Time Magazine 2009 Annual Report Download - page 35

syndicated series, news, network movie premieres and animation leading to strong ratings and revenue growth, as
well as strong brands and operating efficiencies.
HBO operates the HBO and Cinemax multichannel premium pay television programming services, with the
HBO service ranking as the nation’s most widely distributed premium pay television service. HBO generates
revenues principally from providing programming to affiliates that have contracted to receive and distribute such
programming to subscribers who are generally free to cancel their subscriptions at any time. An additional source of
revenues for HBO is the sale of its original programming, including Sex and the City,True Blood,Entourage,The
Sopranos and Rome.
The Company’s Networks segment has been pursuing international expansion in select areas. For example, in
January 2010, HBO acquired the remainder of its partners’ interests in HBO Central Europe (“HBO CE”), and in
December 2009, Turner entered into an agreement to acquire a majority stake in NDTV Imagine Limited, which
owns a Hindi general entertainment channel in India, which is expected to close in the first quarter of 2010 and is
subject to customary closing conditions, including the receipt of regulatory approvals. In addition, during the third
quarter of 2009, Turner acquired Japan Image Communications Co., Ltd. (“JIC”), a Japanese pay television
business. During the fourth quarter of 2008, HBO acquired additional equity interests in HBO Latin America
Group, consisting of HBO Brasil, HBO Olé and HBO Latin America Production Services (collectively, “HBO
LAG”). In recent years, Turner has also expanded its presence in Germany, Korea, Latin America, Turkey and the
United Arab Emirates, and HBO has acquired additional equity interests in HBO Asia and HBO South Asia. JIC and
HBO LAG together contributed revenues and Operating Income before Depreciation and Amortization of
$373 million and $106 million, respectively, for the year ended December 31, 2009. The Company anticipates
that international expansion will continue to be an area of focus at the Networks segment for the foreseeable future.
Filmed Entertainment. Time Warner’s Filmed Entertainment segment is comprised of Warner Bros.
Entertainment Group (“Warner Bros.”), one of the world’s leading studios, and its subsidiary, New Line
Cinema LLC (“New Line”). In 2009, the Filmed Entertainment segment generated revenues of $11.066 billion
(41% of the Company’s overall revenues), $1.447 billion in Operating Income before Depreciation and
Amortization and $1.084 billion in Operating Income.
The Filmed Entertainment segment has diversified sources of revenues within its film and television businesses,
including an extensive film library and a global distribution infrastructure, which have helped it to deliver consistent
long-term operating performance. To increase operational efficiencies and maximize performance within the
Filmed Entertainment segment, in 2008 the Company reorganized the New Line business to be operated as a unit of
Warner Bros. while maintaining separate development, production and other operations. Beginning in the first
quarter of 2009, Warner Bros. commenced a significant restructuring, primarily consisting of headcount reductions
and the outsourcing of certain functions to an external service provider. As a result of these restructurings, the
Filmed Entertainment segment incurred restructuring charges of $105 million for the year ended December 31,
2009, and expects to incur additional restructuring charges of approximately $10 million in the first quarter of 2010.
Warner Bros. continues to be an industry leader in the television business. During the 2009-2010 broadcast
season, Warner Bros. is producing approximately 20 primetime series, with at least one series airing on each of the
five broadcast networks (including Two and a Half Men,The Mentalist,The Big Bang Theory,Gossip Girl, Fringe,
Chuck and The Bachelor), as well as original series for several cable networks (including The Closer and Nip/Tuck).
The growth in home video revenues, in particular revenues from DVD sales, has been one of the largest drivers
of the segment’s profit over the last several years. The industry and the Company experienced a decline in home
video revenues in 2009 and 2008 as a result of several factors, including the general economic downturn in the
U.S. and many regions around the world, increasing competition for consumer discretionary time and spending,
piracy and the maturation of the standard definition DVD format. During 2009, the decline in home video revenues
was also affected by consumers shifting to subscription rental services and discount rental kiosks, which generate
significantly less revenue per transaction than DVD sales. Partially offsetting the softening consumer demand for
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TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)