Time Warner Inc.

Posted on October 16, 2016 by Barbara

By: Nubia Dandridge, John Rattazzi, Johnny Pierce

Time Warner [1]

Company

Time Warner Inc (headquartered in New York City) is an international media and entertainment conglomerate. The conglomerate is segmented into three divisions: Turner is the branch of the company consisting of cable networks and digital media. Home Box Office (HBO) is the company’s domestic premium television and streaming service which includes international premium pay. Warner Bros is the segment of the company primarily responsible for the company’s role in entertainment for television, feature length films, video-games and home video production and distribution [1].

Background

Time Warner Inc. was originally founded in 1923, under the name Warner Brother Pictures Inc. Under the direction of Polish immigrant brothers Harry, Albert, Sam, and Jack Warner, Time Warner Inc. has gone from being a nickelodeon in Pennsylvania, to one of the largest media conglomerates in the world by partnering with Home Box Office Inc. and Turner Broadcasting [2].

Television Success

One of Time Warner Inc.’s most valuable assets is HBO. The premium television service is widely recognized today for its show Game Of Thrones, but their fall series premiere of Westworld has taken viewers by storm. The series premiere telecast drew 3.3 million viewers across multiple platforms by the following morning. This opening was 1.1 million viewers greater than the first day Game Of Thrones was released back in 2011 [3]. Westworld has been approved for a second season [4] due to increased viewership from streaming services HBO Go and HBO Now, which allows viewers access to HBO programming without a subscription to the traditional HBO television service.

Film Success

In September 2016 Time Warner acquired the commercial and tv rights to the “Star Wars” collection, (valued at $250 million) including “Rogue One: A Star Wars Story” and “Star Wars: A Force Awakens.” The deal makes TBS and TNT the only networks with legal rights over the series. Time Warner made a strategic move during a volatile in which networks are hustling to lock up as much content that already has a formidable audience attached to it. The DC subsidiary of Warner Bros. is sufficiently lucrative for the entire company. In relation to the 10 DC series on air this season, total revenues for the line up have surpassed $1 billion. The CW, the joint television station owned by Warner Bros. and CBS Corp. is home to half of those series.

Warner Brothers has seen its share of success since September. With movies such as Suicide Squad earning a total gross of $325.1 million [5] and Fantastic Beasts and Where to Find Them earning a total gross of $158.1 million [6] in just two weeks has earned Warner Brothers a total gross income of roughly $806 million since the beginning of September.

Company Fallbacks

Since September, a negative mark against Time Warner Inc’s overall performance is due to low ratings for Turner Broadcasting. Turner is most known for it’s networks like TNT, TBS, CNN, Adult Swim, HLN, and Cartoon Network. ratings are down 14% across all networks as younger demographics are opting more for streaming services like Netflix and Hulu. As of more recently, quarter three of 2016 came in with numbers 8% lower than they were this time last year [7].

The other recent flaw for Time Warner Inc. has been Warner Brothers. Asides from three recently released movies, every other movie released after August has struggled to even reach its budget. If Suicide Squad, Fantastic Beasts and Where to Find Them, and Sully, weren’t counted in the total gross, Warner Brothers would not have made enough money domestically to fund the movies. While this is upsetting for Time Warner Inc. they cannot be too disappointed because this is the best year [8] that Warner Bros has had since 2009 thanks to releases earlier in the year.

The financial success of the studio does not come without its qualms. In October 2016, Director Rick Famuyiwa walked away from directing The Flash with mention of creative differences between himself and the studio as the reason for his departure [9]. Before Famuyiwa, Seth Grahame-Smith stepped down from his role as director of the same film. Analysts claim that the tension between the creative vision directors are hired to develop and the executive oversight Warner Bros exercises over such projects could impact the studio’s ability to hire directors in the future, not just for their DC projects.

AT&T and Time Warner Inc.

