Time Magazine 2013 Annual Report Download - page 42

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TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)
films and television programming to subscription video-on-demand (“SVOD”) services. In addition, the segment
generates revenues through the development and distribution of videogames.
Warner Bros. continues to be an industry leader in the television content business. Domestically, for the
2013-2014 season, Warner Bros. produced more than 50 series, with at least three series for each of the five
broadcast networks (including 2 Broke Girls,Arrow,The Bachelor,The Big Bang Theory,The Following,The
Mentalist,The Middle,Mike & Molly,Mom,Person of Interest,Revolution,Super Fun Night,Two and a Half
Men,Vampire Diaries and The Voice), several original series for cable television networks (including Dallas,
Longmire, Major Crimes,Pretty Little Liars and Rizzoli & Isles) and several series for first-run syndication
(including The Ellen DeGeneres Show,Extra and TMZ). Warner Bros. also licenses many of these series
internationally. In addition, Warner Bros. operates a group of local television production companies in the U.K.
and the Netherlands that focus on developing non-scripted programs and formats that can be sold internationally
and adapted for sale in the U.S. Warner Bros. also creates locally-produced versions of programs owned by the
studio as well as original local television programming.
The distribution and sale of physical discs (both standard definition DVDs and high definition Blu-ray Discs)
is one of the largest contributors to the segment’s revenues and profits. In recent years, home video revenues
have declined as a result of several factors, including consumers shifting to subscription rental services and
discount rental kiosks, which generate significantly less revenue per transaction for the Company than physical
disc sales; changing retailer initiatives and strategies (e.g., reduction of floor space devoted to physical discs);
retail store closures; the general economic downturn in the U.S. and many regions around the world; increasing
competition for consumer discretionary time and spending; and piracy. The electronic delivery of film and
television content is growing and becoming more important to the Warner Bros. segment, which has helped to
offset some of the decline in sales of physical discs. In 2013, the rate of decline in consumer spending on
physical discs increased compared to 2012 and the growth in consumer spending on electronic delivery
accelerated. Consumer spending on physical discs and electronic delivery combined, excluding SVOD, declined
modestly in 2013.
Time Inc. Time Warner’s Time Inc. segment consists principally of magazine publishing businesses and
related websites and operations managed by Time Inc. During the year ended December 31, 2013, the Time Inc.
segment recorded Revenues of $3.354 billion (11% of the Company’s total Revenues) and Operating Income of
$337 million.
As of December 31, 2013, Time Inc. published 23 magazines in print in the U.S., including People,Sports
Illustrated,InStyle and Time, and over 70 magazines outside the U.S. A substantial majority of Time Inc.’s print
magazines are available as digital magazines on multiple digital devices and platforms. In addition, as of
December 31, 2013, Time Inc. operated over 45 websites that collectively have millions of average monthly
unique visitors around the world.
The Time Inc. segment generates revenues primarily from the sale of advertising, magazine subscriptions
and newsstand sales. The Time Inc. segment is experiencing declines in its print advertising and newsstand sales
as a result of market conditions in the magazine publishing industry.
During the third quarter of 2013, Time Inc. appointed a new chief executive officer and chief financial
officer, who began the process of reviewing Time Inc.’s existing strategies and initiatives as well as developing
new strategies and initiatives as part of a new long-range plan. The new long-range plan is intended to enhance
the scale of Time Inc.’s digital platforms and associated revenues, generate new sources of revenues, and
stabilize operating income trends. In February 2014, Time Inc. began a restructuring process that includes
streamlining its organizational structure to enhance operational flexibility, speed decision-making, and spur the
development of new cross-brand products and services. Time Inc. expects to incur restructuring charges of
approximately $150 million during the first half of 2014 in connection with this restructuring as well as the
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