Famed studio MGM, which is owned by a bunch of companies including Texas Pacific Group, Providence Equity Partner, Sony (NYSE: SNE) and Comcast (NYSE: CMCSA), is considering a public offering as it looks to deal with its $3.1 billion debt load. The company has hired Goldman Sachs (NYSE: GS) to explore options for a way out of the 2005 buyout that left the company over-leveraged.
Studios have slowed production because of the credit crunch that is making financing films harder than it's been in a long time.
Other possible alternatives include a bond offering or some other form of debt refinancing, but the company says it's not for sale, although it remains coy on that topic, saying that that "there is no 'asking price' for the company."
Is that a veiled invitation for bids? Sounds like it. But in this environment, there might not be many takers. Time Warner (NYSE: TWX) made an unsuccessful bid back in 2004, but most the other interested parties ended up walking away with various sized stakes in the company.
Time Warner Inc. (NYSE: TWX) will be more conservative in the number of movies it produces in a 12-month period, according to this piece at The Wall Street Journal. As movies are becoming so expensive these days, and studios are becoming increasingly averse to taking on risk in the fickle world of celluloid, the thinking is that fewer investments in theatrical projects will concentrate funds on only the best concepts. These concepts will, in theory, be tentpole productions like The Dark Knight, ones that have enormous franchise potential to spawn sequels and merchandise windfalls and that oftentimes will be based on valuable source material, such as iconic comic-book characters. Sounds great, right?
Only problem is, it's wrong. I've argued this point in the past, and I'm here to argue it again. There's no question that studios such as The Walt Disney Company (NYSE: DIS), Viacom, Inc. (NYSE: VIA), News Corporation (NYSE: NWS), General Electric Company (NYSE: GE)'s Universal, and Sony Corporation (ADR) (NYSE: SNE) put precious capital at risk every single time they greenlight a project. But there's a huge illogicality at work here. Why would you want to put out less concepts as opposed to more? If the movie industry is such a gamble, wouldn't it be prudent to send more pictures to the marketplace?
According to Boxofficemojo.com, last weekend's top film, Viacom's (NYSE: VIA) Tropic Thunder, retained its number-one status over the past three days. It is estimated to have grossed $16 million at domestic theaters as of this writing. Of course, things could change, since the film currently in second place, Sony's (NYSE: SNE) The House Bunny, is only about a million dollars behind the Ben Stiller comedy. I have a feeling, though, that Thunder will keep its top spot. It seems to have some decent momentum behind it.
Death Race, released by General Electric's (NYSE: GE) Universal, came in third with about $12 million. Not too exciting of a debut. This is the kind of the film that ideally should have come out at the beginning of the summer box-office season. Since I haven't seen it, I can't say whether it would have been appropriate to have released it at that time (i.e., maybe it didn't come out that great and needed to be dumped in the latter days of August).
Dropping two places to number four is everybody's favorite superhero these days, Time Warner's (NYSE: TWX) The Dark Knight. The movie has roughly $489 million in total to its credit. It won't reach the heights of Titanic, but it will pass $500 million. Not too shabby for the Bat. I'm sure the studio division at Time Warner is working overdrive right now to construct a competent, cohesive marketing campaign to ensure that the home-video release adequately takes advantage of the incredible theatrical success that Knight has generated. They really have a big property on their hands with this one.
My very first post on bloggingstocks was Microsoft: What are you thinking about? where I ranted that Microsoft Inc. (NASDAQ: MSFT) stock was going nowhere. Over the last 29, months that is exactly what it has done. It closed yesterday at $27.62.
This is not to say it has not had it's moments rising at one time to a 52-week high of $37.50 on a lot of hopes and prayers. Nevertheless, I felt then and do now that MSFT would be better off in pieces Micro'soft' vs Micro'hard' -- Break it up fellas!
If Microsoft wants to compete against Google Inc. (NASDAQ: GOOG) and be a dominant player on the web, it should split out its web services as a separate company. That new company would be the right merger partner for Yahoo! (NASDAQ: YHOO). There is no reason to tie the web services business to the future of the Zune (if it has one) or the XBOX entertainment game player and other equally unrelated business.