Time Warner’s market value currently hovers at approximately $62 billion with AT&T in position to buy the company for $85.4 billion (as of October 22nd). In September and October 2016, senior executives from both AT&T and Time Warner met informally to discuss business strategies as well as a potential merger [10] of the two conglomerates. Acquiring Time Warner would allow AT&T to control one of the world’s major providers of pay-TV and one of the nation’s largest wireless and home internet providers. AT&T would also stand to inherit an extensive collection of content and programming from HBO to CNN as well as Cartoon Network and NBA basketball programming. If the deal is approved, Jeff Bewkes will resign from his position as CEO of Time Warner Inc after the transitional phase. President Elect, Donald Trump, however has spoken against the merger having said that his administration “will not approve [the deal]…because it’s too much concentration of power in the hands of too few.”

[11]

Time Warner Finances Going Forward

The news of a merger is coming off of a strong third quarter showing from Time Warner Inc. Coming less than two weeks after the announcement of the AT&T merger, Time Warner reported a third quarter earnings of $1.83 per share on a revenue of $7.2 billion, which was a 9% increase from the expected earnings of $1.37 per share on a revenue of $6.98 billion. These impressive third quarter earnings are a result of many recent successes in content produced by Time Warner, including HBO. Home Box Office saw a 4% increase in revenue to $59 million. Yet, in 2016 while content proved to be king, HBO also saw its content library decrease. With a potential influx of cash due to the potential AT&T merger, HBO can see itself become more like Netflix faster than Netflix can become HBO, contrary to the quote [12] of Netflix CEO Ted Sarandos. Due to the $85 billion dollar pay day Time Warner would receive for the merger, HBO could see its budget for original content increase from $2.2 billion, just a third of what Netflix spends on content. The merger could also result in an affirmation of Jeff Bewkes proposal for “TV Everywhere”[13]. Although the idea has not been a success, AT&T could make it a reality with their wireless subscription package. This idea of Time Warner putting their content “everywhere” will allow for shows like Game of Thrones or Westworld to vastly increase their audience.

Overview

Although many changes are likely coming to Time Warner, no immediate changes will be apparent in the near future. The focus for this next quarter, as well as the new year, will be on accelerating user subscriptions [14] for HBO Now, which could increase in the merger with a bundle package offered with AT&T services.

Sources

Sources:

Top 3 Companies Owned By Time Warner (TWX). Retrieved November 19, 2016. http://www.investopedia.com/articles/markets/102215/top-3-companies-owned-time-warner.asp.
Time Warner Inc. Retrieved November 20, 2016. https://www.britannica.com/topic/Time-Warner-Inc
Westworld’s Shaping Up to Be an Early Ratings Success for HBO. Retrieved October 16, 2016. http://www.vulture.com/2016/10/westworld-premiere-ratings-early-success-for-hbo.html
Westworld: Season One Ratings. Retrieved November 30, 2016. http://tvseriesfinale.com/tv-show/westworld-season-one-ratings/
Suicide Squad. Retrieved November 26, 2016. http://www.boxofficemojo.com/movies/?id=dc2016.htm
Fantastic Beasts and Where to Find Them. Retrieved November 29, 2016. http://www.boxofficemojo.com/movies/?id=fantasticbeasts.htm
Turner Lacking Script For Success. Retrieved November 25, 2016. http://www.broadcastingcable.com/content/turner-lacking-script-success/153449
Warner Bros. Retrieved November 20. http://www.boxofficemojo.com/studio/chart/?studio=warnerbros.htm
‘The Flash’ Movie Loses ‘Dope’ Rich Famuyiwa (Exclusive). Retrieved on November 2, 2016. http://www.hollywoodreporter.com/heat-vision/flash-movie-loses-dope-director-rick-famuyiwa-942604
AT&T Discussed Idea of Takeover in Time Warner Meetings. Retrieved October 21, 2016. https://www.bloomberg.com/news/articles/2016-10-20/at-t-said-to-discuss-idea-of-takeover-in-time-warner-meetings
What does AT&T, Time Warner Merger mean? Retrieved October 28, 2016. https://www.youtube.com/watch?v=JOt1ZJjLxdo
What the AT&T-Time Warner merger means for HBO. Retrieved October 27, 2016. http://qz.com/818603/what-the-att-time-warner-twx-merger-means-for-hbo/
AT&T’s Time Warner Purchase Acknowledges TV Everywhere’s Failure. Retrieved October 25, 2016. https://www.bloomberg.com/news/articles/2016-10-24/at-t-s-time-warner-purchase-acknowledges-tv-everywhere-s-failure
Time Warner’s Turner Inks Deal for DC Movies. Retrieved November 2, 2016. http://variety.com/2016/biz/news/turner-dc-movies-rights-1201906942/

