Time Warner profit falls 11% on bad 'Luck' while revenue climbs

The cancellation of HBO's "Luck" and the closing of a TV channel in India put a damper on an otherwise solid first quarter for media giant Time Warner Inc.

Time Warner reported a profit of $583 million for the quarter ending March 31, compared with $653 million for the same period in 2011, an 11% drop. Revenue was up 4% to $7 billion.

“We’re off to a great start to the year, and we’re benefiting from strong momentum for our content across our businesses," said Time Warner Chief Executive Jeff Bewkes.

Much of the revenue gain can be attributed to stronger subscription fees and ad revenue at the Turner networks, including TNT and TBS. The company said revenue at its cable networks was $3.6 billion, a 3% jump. Ad revenue was up 6% thanks to commercial dollars from the NCAA basketball tournament which was carried on TNT, TBS and TruTV.

However, programming costs for Time Warner's networks unit rose 6% in part because of the rights fees for the NCAA tournament. The company also took at $35 million write-down for "Luck," the low-rated HBO series about horse racing that was cancelled in the midst of its first season after several horses died during production.

Operating income in the networks unit dropped 2% to $1.1 billion. Time Warner said those results included a charge of $58 million related to Turner's decision to close its entertainment channel in India.

Revenue at Warner Bros. jumped 7% to $2.8 billion thanks to the strong performance of "Sherlock Holmes: A Game of Shadows" and higher fees for selling TV shows.

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Photo: HBO's "Luck." Credit: HBO.

Time Warner chief Jeff Bewkes' pay shrinks 1% to $25.9 million

Time Warner Inc. Chief Executive Jeff Bewkes took a pay cut in 2011 — albeit a mere 1%.

The head of the media conglomerate that owns Warner Bros., HBO, TNT and Time magazine saw his compensation shrink from $26.3 million in 2010 to $25.9 million last year because the company "did not surpass [its] financial targets by as great an amount as it did in 2010," according to a filing with the Securities and Exchange Commission.

As a result, Bewkes' bonus shrank to $13.5 million from $14.4 million in 2010. His salary remained constant at $2 million and the value of stock and options awarded to him was up slightly at $10.1 million.

Time Warner said in its filing that Bewkes' compensation was below that of his peers at other media conglomerates, an observation borne out by figures publicly released thus far. Walt Disney Co. Chief Executive Robert Iger, for example, took home $31.4 million in 2011; Viacom Inc.'s Philippe Dauman received $43 million; and Discovery Communications chief David Zaslav received $52.4 million.

However, Time Warner did note in the filing that compared with a "broad industry peer group" that also includes non-entertainment companies such as Apple Inc., McDonald's Corp. and Procter & Gamble Co., Bewkes' compensation sat between the 75th and 90th percentiles.

Bewkes was the only one of Time Warner's top executives to take a pay cut. Chief Financial and Administrative Officer John K. Martin's compensation grew 13% to $11.5 million; general counsel Paul Cappuccio got a nearly 20% raise to $7.4 million; and Executive Vice President of Corporate Marketing and Communications Gary Ginsberg received a 6% bump to $3.8 million.

The compensation committee of Time Warner's board of directors justified the increases based on a strong financial performance in 2011 that saw the company's revenue grow 8% to $29 billion and operating income grow 7% to $5.8 billion. It also noted successes in strategic initiatives such as investing in programming, growing internationally and launching digital businesses such as TV Everywhere and HBO Go for television and UltraViolet for movies.

During 2011, Time Warner stock rose nearly 16% to $35.89.

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Photo: Jeff Bewkes at the Economic Club in Washington, D.C., on March 14. Credit: Chris Kleponis / Bloomberg.

Media giants score legal victory against foes of bundling channels

Don't look for your cable company to let you pick what channels you want to get anytime soon.

A panel of judges for the U.S. 9th Circuit Court of Appeals in San Francisco sided with a dozen media giants including News Corp., Time Warner, DirecTV and Comcast in a class-action suit that was looking to do away with the practice of bundling multiple channels together and selling them as a package, a long-standing industry tradition.

Bundling is when programmers sells their channels in bulk to distributors. For example, Walt Disney Co.'s ESPN typically cuts deals with cable and satellite distributors for multiple channels. The distributor then sells the bundle as part of a package to consumers.

Many media watchdogs argue that bundling allows big media companies to get distribution for less popular channels in return for carrying the popular channels. A distributor can pay to carry just ESPN and none of its spinoffs. However, the cost is usually higher than if the distributor agrees to carry several ESPN channels. The consumer who might only want ESPN must pay to get the extra ESPN channels too. 

