Jeff Bewkes jumps to Warner Bros.' defense as Time Warner boosts outlook

When it comes to talking smack about the movie business, just leave Warner Bros. out of it.

That's the word from Time Warner Chief Executive Jeff Bewkes. On a conference call with analysts, Bewkes said Warner Bros. is marching toward its most profitable year ever.

There's a "perception that film is inherently a low-return or volatile business," Bewkes said, referring to widespread negativity about the movie industry this year amid wrenching changes in consumers' consumption habits and a rash of cost-cutting. "That’s certainly not true and hasn’t been true at Warner Bros.... In spite of softness in home video overall, this year Warners is on pace to report its highest profits ever."

In a preemptive strike before any questions were asked, Bewkes pointed to the studio's strong summer at the box office driven by hits including "The Hangover," "Harry Potter and the Half-Blood Prince" and "The Final Destination," as well as its television successes including "Two and a Half Men" and "The Big Bang Theory." Recent movie releases such as "Where the Wild Things Are" and "The Informant" have seen more modest results, although the studio has had no major flops of late.

Last year, Warner Bros. went through a major round of cost cutting, most notably by folding New Line into the main studio and shutting down its independent film division.

Bewkes told analysts that, outside of write-offs related to 2000's disastrous merger with AOL, Warner Bros. return is "certainly well above the cost of capital, that its level of profit "consistently surpasses its peers by far," and its operating income excluding certain costs will top $1 billion by the end of 2009.

Studio revenues were down 4% to $2.78 billion in the quarter ended Sept. 30, although Time Warner's chief financial officer, John K. Martin, said that was well above expectations given systemic problems in the home video business, a main driver of movie industry revenue, as well as a difficult comparison to 2008, when Warner Bros. released mega-hit "The Dark Knight." Operating income for Warner Bros. rose 6% to $291 million.

TNT nearing deal for 'Southland,' but don't pop the champagne just yet

In Hollywood's worst-kept secret, Warner Bros. and TNT are putting the finishing touches on a deal to bring the dark cop drama "Southland" to the cable channel.

But whether this means "Southland," which NBC abruptly canceled earlier this month, is getting a new life or a temporary stay of execution won't be known until next year.

Under the terms being negotiated, TNT will buy the seven episodes that ran last spring as well as the six new episodes that Warner Bros. and John Wells Productions made for NBC. The show is not going back into production because TNT will decide whether to order additional episodes of "Southland" after it sees how the drama performs. The show isn't expected to make its cable debut until after the new year, and the new episodes might not run until late February or early March.

The deal comes a few weeks after NBC pulled the plug on "Southland," a decision that surprised Warner Bros. and John Wells. Last season, NBC ran the show in a 10 p.m. time slot, but this season it was moving the drama about Los Angeles beat cops to a 9 p.m. home because Jay Leno now occupies all of the network's 10 p.m. time slots.

Although NBC expressed support of the cop drama last spring, the tone of the show apparently got a little too grim for the network. But because the time slot change meant "Southland" would air at 8 p.m. in much of the country, NBC wanted to cut back on some of the violence and language. There was resistance from the Wells camp, however, and NBC ultimately decided to drop the show and replace it with "Dateline," which is much cheaper to produce. There has been speculation that cost was also a factor in NBC's decision to cancel "Southland" -- the network had to pay about $1.5 million in license fees per episode, people close to the program said.

Because Wells is one of Warner Bros. biggest producers and is responsible for "ER," which made boatloads of money for the studio, there was a real push to find a new home for "Southland."

TNT will likely schedule "Southland" at 10 p.m. We'll see how it does against Leno.

-- Joe Flint

Related posts:

Shopping "Southland"

Deciphering NBC's "Southland" move 

NBC axes "Southland"

Photo: A scene from "Southland."  Credit: Justin Lubin / NBC

Warner Bros. Production President Kevin McCormick to become producer at studio

Warner Bros. Production President and 10-year veteran Kevin McCormick is transitioning to an exclusive three-year production deal at the Burbank studio. McCormick will stay in his executive role, which he has held since January 2008, until the end of December.

The studio said McCormick's job would not be filled with another executive. Rather, beginning in January, Warner Bros. Pictures Group President Jeff Robinov will assume some of McCormick's duties and reassign his other responsibilities to executives on his team.

A person inside Warner said that McCormick and Robinov had recently discussed the idea of him segueing into a production deal at the studio. Two people familiar with the matter said there had been growing "awkwardness" between the two executives whose jobs tended to overlap. People said Robinov, who had been head of production for five years before being promoted two years ago, had remained very hands-on despite the expansion of his duties.