Time Warner (TV/cable channels only)

Image

by Cameron MacPherson

[1] Time Warner Logo

Time Warner Inc.
One Time Warner Center
New York, NY 10019-8016
212-484-8000
www.timewarner.com

About

Time Warner, Inc. is an American media company with properties in the television and film industries, including cable properties under the Turner Broadcasting System, its premium cable property Home Box Office (HBO), and its production unit Warner Brothers Studios. [2]

[3] Time Warner has three major divisions: HBO, Turner, and Warner Brothers

Executives

[4] Jeff Bewkes, Chairman and CEO

[6] Gary L. Ginsberg, Executive VP, Corporate Marketing and Communications

[5] Howard M. Averill, Executive Vice President and CFO

Financials and Strategies

Time Warner Inc., a publicly traded company, posted a $29.8 billion revenue for 2013, a 4% increase from 2012. [7] On July 16, 2014, news broke that Time Warner had rejected an $80 billion buyout offer from 21^st Century Fox. The proposal offered $85 a share for a stock that, just before the announced rejection, sat just above $70 a share. [8] CEO Jeff Bewkes has made a commitment to reach the $85 per share target to encourage stockholders that the company has growth potential. Under Bewkes, the financial strategy of the company has been to minimize expenses to maximize profits. Time Warner Inc. has recently spun off Time Warner Cable and Time Inc. properties, retaining only its Turner cable properties, HBO, and the Warner Brothers Studios. [9]

Time Warner rejected a buyout bid from 21st Century Fox

[12 ] Time Warner rejected an $80 billion buyout bid from 21st Century Fox

Even with a smaller portfolio of properties, the emphasis on streamlined efficiency still dominates Time Warner’s financial strategy. In recent months, there have been layoffs in all three of Time Warner’s divisions. Turner Broadcasting offered a buyout option to 6% of its staffers in August, two months before announcing that the company would cut 1,475 jobs.[10][11] Time Warner cut seven percent, or 150, of its domestic employees for HBO in late October, one week before cutting 1,000 jobs at Warner Brothers Studios. [13][14]

The strategy, to this point, has been successful. The newly enacted efficiencies and bold strategies for expansion of Time Warner’s HBO property have led to a surge in market valuation. On November 30, the price of Time Warner’s stock reached $85.12 per share, 12 cents above the buyout offer from 21^st Century Fox in July (before falling slightly below the line the next day). [15]

[13] A graph showing the price of Time Warner's stock prices over the last three months (TWX)

[16 ] A graph showing the price of Time Warner’s stock prices over the last three months (TWX)

HBO Developments

[17 ] HBO, a division of Time Warner

According to Time Warner, a major reason for rejecting the buyout offer was the growth potential of HBO. On September 16, ten days after 21^st Century Fox CEO Rupert Murdoch withdrew his buyout offer, Time Warner announced plans for a fourth quarter marketing push for HBO across broadcast, cable, and digital platforms. [18] A week later, HBO partnered with AT&T to offer customers broadband service, HBO GO, and Amazon’s Prime membership for a limited time offer. [19] The move, similar to Comcast’s “Internet Plus” package, signaled another step towards unbundling HBO from pricey cable subscriptions. Just a month after that, Time Warner made a major announcement that expanded on this departure from cable bundles. Time Warner stated that it planned to offer a standalone streaming platform through its online HBO GO service starting in 2015. The service will be available without a cable subscription to HBO, using broadband as its distribution channel. [20] While the details about available programming and distribution channels are yet to be released, many analysts predict the over-the-top service will be marketed towards cord-cutters and millenials rather than those with existing HBO subscriptions. [21]

