Time Magazine 2011 Annual Report Download - page 37

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TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)
Networks. Time Warner’s Networks segment consists of Turner Broadcasting System, Inc. (“Turner”) and
Home Box Office, Inc. (“Home Box Office”). During the year ended December 31, 2011, the Networks segment
generated Revenues of $13.654 billion (47% of the Company’s total Revenues) and $4.416 billion in Operating
Income.
Turner operates domestic and international networks, including such recognized brands as TNT, TBS, truTV,
CNN and Cartoon Network, which are among the leaders in advertising-supported television networks. The
Turner networks generate revenues principally from providing programming to affiliates that have contracted to
receive and distribute this programming and from the sale of advertising. Turner also operates various websites,
including CartoonNetwork.com,CNN.com,NASCAR.com and NCAA.com that generate revenues principally from
the sale of advertising. In 2011, Turner continued to expand its online and mobile offerings for on demand
viewing of programs on its networks and live streaming of its CNN and HLN networks to authenticated
subscribers.
Turner has a multi-year arrangement with the National Basketball Association (the “NBA”) to televise NBA
games on Turner’s TNT network. On June 30, 2011, the collective bargaining agreement between the NBA and
the National Basketball Players Association (the “Players Association”) expired, and on July 1, 2011 the NBA
announced a lockout of the players the (“NBA Lockout”), which resulted in the cancellation of the start of the
NBA 2011-2012 season games. On December 8, 2011, the NBA announced that the NBA Board of Governors
and the Players Association had ratified a new collective bargaining agreement, which ended the NBA Lockout,
and a shortened 2011-2012 66-game regular season began on December 25, 2011. For the year ended
December 31, 2011, the NBA Lockout did not have a material impact on the Networks segment’s operating
results.
Home Box Office operates the HBO and Cinemax multi-channel premium pay television services, with the
HBO service ranking as the most widely distributed domestic multi-channel premium pay television service.
Home Box Office generates revenues principally from providing programming to affiliates that have contracted
to receive and distribute such programming to their customers who choose to subscribe to the HBO or Cinemax
services. An additional source of revenues for Home Box Office is the sale and licensing of its original
programming, including True Blood,The Pacific,Sex and the City and Entourage. In 2010, Home Box Office
launched authenticated online video offerings of HBO and Cinemax by rolling out HBO GO and MAX GO for
broadband connected computers. In the second and third quarters of 2011, Home Box Office made available
HBO GO and MAX GO, respectively, on mobile devices, including the iPad, iPhone, iPod touch and Android
smart phones.
The Company’s Networks segment has been pursuing international expansion in select areas for the past
several years. During the first quarter of 2011, Home Box Office purchased an additional 8% equity interest in
HBO Latin America Group, consisting of HBO Brazil, HBO Olé and HBO Latin America Production Services
(collectively, “HBO LAG”), for $65 million, resulting in Home Box Office owning 88% of the equity interests in
HBO LAG. The investment in HBO LAG is accounted for under the equity method of accounting because
control of the entity is shared with the remaining minority partner. 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 consists of businesses managed by
the Warner Bros. Entertainment Group (“Warner Bros.”) that principally produce and distribute theatrical motion
pictures as well as television shows and videogames. During the year ended December 31, 2011, the Filmed
Entertainment segment generated Revenues of $12.638 billion (41% of the Company’s total Revenues) and
$1.263 billion in Operating Income.
The Filmed Entertainment segment’s theatrical product revenues are generated principally through rentals from
theatrical exhibition of films, including the following films released in 2011: Harry Potter and the Deathly
Hallows: Part 2,The Hangover Part II,Horrible Bosses and Sherlock Holmes: A Game of Shadows,and
subsequently through licensing fees received for the distribution of films on television networks and pay television
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