McCormick had another year to go on his contract, and in a prepared statement said he was eager to get back to the "creative side of filmmaking, which is what I most care about." Early in his career, McCormick had worked extensively on the production side of the business.

Among the first Warner Bros. projects that McCormick will tackle at his new production company are "Dead Spy Running," adapted by Stephen Gaghan; "The Lucky One," to be directed by Doug McGrath and produced by Denise Di Novi; "Arthur," with producers Larry Bresner and Chris Bender; and an untitled project with screenwriter Eric Roth.

McCormick, who as a film executive was involved with such films as Tim Burton's "Charlie and The Chocolate Factory," "The Perfect Storm" and "The Last Samurai," will also maintain an association with Warner Bros. Theatre Ventures by becoming a producer on several of that unit's projects in development and pre-production.

Before joining Warner Bros. in 1999, McCormick worked at Fox 2000 as executive vice president of production. He began his career at the Robert Stigwood Organization in London, working on such films as "Saturday Night Fever" (which he executive produced), "Grease," "Tommy" and "Jesus Christ Superstar." He then went on to form a producing partnership with actress Sally Field and later had a production deal at Paramount Pictures.

-- Claudia Eller

Photo: Warner Bros.' Kevin McCormick (R) with actor James Franco: Credit: Alberto E. Rodriguez/Getty Images

New Batman video game a major hit, G.I. Joe game disappoints

Warner Bros. may not have a new Batman movie this year, but the Caped Crusader is turning out to be the biggest thing in Hollywood-licensed video games.

Batman: Arkham Asylum sold 593,000 units in August according to NPD Group, which tracks industry sales. It's the biggest first-month sales for any video game this year based on a Hollywood property and particularly impressive given that Arkham Asylum was released Aug. 25, meaning NPD only tracked its sales for five days.

Warner said last week that Arkham Asylum, which received stellar reviews, had sold nearly 2 million units worldwide through Sept. 8, a very strong launch for a video game.

Though Warner Bros. didn't publish the game, it will benefit financially from Arkham Asylum in two ways. As the licenser to publisher Eidos, it receives royalties on game sales. In addition, Warner Bros. Interactive Entertainment, the studio's video game publishing unit, handled sales and marketing in the United States on behalf of Eidos and gets a percentage of the game's domestic revenue for those services.

Some in the video game industry criticized Warner Bros. last year for failing to release a video game alongside the hugely successful "The Dark Knight." Electronic Arts had started development on a Dark Knight game but scrapped it because of production problems. However, Arkham Asylum, which features an original story in which Batman is trapped in the prison that houses many of his most dangerous foes, has been extremely well received by reviewers and seems to have benefited from a release in the historically barren month of August, when an annual sequel to Madden NFL usually scares off all potential competitors.

G.I. Joe: The Rise of Cobra, the only other major video game based on a Hollywood property to be released in August, was a flop. Electronic Arts' adaptation of the Paramount film sold just 136,000 units all month despite being released Aug. 3. Hasbro, maker of the G.I. Joe toys, was the primary licenser to EA, though Paramount had an interest in the video game and other related merchandise.

-- Ben Fritz

Photo: A scene from Batman: Arkham Asylum. Credit: Eidos.

Warner Bros. reboots DC Comics in bid to rival Marvel on big screen

Warner Bros. is hoping to bring some Harry Potter magic to its DC Comics brand.

Sick of being second banana to comic book competitor Marvel Entertainment in the movie world, the studio has brought DC in-house and appointed Diane Nelson, a brand management executive who has overseen the Harry Potter franchise since 2000 to run the unit.

Along with the move, Warner Bros. is changing DC Comics' corporate name to mirror that of its rival. The division will now be known as DC Entertainment.

While Warner's move has been long rumored in Hollywood, it comes just a week after Walt Disney Co. agreed to acquire Marvel for $4 billion.

Warner is hoping Nelson will be able to duplicate Harry Potter's amazing track record with DC's rich library of characters across movies, television, video games, the Web and consumer products. The Potter franchise, the most successful in the studio's history, has generated more than $5.4 billion in worldwide box office and billions more from DVDs, video games and other markets.

DC Entertainment will be a separate division of the studio, with Nelson reporting to Warner Bros. Pictures Group President Jeff Robinov.

New Line resolves lawsuit with Tolkien Trust and HarperCollins over 'Lord of the Rings'

Clearing the way to move forward with its planned two films of "The Hobbit," New Line Cinema has settled a lawsuit with the TolkienTrust and HarperCollins Publishers over the "Lord of the Rings" films.

 The trustees of the JRR Tolkien Estate and HarperCollins were co-plaintiffs in a claim filed last year against New Line relating to their profit participation in the highly lucurative "Lord of the Rings" movies. The suit sought to block production of "The Hobbit" films until those claims were resolved. The three films, which were released in 2001, 2002 and 2003, amassed close to $3 billion in worldwide ticket sales. Terms of the settlement were not disclosed.