With the new online streaming service, Time Warner hopes to attract customers to HBO who might otherwise be deterred by cable’s lofty price tag. Additionally, it has positioned itself as a viable competitor to Netflix in the digital arena. HBO has fewer domestic subscribers than Netflix, but far more international subscribers; HBO boasts 130 million global subscribers to Netflix’s 50 million. [22] In recent months, Time Warner has sought to expand this international presence. HBO struck a deal with Chinese content distributor Tencent Holdings Ltd., granting the Chinese media giant the exclusive rights to distribute HBO’s original programming. Tencent Video, the company’s online streaming site, will air episodes of HBO shows that have become wildly popular in China through piracy sites. [23] Executives at HBO hope that this move will cut down on piracy, and create a loyal fan base in the world’s most populous country.

Programming

HBO

[24] In 2014, HBO aired the final season of its hit crime show, “Boardwalk Empire”

HBO is known for its award winning original programming and loyal fan bases, particularly with hits like “Game of Thrones,” and “True Detective.” One such program, the smash crime hit “Boardwalk Empire,” finished its television run after five seasons. The series, which has won 18 Emmys, had a strong showing with 2.3 million viewers tuning in live for the series finale. When coupled with a same-night rerun and HBO GO statistics, total same-day viewers exceeded 6.6 million. [25]

HBO launched the final season of its news drama "The Newsroom" [26]

[27 ] HBO launched the final season of its news drama “The Newsroom”

HBO launched three new shows in its Sunday lineup, including the third and final season of Aaron Sorkin’s “The Newsroom.” The premiere of the truncated season reached a disappointing 1.2 million viewers live, a 40% decrease from the season two premiere. This year, the series does not benefit from the strong lead-ins of “True Blood” and “Boardwalk Empire,” leading to decreases in live ratings. [26]

It should be noted that live viewership is not as important for HBO due to its lack of advertising. Only about 25 to 30 percent of viewers watch programs live on HBO, as many viewers use the on-demand services or the web-based HBO GO. [28]

Turner

[31 ] Turner CEO John Martin

Turner Broadcasting and its CEO John Martin have expressed a commitment to take more “creative risks,” and announced that the company would double its funding for original programming by the end of 2018. [29] Turner’s TBS and TNT channels have greatly benefited from airing live sporting events. Alongside Disney, Time Warner renewed its rights to air live NBA games through the 2024-2025 season. TNT is granted the rights to broadcast 64 games a year. [30]

The 2014 American League Championship Series on TBS was the most viewed MLB playoffs on the network since 2010. The 2014 ALCS averaged 4.3 million viewers, despite featuring teams from mid-sized markets. [32] Because sporting events can draw large numbers of live viewers, Turner is able to charge higher prices for advertising and licensing fees. Thus, investing in live sporting rights will continue to be a major component of Turner’s business strategy.

The mass viewership of sporting events gives Turner additional leverage in negotiations with television distributors. When contract negotiations were stalling between Dish Network and Time Warner in October, Dish Network suddenly blacked out many of Turner’s cable channels, including CNN, TruTV, and Cartoon Network. Dish Chairman Charlie Ergen stated that while blacking out these channels was a “non-issue,” it would be “more painful” to take down the popular Turner channels Dish had left running: TBS and TNT, which both carry major sporting events. [33]

Future

The future of Time Warner will be heavily scrutinized by corporate analysts. The question remains: can Time Warner create sustained growth, or was it foolish to pass

[34] The Time Warner Center, headquarters of Time Warner, Inc.

on the 21^st Century Fox buyout offer? Time Warner has made decisions to bring its stock prices up in both the short-term, through corporate restructuring and job layoffs, and the long-term, through strategic HBO expansions and property spinoffs. Only sustained growth, most likely fostered by HBO’s continued expansion and Turner’s programming decisions, will determine the success of Time Warner.

[1] Time Warner Inc. logo. Timewarner.com, retrieved 1 December 2014

[2] Time Warner Inc. Timewarner.com, retrieved 1 December 2014

[3] Time Warner Operating Divisions. Timewarner.com, retrieved 1 December 2014.

