Time Magazine 2012 Annual Report Download - page 51

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TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)
The increase in Operating Income was due primarily to higher revenues and lower Selling, general and
administrative expenses, partially offset by higher Costs of revenues and the charges incurred in connection with
the Imagine and TNT Turkey Shutdowns.
2011 vs. 2010
The increase in Subscription revenues consisted of an increase in domestic subscription revenues of
$337 million, mainly due to higher domestic subscription rates, and an increase in international subscription
revenues of $158 million, primarily due to international subscriber growth.
The increase in Advertising revenues reflected domestic growth of $301 million, mainly due to strong
pricing and Turner airing the NCAA Division I Men’s Basketball Championship events (the “NCAA
Tournament”). International advertising revenues increased $152 million, primarily due to international growth,
including acquisitions.
The increase in Content revenues was due primarily to higher licensing revenues of $105 million at Turner
and higher sales of Home Box Office’s original programming of $97 million.
The increase in Costs of revenues was driven by higher programming costs and other direct operating costs.
The increase in programming costs reflected higher costs for originals and sports programming related primarily
to the NCAA Tournament and international growth. Approximately half of the increase in originals and sports
programming costs related to the NCAA Tournament. The increase in other direct operating costs was primarily
driven by higher international costs mainly related to international growth.
Selling, general and administrative expenses increased due primarily to higher marketing expenses of
$63 million, which included expenses associated with an HBO GO national marketing campaign, and higher
international costs of $48 million, primarily associated with growth. In addition, for the year ended December 31,
2010, Selling, general and administrative expenses included a $58 million reserve reversal in connection with the
resolution of litigation related to the 2004 sale of the Winter Sports Teams.
As previously noted under “Transactions and Other Items Affecting Comparability,” the 2011 results
included $6 million of noncash impairments primarily related to a tradename impairment, and the 2010 results
included a $59 million Gain on operating assets that was recognized upon the Company’s acquisition of the
controlling interest in HBO Europe, reflecting the excess of the fair value over the Company’s carrying costs of
its original investment in HBO Europe.
Operating Income increased primarily due to higher revenues, partially offset by higher Costs of revenues,
Selling, general and administrative expenses and Restructuring and severance costs. Operating Income growth
for the year ended December 31, 2011 was also negatively affected due to the absence of the $59 million Gain on
operating assets relating to HBO Europe discussed above.
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