Entertainment/Media franchises, like Harry Potter, don't come down the pike very often, so I thought it might be fun to see how an E&M juggernaut like Potter is squeezed for every morsel of profit and what the future holds for one of the most lucrative Hollywood products ever. For Warner Bros. the real magic starts now, after HP7-Part 2 concludes an 8 installment movie saga.The task before TimeWarner, Inc. (Warner Bros. parent company) is to see to it that Harry doesn't fade away into old age. So far, WB has turned J.K.Rowling's books into a revenue machine that includes: movies, video games, toys and consumer products, a theme park, home entertainment, and more, and amassed over $20 billion for the studio and WB wants to keep the good times rolling and turn the HP franchise into what's known as an evergreen property - an asset that just keeps on giving.
WB asserts that it has no idea as to whether Rowling will pen another installment to the Potter saga and without another book there will be no new movies. However, without a new book the brand could become stale. For WB to keep the revenue stream flowing it needs to keep the brand relevant while not over exposing it.
So far, WB has taken a reserved approach to licensing the Potter brand and has not gone into souvenirs or fast-food tie-in products. That policy won't be easy to maintain as WB tries to keep the flames burning. WB has several on-going marketing concepts. One, a revamp of the Leavesden Studios, where the 8 Potter films were shot, into an 85,000 sq.ft. tourist attraction. It is scheduled to open next April just ahead of the London hosting of the summer Olympic Games. More significant is the second scheme, the theme park business - which is a "tentpole" (to borrow a phrase) of WB's post film strategy. In 2010, WB opened the Harry Potter theme park at the Universal Orlando Resorts, in Florida, the plan is to expand the theme park endeavor worldwide.
How Much is Harry Worth to Warner - A LOT
In 2010, Potter related businesses added $1.1billion to WB operating income, which is roughly 20% of the studio's income. Naturally, the other studios are closing watching how WB handles the Potter franchise as they believe - given the huge production and marketing costs associated with film making - that nurturing a franchise is an avenue to sustainable profits. The only other franchise that comes close is Star Wars, lessors would be James Bond, Batman, Pirates of the Caribbean, Spiderman. We hope WB can work the magic!
MOOLA CINEMA STOCK CHART
To get a better read on the cinema industry I added four stocks to the Moola Chart this month: Amazon, Comcast, Lions Gate, and Viacom. This brings the chart to 20 stocks and provides a very good reflection of the cinema industry.
Name Share Price I/(D)
1/1/11 7/21/11 $ %
Amazon (AMZN) $180 $212 $32 17.8
Ballantyne Strong (BTN) 8 4 (4) (46.2)
Carmike Cinemas (CKSC) 8 7 (1) (13.5)
Cinedigm Digital (CIDM) 2 2 - -
Cinemark Holdings (CNK) 17 20 3 16.4
Comcast (CMCSA) 22 25 3 12.6
Disney (DIS) 38 41 3 8.3
Dolby (DLB) 67 44 (23) (34.2)
DreamWorks (DWA) 29 21 (8) (29.8)
Enter. Property Trust (EPR) 46 50 4 8.2
IMAX Corp. (IMAX) 28 28 - -
Lions Gate Enter. (LGF) 7 7 - -
Natl' CineMedia (NCMI) 20 15 (5) (23.0)
Netflix (NFLX) 176 277 101 57.4
Rentrak (RENT) 30 19 (11) (38.1)
Regal Entertainment (RGC) 12 12 - -
RealD (RLD) 26 18 (8) (29.7)
Technicolor (TCLRY) 4 6 2 60.7
TimeWarner (TWX) 32 36 4 12.3
Viacom (VIA) 40 51 11 29.5
As can be seen, the Chart depicts a rather lackluster performance from most of the stocks. The equipment and cinema tech stocks, such as Ballantyne, Dolby, and RealD are big losers, as are the in-cinema advertisers.
DreamWorks, closely associated with the Hollywood 3D effort has suffered as the public has started to turn their backs on the 3D format. The other studios represented in the Chart by Disney, Lions Gate, Warners, and Viacom have performed better - Viacom being the unstander with a 29% return over the last 7 months.
Time Warner - Moola Stock of the Month
TWX posts a clean balance sheet with $40 billion in goodwill and intangibles making up 2/3s of its assets - which is troublesome to some extent but built into the stock price as TWX's enterprise value is about $39 billion. Liabilities are $33 billion split 50/50 between short and long term borrowings. Its debt to asset ration is about 25%. Cash and short-term investments total $6 billion. Return of equity is 7.9%
WB hits have included Harry Potter, Hangover, Green Lantern, Horrible Bosses. As of July, WB's box office gross and ticket sales were led only by Paramount.
Warner Brothers studio, HBO, and Turner Broadcasting (consisting of CNN, TNT,TBS,and the Cartoon Network, to name several, and various internet .com sites (NBA, PGA, & NASCAR.coms) are the stalwarts of the company.
TWX is a partner in UltraViolet, a consortium of tech and media companies that includes: Sony, Microsoft, Cisco, Adobe, Disney, Comcast, AT&T, PBS, and 25 of so others. The goal of UltraViolet is to launch a digital movie locker system that will allow consumers to purchase movies and store them for viewing at a later date on any web-enabled device.
SUMMARY
TimeWarner appears solid but like all the other media companies is under attack from the relentless progression of the internet, which is going to change the way people obtain and view their entertainment. One false step, one missed technological wave, and it will be difficult to recover. Additonally there is always the threat of a buyout from a tech or telco company hungry for professional content, ie.Comcast just purchased Universal)!
Best and Happy Movie Going
Jim Lavorato
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