Has Viacom's (NYSE: VIA) Tropic Thunder succeeded where the Joker has failed? Has the film beaten Time Warner's (NYSE: TWX) The Dark Knight? According to early estimates at Boxofficemojo, it has. Can you believe it? Tropic Thunder, which stars Ben Stiller, right now has $26 million to its credit, enough to capture the top spot. That number will change most likely when final tallies are in, but it doesn't matter, since The Dark Knight is believed to have taken in a little under $17 million over the three-day weekend at domestic multiplexes, giving it a second-place finish. This is good news for shareholders of Viacom, who have so far been pretty happy with the studio's successful summer output. Box-office hits like Indiana Jones and the Kingdom of the Crystal Skull and Marvel's (NYSE: MVL) Iron Man have powered the media company.
Now, Time Warner's new animated flick, Star Wars: The Clone Wars, actually did worse than I expected. It came in third with $15 million. I admit, I totally misread this one. Believe it or not, I thought the film might do a huge number, like between $40 million and $50 million. I'm not sure the box-office dynamics at this time of year would have supported a statistic like that for this kind of film. And I guess I overestimated the number of geeks out there who were waiting to see it during the first weekend out. I really blew it on that one. News Corp.'s (NYSE: NWS) horror flick Mirrors came in fourth place, while Pineapple Express, distributed by Sony (NYSE: SNE), came in fifth. I saw Express last week. Cool movie.
Warner Bros. -- a division of Time Warner (NYSE: TWX) -- made the surprising announcement that it's delaying the release of the sixth installment in the Harry Potter saga: Harry Potter and the Half-Blood Price.
The release is being pushed back from November 11 of 2008 to July 17 of 2009. Warner Bros. President Alan Horn blamed the writers' strike, saying that "We agreed the best strategy was to move 'Half-Blood Prince' to July, where it perfectly fills the gap for a major tentpole release for mid-summer."
I'm not convinced -- isn't it a little close to the previously scheduled opening for the writers' strike that ended on February 12 to be the reason? Pali Research analyst Rich Greenfield wrote that "We believe TWX is shifting the film to help it achieve earnings expectations in 2008 (moving expensive P & A out of Q4 2008, at the same time that several successful films are set to hit DVD for Warner)."
If that's the case, investors should be concerned. Any time that a company starts messing with its operations in order to improve short-term earnings reports, you have a situation where long-term objectives could be neglected in favor of satisfying Wall Street expectations. In the long run, such a strategy will neither please Wall Street nor set the stage for long-term growth.
FT.com reports that Liberty Media Corp (NASDAQ: LCAPA) and EarthLink (NASDAQ: ELNK) may enter the bidding for AOL's dial-up internet access operation (which shares a parent, Time Warner (NYSE: TWX), with BloggingStocks). Liberty thinks its advantage is its ability to do a "tax efficient transaction."
Meanwhile Liberty's stake in Time Warner is worth just slightly more than the price tag Time Warner has placed on AOL's dial up unit. As FT.com wrote, "Liberty Media's 103m shareholding in Time Warner was valued at $1.64bn last night, slightly above analysts' $1.5bn valuation of AOL's access business."
Liberty's interest is new but industry analysts have seen EarthLink as "the only likely strategic buyer for AOL's dial-up business." FT.com notes that Rolla Huff, EarthLink's CEO, "told the Wall Street Journal this month that a deal for AOL's access business was something 'worth aggressively pursuing'."
Jeff Bewkes, the Stanford MBA behind HBO's huge success, took over as CEO of BloggingStocks' parent, Time Warner (NYSE: TWX) this January. The New York Times reports that he wants to get rid of everything he inherited except selected "content providers" -- e.g., people who make movies and TV programs and write articles in magazines. But would such a strategy make Time Warner's stock an attractive investment?
I don't think so. The reason is simple. Warner Brothers produced an enormous hit with Dark Knight -- the LA Times reports that its revenues so far total $441 million domestically and are expected to hit $520 million. Dark Knight's success is not typical -- it's an outlier. That's because the movie business is a huge gamble as is any enterprise that depends on the fickle combination of talent and audience tastes. Hollywood often overcomes this problem by getting wealthy individuals to pony up to finance films on the hope that they might get to rub elbows with the stars.
Meanwhile, Bewkes wants to dump the cable business. He plans to spin off 84% of Time Warner Cable to shareholders. He plans to sell AOL. And it looks like he'll try to dispense with most of Time Warner's magazines. This would leave Time Warner a much smaller company with lower return on assets -- by my rough estimate based on doubling the revenues and operating income of its first half results for the remaining Filmed Entertainment and Networks segments.
