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Interactive Media And Digital Content Sources Of Strength For Time Warner And Disney

Posted on Monday, Nov 15th 2010

A report by the Convergence Consulting Group found that in the past two years, over 800,000 U.S. households dropped their cable subscriptions, or as is known, “cut the cord.” Of these, a whopping 600,000 cords were cut last year. The report estimates that in the recent quarter more than 500,000 cable subscribers cut their connections. The competition for the cable TV companies continues to get stronger with the growing catalogue of online streaming players like Netflix and Hulu and new entrants like Google TV and Apple TV, now known as iIV, making it easier for users to view online content on their television sets.

Time Warner’s Financials
Despite the above statistics, revenues at Times Warner (NYSE:TWX) increased 2% over the year to $6.38 billion. But revenues fell short of the market’s expectations of $6.41 billion. By segment, cable revenues grew 9% over the year to $3 billion driven by 10% growth in ad revenues. The publishing segment, which includes Time and People magazines, saw ad revenues grow 5% over the year, but subscription revenues fell 5%. Filmed entertainment revenues were flat at $2.8 billion despite strong box office collections for the company’s movie Inception. The movie grossed over $800 million at the global box office. For the quarter, EPS of $0.62 managed to surpass analyst expectations of $0.53.

The company raised its full-year outlook and is now looking for margins in the high 20% range compared with the earlier forecast of at least 20%. The market was expecting earnings growth of 23%.

Time Warner’s Content Anywhere Strategy
Time Warner is focusing on getting their cable, film, and print content accessible to users on any device, at any location, and at any time. Within cable, they company is concerned about their shrinking subscriber base. As promotional pricing ends, they expect over 1.5 million HBO subscribers to disconnect access. To help lure more viewers, they launched TV Everywhere, HBO Go, and MAX Go earlier this year. Through their partnerships with players like Verizon and Comcast, Time Warner claims to be delivering one of either TV Everywhere, HBO Go, or MAX Go to over 50 million homes already. They project the numbers to grow to 70 million homes by the second quarter of next year.

Within films, they are working on a video-on-demand initiative that lets viewers buy a movie once and then access it on a variety of devices. To improve the buyer’s experience, expand their rights when they purchase a movie, and simplify the movement of content across devices, they are working with Fox, Universal, Lionsgate, and Sony as part of the UltraViolet consortium. UltraViolet is a cloud-based digital rights management (DRM) system that will enable consumers to buy movies from retailers and access them at no extra charge across an array of devices, making digital ownership as convenient as owning a DVD. The system will enable interoperability among registered devices while supporting both new and legacy devices and home libraries.

Finally, for their publishing division, Time Warner is offering subscribers access to titles in prints and other devices. Their iPad app for Time magazine has received rave reviews. The company is working on offering a similar experience on other tablet devices.

The stock is trading at $31.87 with a market capitalization of $35.5 billion. It touched a 52-week high of $34.07 in April of this year.

Disney’s Financials
Revenues at Walt Disney (NYSE:DIS) fell during the quarter. Q4 revenues fell 1% over the year to $9.74 billion and missed the market’s projected revenues of $9.95 billion. EPS of $0.45 was a penny shy of the previous quarter’s earnings and the market’s projections.

By segment for the quarter, Media revenues fell 7% over the year to $4.41 billion and Parks revenues fell 1% over the year to $2.82 billion. There was significant growth in Interactive Media and Consumer Products revenues, which recorded 20% and 13% growth respectively to $0.19 and $0.73 billion. Studio revenues grew 6% over the year to $1.59 billion.

The company ended the year with overall revenues growing 5% to $38.06 billion. EPS for the year rose 14% to $2.07 from $1.82 in the previous year.

Disney’s Gaming Focus
To continue strengthening their social games initiative, Disney has decided to slow down on console development. They will be reducing investment in consoles and diversifying funds to alternate platforms like smart phones and social networks. Earlier last quarter, Disney acquired Playdom, a leading social game developer. Disney has moved John Pleasants, the former CEO of Playdom, as the head of Disney Interactive, to head the gaming segment.

Disney’s Keychest Offering
As part of their offering to enable viewers access to content anywhere, Disney recently launched Keychest alongside the release of Toy Story 3. The Keychest initiative gives DVD or Blu-ray buyers of Disney’s films access to an online streaming version and on the tablets, computers and other devices.

The stock is trading at $35.93 with a market capitalization of $68.7 billion. It touched a 52-week high of $37.98 in April of this year.

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