In affirming a U.S. District Court ruling in California, the 9th Circuit panel said that bundling is not a violation of antitrust laws. The plaintiffs -- a group of cable and satellite television subscribers -- argued that programmers abused their market power and harmed competition by requiring distributors to sell channels in prepackaged tiers rather than on an individual, or a la carte, basis.

The attorney for the plaintiffs, Maxwell Blecher of the Los Angeles law firm Blecher & Collins, said he will either seek a hearing in front of the full 9th Circuit or appeal to the Supreme Court.

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Time Warner CEO Bewkes defends UltraViolet launch, pumps digital

Time Warner Chief Executive Jeff Bewkes defended last year's shaky public debut of the digital movie technology UltraViolet, led by his company's studio Warner Bros., claiming it was imperative to launch early rather than wait for further improvements.

"You get into this debate, 'Should you wait until it's perfect?' " he said at a Deutsche Bank-sponsored media and telecommunications conference in Palm Beach, Fla., on Tuesday. "The reason we didn't is consumers are used to seeing these new products improve over time. They know version 3.0 is going to be better than 1.0."

UltraViolet allows people who buy compatible DVDs and Blu-ray discs to also get a copy of a movie stored online that they can access on compatible Internet-connected devices. Warner and other studios are counting on the new technology to encourage people to keep buying movies, instead of renting or illegally pirating them, in the digital age.

"Some have speculated ... consumers don't want to own movies in a digital environment," Bewkes said. "We don't think that's right. One of the biggest problems is that while it's easy to rent a movie and watch it on your TV, until now it has not been easy to buy a movie digitally, manage a digital collection and watch it on the device of your choosing."

More than 1 million people have registered to use UltraViolet accounts, according a recent report on PaidContent. However, the UltraViolet initiative, which includes most Hollywood studios, suffered a wave of bad publicity when it launched this past fall. Consumers complained about cumbersome user restrictions and a complicated registration process.

Warner is the only studio that includes UltraViolet copies with every disc it sells. Sony Pictures, Universal Pictures and Paramount Pictures include it only with select films. 20th Century Fox isn't expected to jump on board until later this year, while Walt Disney Pictures is not part of the UV consortium.

At the conference, which is attended by media business investors, Bewkes urged his audience to pressure other entertainment companies to more aggressively support UltraViolet. "If we don't" he said, "we run the real risk of habituating consumers to rental when in fact they may prefer to own and build collections of movies."

Studios make significantly larger profits from movie sales than rentals.

Bewkes also urged attendees to pressure other media companies to put more television content online as part of TV Everywhere, which lets cable subscribers watch channels on digital devices. Warner has aggressively supported that initiative, making available more than 1,000 hours of content from its cable channels, including TNT and TBS, as well as more than 1,600 hours for the similar HBO Go.

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Photo: Time Warner Inc. CEO Jeff Bewkes. Credit: Brendan Hoffman / Bloomber

As Time Warner results improve, CEO Jeff Bewkes touts digital

Time Warner Chief Executive Jeff Bewkes touted his company's digital initiatives for television and film while also promising to invest more in content in 2012 as the media conglomerate reported improved results for the final quarter of 2011, slightly beating analysts' estimates.

Revenue for the New York-based company was up 5% during the fourth quarter and 8% for the full year to $8.2 billion and $29 billion, respectively. Net income rose a fraction of a percent to $769 million for the quarter and $2.89 billion for the year.

In the company's networks business, which includes TNT, TBS and HBO, revenue grew 5% in the fourth quarter to $3.5 billion as both advertising and cable subscription fees increased. TV networks continued to be Time Warner's most profitable business, with operating income up 26% to $1.14 billion for the fourth quarter.

Movie studio Warner Bros. saw a 9% jump in revenue to $3.9 billion due in large part to the DVD launch of the final "Harry Potter" movie, "Harry Potter and the Deathly Hallows -- Part 2" and the success of the video game Batman: Arkham City. The film unit's operating income was flat at $427 million.

Time Warner's challenged magazine publishing business revenue was flat at $3.7 billion, while operating income increased 21% to $207 million.

On a conference call with analysts Wednesday morning, Bewkes said Time Warner will continue to increase its investments in producing and buying content at both the TV and film divisions this year. The CEO also focused on digital initiatives that will be key to the conglomerate's future growth.

 Bewkes said that with the technological systems now in place behind TV Everywhere, which allows cable subscribers to watch channels they pay for on a variety of digital devices, more content and distribution is needed. "TV Everywhere needs to offer a robust amount of content for every network and needs to be on multiple devices, including [Internet] connected televisions," he said.

Bewkes noted the company's HBO Go has been very well received by customers but also acknowledged that business disputes have caused delays in getting it into all subscribers' hands. The on-demand service only became available to Time Warner Cable and Cablevision subscribers in late 2011. "There has been a little friction and not as much speed as we'd like in having consumers get HBO on every device," he conceded.