Time Warner's (NYSE: TWX) The Dark Knight will not rest. According to Boxofficemojo, the superhero flick finished in first place yet again over the weekend. It grossed an estimated $26 million at domestic theaters. Sony's (NYSE: SNE) Pineapple Express put forth a valiant effort to beat the Bat, but it came up a little short. That film came in second with roughly $22 million for the three-day weekend. It debuted on Wednesday, and its total gross to date is around $40 million. Sony was smart in opening it early so that it might gain some positive word of mouth for the weekend. Any movie going up against Dark Knight needs whatever assist it can get. Seth Rogen and Judd Apatow are becoming quite the Hollywood kings of R-rated youth-targeted comedies, and Pineapple Express will only serve to further cement their dominion in Tinsel Town.
Coming in third was The Mummy: Tomb of the Dragon Emperor, distributed by General Electric's (NYSE: GE) Universal. The fantasy flick took in $16 million and its total tally stands at $70 million. An okay performance, but nothing special. The Sisterhood of the Traveling Pants 2 from Time Warner was in fourth place with a $10.7 million take. That wasn't too good for a film that I thought had a lot of buzz, but the budget on the project isn't too steep at under $30 million, so maybe this one will do all right. Sony's Step Brothers took hold of fifth position. Disney (NYSE: DIS) continues to do horribly with its bomb Swing Vote. It dropped to ninth place.
So Time Warner's studio division will have the success of The Dark Knight to look forward to in future quarters as the movie, which now has over $440 million to its credit, progresses through home video and other ancillary channels. Disney will not have anything to look forward to from Swing Vote. And here's something else for Time Warner: Star Wars: The Clone Wars opens August 15. Time Warner will bring the cartoon to the silver screen ahead of the animated TV series that is set to debut later on. I think Clone Wars will surprise everyone by doing better than expected. The merchandise from Hasbro (NYSE: HAS) is out in the marketplace now pushing George Lucas' new chapter in his famous franchise. May the Force be with the multiplex.
Disclosure: I own Disney and GE; positions can change at any time.
Time Warner Inc. (NYSE: TWX) Q2 2008 Earnings Conference Call August 6, 2008 10:30 AM ET
Management Summary
Operator
Welcome to the Time Warner second quarter 2008 earnings call. (Operator Instructions) Now I will turn the call over to Doug Shapiro, Vice President of Investor Relations. Thank you, sir, you may begin.
Doug Shapiro, Vice President of Investor Relations
Thanks and good morning, everyone. Welcome to Time Warner's 2008 second quarter earnings conference call. This morning we issued two press releases: one detailing our results for the second quarter; and the other reaffirming our 2008 business outlook.
Before we begin, there are a few items I need to cover. First, we refer to certain non-GAAP financial measures. Schedules setting out reconciliations of these historical non-GAAP financial measures to the most comparable GAAP financial measures are included in our earnings release or trending schedules. These reconciliations are available on our web site at timewarner.com/investors. A reconciliation of our expected future financial performance is also included in the business outlook release that is available on our web site.
World Wrestling Entertainment (NYSE: WWE) entered a match it apparently was unprepared to win this time around. I'm talking about a match for the most coveted prize on Wall Street: The Earnings Championship Belt.
During the second quarter, WWE had to lie down for the count. The top line saw a depressing decrease of nearly 6%, coming in at $129.7 million. The bottom line saw no growth whatsoever, as WWE earned $0.10 per diluted share, the same amount that was earned in the year-ago period. According to Briefing.com, this represents a miss of two pennies. One thing that must be noted is that the big Wrestlemania event took place during the second quarter last year and the first quarter this year.
Of course, one of the most fascinating elements of WWE's stock is its incredible yield. Right now, the company is trading at a yield greater than 9%. Considering WWE's massive brand power in sports entertainment, and the fact that wrestling should always be with us, that sounds like a great deal, correct? It could be over the long term.
However, a look at the cash-flow statement does not offer a lot of encouragement, to be honest. Operational cash flow declined massively, dropping 94% during the six-month period. And for both the quarterly period and the half-year period, there was negative free cash flow by management's own calculation. So, as can be seen, servicing a dividend with no free cash flow is like Rey Mysterio trying to body slam Andre the Giant.
The Associated Press reports that BloggingStocks' parent, Time Warner (NYSE: TWX), beat Wall Street expectations by a penny a share. But its profit was still down -- 26% thanks to declining subscriber fees at AOL and lower advertising revenues at magazines like Time and Sports Illustrated.