Christopher Tolkien, the youngest son of the renowned author, said in a statement that the trustees "regret that legal action was necessary, but are glad that this dispute has been settled on satisfactory terms." The settlement allows the Tolkien Trust, a British charity, to "pursue its charitable objectives."

New Line parent Warner Bros. is also breathing a sigh of relief. "We are pleased to put this litigation behind us," said Warner Bros. President Alan Horn. "We all look foward to a mutually productive and beneficial relationship in the future."

Warner Bros./New Line and MGM have plans to co-finance two "Hobbit" movies, the first of which is expected to begin shooting next year in New Zealand. Guillermo del Toro is set to direct both, and "Lord of the Rings" director Peter Jackson is producing with Fran Walsh. Warner Bros. has domestic rights to the franchise, and MGM has international rights.

However, it's yet to be seen if MGM will be able to come up with its half of the budget given its financially beleaguered state. If not, there surely won't be a shortage of partners to take its place.

Update (11 PM): For more details on the settlement, see the story in tomorrow's Times.

— Claudia Eller

Photo: Elijah Woods and Sean Astin in "The Lord of the Rings: Return of the King." Credit: Pierre Vinet, New Line Cinema.

$1 Redbox DVD rentals could pinch Internet video services, study finds

Apparently there's more to fear in Redbox's $1 DVD rentals than meets the eye.

The leading DVD kiosk vendor has done deals with half of the Hollywood studios (Lions Gate Entertainment, Sony Corp. and Paramount Pictures), while the other half (News Corp's 20th Century Fox, Warner Bros. and NBC Universal) have sought a waiting period to protect sales of movies new on DVD.

A study from SNL Kagan finds that online video-on-demand services like Apple Inc.'s iTunes could suffer if consumers start to think $1 is the right price for a movie rental.

Kagan examined the cost of delivering online video at six levels of quality, based on assumptions about the average Internet speed, movie length and delivery cost.

Only in the two lowest-quality instances (known as standard definition) did Internet on-demand services come out ahead when rentals cost $1. After subtracting delivery costs and the studio's cut of 70 cents, the profit could be measured in pennies: 8 to 19 cents.

But at $3.99, every flavor of Internet video, including high-definition, delivers a profit, Kagan found.

The implications of the rental-for-a-buck are ominous.

"It could just have earth-shattering consequences to these services hoping to reach people through the Internet," said Wade Holden, the Kagan entertainment industry analyst who crunched the numbers.

Holden said Internet delivery costs could take years to come down enough (through more-efficient video compression and higher bandwidth rates) to make 1-dollar on-demand rentals economically feasible.

A going rate of $1 would gut the rental market, which Kagan projects at about $8 billion this year for 1.74 billion rentals.

"It would be a colossal shift for the rental market to go from $8.03 billion to $1.74 billion — a change studios are likely not to get on board with," Holden wrote in a report issued Aug. 31. "If that were to happen, revenue sharing would most likely not be an option and VOD providers would have to pay massive licensing fees to studios looking to maintain their revenue streams."

--Dawn C. Chmielewski

Redbox sues Warner Home Video over new DVD restrictions

Redbox filed suit Tuesday against Warner Home Video, its third such lawsuit against a Hollywood studio over attempts to delay distribution of newly released DVDs to the operator of $1 movie rental kiosks.

The suit takes issue with new distribution terms imposed by Warner Home Video that would prohibit kiosk operators like Redbox from obtaining new releases on DVD for 28 days after they go on sale. Time Warner Inc.-owned Warner Bros. adopted a policy for its home video unit similar to that imposed by Twentieth Century Fox and Universal Pictures, which also prompted Redbox to bring civil suits.

"Warner Home Video's actions come at the expense of consumers," Redbox President Mitch Lowe said in a statement.

The studios are split over how to deal with the fast-growing operator, which now has 15,000 vending machines at grocery, convenience and drug stores nationwide, as well as at the nation's largest retailer, Wal-Mart Stores Inc. Sony Pictures Home Entertainment and Lions Gate Entertainment this summer signed multimillion-dollar distribution agreements with Redbox, which is a wholly owned subsidiary of Coinstar Inc.

Warner Home Video could not be reached this morning for comment.

-- Dawn C. Chmielewski

Photo: A Redbox DVD rental kiosk. Credit: Justin Sullivan / Getty Images

Warner Bros. takes aim at Netflix along with Redbox

The news that Warner Bros. will attempt to limit new release rentals at fast-growing DVD rental kiosk company Redbox doesn't exactly merit a big headline.