[4] Jeff Bewkes bio page. Timewarner.com, retrieved 1 December 2014.

[5] Howard Averill bio page. Timewarner.com, retrieved 1 December 2014.

[6] Gary Ginsberg bio page. Timewarner.com, retrieved 1 December 2014.

[7] Time Warner’s quarterly reports. Ir.timewarner.com, retrieved 1 December 2014.

[8] “Time Warner rejected $80B offer from 21st Century Fox: Sources”. CNBC, 16 July 2014. Retrieved 1 December 2014.

[9] “Time Warner Profit Tops Estimates as CEO Pursues Growth”. Bloomberg.com, 5 November 2014. Retrieved 1 December 2014.

[10] “Turner Broadcasting offers voluntary buyouts”. CNN Money, 26 August 2014. Retrieved 1 December 2014.

[11] “Turner Broadcasting, Home of CNN, TBS and TNT, Will Cut 1,475 jobs”. The New York Times, 6 October 2014. Retrieved 1 December 2014.

[12] “Time Warner’s HBO to cut 7 percent of staff”. Reuters, 28 October 2014. Retrieved 1 December 2014.

[13] “Warner Bros. Layoffs Beginning Tuesday to Eliminate Roughly 1,000 Jobs”. The Hollywood Reporter, 3 November 2014. Retrieved 1 December 2014.

[14] Twenty First Century Fox logo. Logopedia, retrieved 1 December 2014.

[15] Time Warner (TWX) stock. MarketWatch, retrieved 1 December 2014.

[16] Graph of TWX stock. Google Finance, retrieved 1 December 2014.

[17] HBO logo. Homeboxoffice.com, retrieved 1 December 2014.

[18] “Time Warner Plans HBO Marketing Push to Speed Growth”. Bloomberg.com, 18 September 2014. Retrieved 1 December 2014.

[19] “AT&T Lures Cord Cutters With $39-a-Month Deal for Broadband, Amazon Prime and HBO”. The Wall Street Journal, 23 September 2014. Retrieved 1 December 2014.

[20] “HBO Plans New Streaming Service, With Eye on Cord Cutters”. The New York Times, 15 October 2014. Retrieved 1 December 2014.

[21] “Before HBO Starts Streaming, Time Warner Wants to Make Big Cable Happy”. Businessweek, 5 November 2014. Retrieved 1 December 2014.

[22] “The battle between Netflix and HBO is just beginning. And this man holds the key”. The Washington Post, 28 November 2014. Retrieved 1 December 2014.

[23] “Tencent to Distribute HBO Dramas, Movies Online in China”. Nadsaq, 28 November 2014. Retrieved 1 December 2014.

[24] Boardwalk Empire poster. IMDB, retrieved 1 December 2014.

[25] “‘Boardwalk Empire’ Ratings: Series Ends With 2.3M Watching HBO Finale”. Deadline, 27 October 2014. Retrieved 1 December 2014.

[26] “HBO Has a Quiet Sunday With ‘Newsroom’ and ‘Comeback’ Returns”. The Hollywood Reporter, 11 November 2014. Retrieved 1 December 2014.

[27] Businessweek, ibid.

[28] The Newsroom poster. IMDB, retrieved 1 December 2014.

[29] “Turner Broadcasting CEO Pledges to Double Original Programming Investment”. The Hollywood Reporter, 12 November 2014. Retrieved 1 December 2014.

[30] “Walt Disney, Time Warner Said to Renew NBA TV Contracts”. Bloomberg.com, 6 October 2014. Retrieved 1 December 2014.

[31] John Martin bio page. Turner.com, retrieved 1 December 2014.

[32] “TBS Finishes Its Most-Viewed MLB Postseason Since 2010”. Multichannel.com, 16 October 2014. Retrieved 1 December 2014.

[33] “Turner Warns Dish Users That TNT & TBS Might Follow CNN, Toons Going Dark”. Deadline, 18 November 2014. Retrieved 1 December 2014.

[34] Associated Press file image of the Time Warner Center. Syracuse.com, 08 August 2013. Retrieved 1 December 2014.

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