But after adjusting for one-time gains, Wall Street was expecting Time Warner to make 23 cents a share and it actually earned a penny more. In addition, revenues rose 5% to $11.6 billion, 1.2% more than expected.
The bad news is that AOL's subscription revenue fell 29% which drove a 36% decline in operating income. As I posted, the 2006 change in strategy to emphasize advertising over subscriptions has not been able to make up for $2 billion in lost revenue. Advertising revenue rose a mere 2% to $530 million -- not enough to make up the difference.
What does the future hold? Time Warner is selling the 84% of its cable operations that it still owns to shareholders later in 2008. Cable's revenues grew 7% on "increases in cable, Internet phone and video-on-demand fees." And it is trying to sell the dial-up portion of AOL to Earthlink (NASDAQ: ELNK).
10 Tech Giants to Buy Now Shares of companies such as IBM, Nokia and Microsoft have taken a hit along with the rest of the market, but they don't deserve to be this cheap. Other tech stocks to consider include Apple, Cisco, Google, HP, Intel, Oracle and Qualcomm. Ten Tech Giants to Buy Now - Kiplinger.com
New Life for Grocery Store Standbys Innovation is Pinnacle's lifeblood. The N.J.-based company -- which so far owns or licenses more than a dozen food brands -- specializes in acquiring venerable, but stagnant, brand names in need of TLC. It then works to breathe new life into them with updated formulations, new products, improved packaging, added convenience and smart marketing. Among the brands in Pinnacle's cub bard are Duncan Hines, Lender's Bagels, Log Cabin, Hungry Man, Mrs. Butterworth, Aunt Jemima, Swanson and more. Pinnacle gives new life to old standbys - USATODAY.com
News Corp. (NYSE: NWS), a competitor of media entities such as Disney (NYSE: DIS), Time Warner (NYSE: TWX), Viacom (NYSE: VIA) CBS (NYSE: CBS), and General Electric's (NYSE: GE) NBC Universal, reported its Q4 and full-year numbers on Tuesday. Unfortunately, the stock received an after-hours yawn from investors. The share price didn't move much at all, about a nickel (the stock was up almost 5% on the day, however). The stats seemed pretty good in an overall sense, but they weren't overly compelling either, and I'm not sure I'd want to enter a position in News Corp. at the moment due to questions about the softening advertising market for television stations. But let's look at the data.
For the quarter, revenues increased over 16% and earnings per diluted share jumped over 50% to $0.43. There were, however, some asset gains thrown into that number. News Corp. likes to focus on operating income, and that metric grew 21% in Q4. Every operating segment, except for television, saw an increase in its profits. For the full year, revenues increased 15% and earnings per diluted share soared almost 68% to $1.81. Again, operating income gives a better account of performance due to the asset transactions affecting the bottom line, and here we see the growth is closer to 21%. For the full year, every operating segment saw growth.
News Corp.'s studio and cable divisions are doing well, and like I said, in a general sense, this was a good report. Plus, Fox Interactive Media saw its top line expand by well over 50%, driven by MySpace. But Rupert Murdoch has expressed some caution in terms of growth going forward. According to this article, he sees growth ahead, but it won't be of the stellar variety. And I'll add that operational cash flow for the year was down over 4%. I'd rather see that metric rise on a twelve-month basis. News Corp.'s shares seem cheap to me, but I don't feel compelled at this point to start a position. Given the current economic climate, I'd rather sit on the sidelines and wait for some more data.
Disclosure: I own Disney and GE; positions can change at any time.
Famed studio MGM, which is owned by a bunch of companies including Texas Pacific Group, Providence Equity Partner, Sony (NYSE: SNE) and Comcast (NYSE: CMCSA), is considering a public offering as it looks to deal with its $3.1 billion debt load. The company has hired Goldman Sachs (NYSE: GS) to explore options for a way out of the 2005 buyout that left the company over-leveraged.
Time Warner Inc.
According to 
My very first post on bloggingstocks was 
Warner Bros. -- a division of 
Jeff Bewkes, the Stanford MBA behind HBO's huge success, took over as CEO of BloggingStocks' parent, 
Here are some highlights from this past week's 
World Wrestling Entertainment
Closing bell: Modest gains for stocks; FRE, FNM rally, UAUA, NWA drop
The best housing stance for buyers, sellers? Staying put
Dillard's, Talbots rise despite wider Q2 losses
