Time Warner on Movies, DVDs and Online Advertising

by: Judy Weil

Three key points from Time Warner’s Q408 conference call: (NYSE:TWX)

Film industry/DVDs declining:

Profit in the quarter rose 6% as reduced theatrical and home video release schedules led to a decline in costs... Lower costs plus growth in gains more than offset the revenue decline. Revenues were lower in the quarter because of fewer theatrical and home video releases, as well as softer DVD sales… We remain cautious regarding current DVD trends and we expect the industry to stay challenged as long as there is broader softness in consumer spending in retail.

We expect to be down considerably in the film line in the first quarter. To give some context, we only have about five key new home video releases in the first quarter of this year and that compares to 13 in the same quarter of last year.

Q: Given the widespread availability of some of these titles either online or on my DVR, are you concerned that TV DVDs may be more than cyclical?

A: No… The high end, new release, hit DVD sales have been holding up very well for Warner’s, that’s how they achieved such #1 positions in all of the various home video markets including the new high def markets and VOD rental and all of that.

Online advertising:

AOL, where despite strong growth in usage and engagement, advertising declined 18% year over year in the quarter due to the tough online ad environment.

Display advertising on the AOL network was down 25% year over year to about $188 million. There was continued softness in certain categories including personal finance, technology, telecom, autos and retail.

We can’t predict right now how this year is going to play out. Currently advertising is pacing down almost 20% in the first quarter as we continue to see lower demand, particularly from retail and personal finance advertisers.

Print advertising:

Advertising was down 20% in the quarter, as we expected. This reflects a 22% decline in domestic print, offset by a modest gain in online advertising. Nine of Time Inc.’s top 10 advertiser categories were down year over year in the fourth quarter, most notably financial, pharma, home entertainment and auto.


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