The CEO also praised the late 2011 launch of UltraViolet, a multi-studio initiative that lets DVD buyers also get a copy of a movie in the "cloud" that they can access on any device. Warner Bros. was the leader in pushing UltraViolet's public launch and also took flack for what some saw as a complex system compared to other digital movie options.

"It's certainly early but the consumer response we've seen so far reinforces how much pent-up demand there is for an easy way to manage and access movie collections," he said.

To further spur sales of UltraViolet movies directly through the Internet, and not in connection to a DVD, Bewkes said he would support making digital downloads available even before the discs go on sale. "A powerful thing would be to have [download sales] start earlier," he said. "We don't think it would cannibalize theatrical [revenue] and it can fit into our retail business."

Bewkes also praised Warner's decision to impose a 56-day delay on DVD rentals through Netflix and thus far unsuccessful effort to impose the same delay on Redbox. He said it has had a positive impact on the studio's DVD sales.

Time Warner also announced that it would increase its quarterly cash divided by 11% to $1.04 per share.

The company's stock was up 1% to $38.65 in midday trading Wednesday.

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Photo: A scene from "Harry Potter and the Deathly Hallows -- Part 2." Credit: Warner Bros.

'Hell on Wheels' maker Endemol makes progress on financial restructuring

Television production giant Endemol, whose future has been the subject of speculation, said Thursday it has made a "significant step" toward restructuring its balance sheet.

Dutch-based Endemol, which primarily makes game shows and reality programs like NBC's "Fear Factor" and ABC's "Wipe Out," and the AMC drama "Hell on Wheels" (pictured above), said more than two-thirds of its creditors have struck an agreement in principle regarding the company's capital structure. The company has been struggling under a debt load of $2.75 billion.

“We are delighted that the majority of our lenders have in principle agreed to the proposed commercial restructuring terms and we can now enter into the final part of the process. A solution that puts Endemol on a strong financial footing for the future is now imminent," Endemol Global President Marco Bassetti and Chief Financial Officer Just Spee said in a statement.

The news that the creditors are on the same page may put a damper on Time Warner Inc.'s hopes of acquiring Endemol. Last November, Time Warner made an unsolicited bid of about $1.4 billion for the company. Endemol has said all along that it is more interested in fixing its books than in selling the company.

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Photo: Endemol's "Hell on Wheels," which airs on AMC. Credit: Chris Large / AMC

Time Warner makes another play for Endemol

Time Warner Inc. isn't going to take no for an answer.

After having its first offer for the Amsterdam-based reality and game show producer Endemol LV rejected, the media giant has come back with a sweetened bid. While the value Time Warner is placing on Endemol -- maker of ABC's "Wipeout," NBC's "Fear Factor" and CBS' "Big Brother" -- remains $1.4 billion, the new offer is all cash, people involved in the matter said.

Time Warner is aggressively going after Endemol because it can provide a steady stream of programming for Warner Bros. to sell around the world and use for itsown international channels. Endemol has a big library of almost 2,500 program formats and makes regional versions of its shows in numerous languages, in numerous territories, including the United States, Brazil, France, Germany, Italy, the Middle East, the Netherlands, Russia and Spain.

The heavily leveraged Endemol has been working with its lenders to restructure its balance sheet, which has a debt load of about $2.75 billion. In a statement regarding the latest offer from Time Warner, Endemol again indicated it was more interested in resolving its balance sheet issues than a sale.

"Endemol has received a revised offer from TW," a spokesman for the company said, adding that while the offer has been passed on to its lenders, Endemol remains "focused on our discussions with lenders and these have entered the final stages. We are confident that a solution that puts the company on a firm financial footing for the future is now imminent."

-- Joe Flint

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Photo: Endemol's "Wipeout." Credit: Jeff Samaripa/ABC

The cable television industry's conundrum

When assessing the future health of an economy, experts pay close attention to a particular measure: inflation.

That's why some Wall Street analysts are monitoring runaway inflation in cable TV network programming. A recent study by consulting firm SNL Kagan calculated that cable TV networks' content costs have climbed at an annual rate of 9%. Some cable channels, primarily those that offer sports, have experienced even greater increases.

Take ESPN.  In 2006, the cable sports juggernaut spent $3.5 billion to program the channel. This year, the Walt Disney Co.-controlled network spent $5.2 billion -- an increase of nearly 50%. General entertainment channels, including TNT, TBS and History Channel, also have witnessed staggering increases as they ramp up original productions to compete with the broadcast networks.

Although cable channels continue to be the most profitable divisions of their parent media companies Disney, Time Warner Inc., NBCUniversal, News Corp. and Viacom Inc., the trend is worrisome.  Consumers eventually will feel the sting of the higher costs.

