with the same frame a year ago, with "Spider-Man 3" doing most of the heavy lifting.
The PlayStation 3 got off to a rocky start late last year but is selling well after pricing adjustments.
Summary and outlook
Compared to its peers, Sony stock rocked, climbing 31.2% for the year as of Wednesday, while the other conglomerates have fallen or eked out just tiny gains.
The electronics and film units boosted their bottom lines for the first nine months, and Sony Pictures Entertainment has exceeded $1.2 billion in U.S. boxoffice revenue, the sixth year in a row that the studio topped $1 billion.
Sony also has maintained the lead its Blu-ray Disc DVD platform has over rival HD DVD, courtesy of the PS3, which comes equipped with Blu-ray. Some look for Blu-ray to make further progress in deciding the showdown in its favor in 2008.
On the games front, Stringer has talked up the so-called PlayStation Network, which eventually will distribute movies, music and games.
In October, Sony began selling the world's first organic LED television with a super-thin screen just 3 millimeters thick. So far, there are too few to meet demand. The units are only available in Japan thus far.
Stringer also intends on not allowing Apple and Microsoft to easily encroach on Sony's once-dominant consumer electronics business, as Apple has most profoundly with its iPod and Microsoft with its Xbox 360.