What does, however, is that the studio also wants to put the squeeze on Netflix.

The Time Warner-owned studio announced today that it is seeking new deals with kiosk operators and mail-order subscription companies, not-too-subtle code for Redbox and Netflix, the leaders in both categories, respectively.

In a brief statement, Warner Bros. said Redbox and its competitors will have to wait 28 days after DVDs launch to offer new releases. It is imposing the same restriction on subscription rental companies like Netflix unless they agree to "a day-and-date revenue-sharing option."

Like every major studio, Warner Bros. has a revenue-sharing agreement for some of the movies it rents through Netflix. It's apparently seeking a more lucrative deal as Netflix continues to grow amid an overall declining home entertainment market.

"We’ll evaluate the current proposal and discuss it with the studio, which is what we’ve always done," Netflix vice president of corporate communications Ken Ross said.

Warner Bros. is the first studio to attempt to renegotiate is deal with Netflix recently. Its public move could be a sign that other studios will be looking to Netflix to help make up for declining revenues from DVD sales and retail rentals.

The 28-day window for new releases that Warner is imposing on DVD kiosk companies is slightly shorter than a 30-day one imposed by Twentieth Century Fox last week. Late last year, Universal ordered its wholesalers to wait 45 days before giving new movies to Redbox.

Universal is amid a legal battle over the issue with Redbox, which has been purchasing the studio's DVDs more expensively through retail outlets since then. Earlier this week Redbox sued Fox for the same reason. If history is a guide, it will likely file a suit against Warner Bros. soon too.

All of those studios are concerned that Redbox's $1-per-night rentals are undercutting more lucrative rentals from other services and DVD sales. On a conference call after the conglomerate's most recent quarterly report, Time Warner CEO Jeff Bewkes compared Redbox to theaters that show movies several months after they premiere: "In general, we think there may well be a role for $1 rental kiosks," he said, "just like $1 movie theaters."

Lions Gate Entertainment and Sony Pictures, meanwhile, both recently signed five-year deals with Redbox worth over $200 million and $460 million, respectively, to guarantee that they will provide their discs to the company.

Paramount Pictures has yet to take a stand on the issue, while Walt Disney Pictures is giving Redbox its DVDs without a formal agreement.

In its statement, Warner Bros. said its home video department has decided to engage "solely in direct relationships with kiosk and mail-order subscription vendors" to offer "business options that will allow all parties to grow their respective businesses."

-- Ben Fritz

Related:

Redbox CEO: We have a negligible effect on DVD sales

Redbox sues 20th Century Fox over DVD releases

Lions Gate plays nice with Redbox for $158 million

Fox to Redbox: Hands off our movies for 30 days

Redbox revenue more than doubles, testing new pricing models

Hollywood hoping Redbox will be the DVD version of $1 movie theaters

Netflix revenue up 20% as rentals boom in the recession

Photos: A Netflix envelope. Credit: Paul Sakuma, AP. A Redbox kiosk in Santa Monica. Credit: Lawrence K. Ho, Los Angeles Times.

Warner Bros. is only bidder for Midway Games

Can Warner Bros. find gold in Sumner Redstone's mud?

As The Times' tech blog reports, the studio has emerged as the sole bidder for Midway Games, all but guaranteeing its $33 million offer for the bankrupt publisher of titles including "Mortal Kombat" will soon go through. Midway had been controlled by Viacom Chairman Sumner Redstone until last November, when he sold it at a huge loss to a private investor in exchange for a controversial tax benefit.

Buying Midway would significantly expand the scope of Warner Bros. Interactive Entertainment, the studio's growing video game division. Warner has acquired three game development studios in the past few years and hired industry veteran Martin Tremblay to run the video game unit. It also made an unsuccessful attempt to purchase Eidos, the British publisher of "Tomb Raider" video games.

The most immediate effect of the deal would be that Warner would be able to publish games currently in development at Midway. That includes a new "Mortal Kombat" fighting title and another called "This Is Vegas" set in Sin City. The studio would also gain control of Midway's intellectual property, which includes a number of well known but dormant series like "Joust" and "Spy Hunter" along with "Mortal Kombat." It could not only release new games based on them, but also adapt them for film and television. Warner would also take possession of Midway's development studios in Chicago and Seattle.

As The Times' tech blog explains, there are still several legal hoops Warner and Midway would have to jump through in bankruptcy court before the acquisition can officially close. They include objections to the deal terms from Vin Diesel, whose production company claims it is owed $200,000 by Midway for a game in which he starred, and Larry Kasanoff, producer of the two "Mortal Kombat" movies.

-- Ben Fritz

Photos: Warner Bros. logo. "Mortal Kombat Armageddon." Credit: Midway Games