Read the full story in Thursday's Los Angeles Times.

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Time Warner still hoping to strike deal for Endemol

It appears that Time Warner and Endemol may be playing a real-life version of "Deal or No Deal."

Almost three weeks ago, Time Warner Inc. made an unsolicited bid of $1.4 billion for Endemol NV, an Amsterdam-based television production giant that specializes in game and reality shows, with credits that include "Wipeout," "Deal or No Deal" and "Fear Factor." Time Warner made the bid at a sensitive time for Endemol as it works with its creditors to restructure its heavily leveraged balance sheet.

On Monday, word surfaced that Endemol had told Time Warner thanks but no thanks for its offer. Though the company has declined to comment publicly on the status of Time Warner's bid, a person close to Endemol said the focus was on fixing its balance sheet, not finding a new owner.

If Endemol is in fact passing on the bid, it is news to Time Warner, an insider there said. Time Warner has received no official rejection of its offer for Endemol, this person said and is not throwing in the towel on its push to acquire the programming giant. 

Like Endemol, Time Warner declined to comment publicly on the matter.

There are some inside Time Warner who think Endemol is trying to see if any other buyers emerge so it can set up a bidding war. However, a person close to Endemol with knowledge of the matter said no other offers have come in since Time Warner's unsolicited bid.

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Photo: Endemol's "Wipeout." Credit: Adam Larkey/Associated Press

Time Warner makes play for Endemol, to boost overeas presence

Looking to boost its international presence, Time Warner Inc. made a unsolicited bid earlier this week for Endemol, the creator of reality TV hits “Deal or No Deal” and “Wipeout” and one of the world’s largest television production companies.

The media giant and parent of Warner Bros. has offered about $1.4 billion for the highly leveraged Endemol, according to a person with knowledge of the bid. Time Warner is interested in the company because it can provide a steady stream of product to its channels around the globe.

“We have received an approach from Time Warner, which doesn’t come as a surprise,” said Charlie Gardner, a spokesman for Endemol.

However, Gardner said, Amsterdam-based Endemol is committed to resolving its balance sheet issues. The company carries a debt load of about $2.75 billion, Gardner said.

“This doesn’t change anything. We remain focused on reaching a solution with lenders,” Gardner said, adding: “We are confident that an agreement will put the business on a firm financial footing and strengthen Endemol’s prospects for the future.”

In the United States, Endemol is best known as a producer of reality and game shows including CBS’ “Big Brother” and NBC’s “Fear Factor.” It also produces numerous reality shows for cable, such as TLC’s “LA Ink” and Bravo’s “The Rachel Zoe Project.”

Founded in 1994 by John De Mol and now owned by the investment firm Goldman Sachs and investment funds Cyrte and Mediacinco –- controlled by Italian Prime Minister Silvio Berlusconi -- Endemol has gone through some internal turmoil as of late. Less than three months ago, Ynon Kreiz abruptly resigned as chairman and chief executive in the midst of Endemol’s efforts to restructure its heavy debt load. Endemol's board tapped Marco Bassetti, the company's group president, and Just Spee, the group chief financial officer, to manage the company as it tries to come to a new agreement with its debt holders.

The ongoing fight between Endemol and its creditors appears to have motivated Time Warner to make a play for the company. Besides its bid, Time Warner has also committed to investing heavily in new programming.

In Endemol, Time Warner sees a product pipeline for its international television networks. Time Warner owns entertainment channels in India, Japan, Central and Eastern Europe and Latin America.
Warner Bros. already has a lucrative business selling its library of television shows, including current hits “The Big Bang Theory” and dramas such as “The Mentalist” and “Nikita,” around the world.

But now companies such as Time Warner, Viacom and Sony are also trying to produce more local content for foreign markets instead of just dubbing their shows in various languages and shipping them overseas. Sony, for example, has produced Russian-language versions of its “The Nanny” and “Everybody Loves Raymond.”

Endemol has a library of almost 2500 program formats and produces regional versions of its shows in numerous languages, in numerous places, including the United States, Germany, France, Italy, Spain, the Netherlands, Russia, Brazil and the Middle East.

The company has recently become a player in the syndication game as well. Programs it sells abroad include the AMC cable channel hits “Mad Men” and “Breaking Bad,” the soon-to-premiere Western “Hell on Wheels” and the TV Land series “Happily Divorced.”

Although best known for its reality and game shows, Endemol has also increased its scripted programming production by about 50% in the last three years. Endemol’s scripted fare is made primarily for Holland, Italy, Spain and Australia. It also has a presence in Britain and in Argentina, where it makes telenovelas. This year, Endemol unveiled plans to build a scripted entertainment business in the United States.

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