Time Magazine 2015 Annual Report Download - page 38

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)
Time Warner Businesses
Time Warner classifies its operations into three reportable segments: Turner, Home Box Office and Warner Bros. For
additional information regarding Time Warner’s segments, refer to Note 15, “Segment Information,” to the accompanying
consolidated financial statements.
Turner. Time Warner’s Turner segment consists of businesses managed by Turner Broadcasting System, Inc.
(“Turner”). During the year ended December 31, 2015, the Turner segment recorded Revenues of $10.596 billion (37% of
the Company’s total Revenues) and Operating Income of $4.087 billion.
Turner operates domestic and international television networks and related properties that offer entertainment, sports,
kids and news programming on television and digital platforms for consumers around the world. The Turner networks and
related properties include TNT, TBS, Adult Swim, truTV, Turner Classic Movies, Turner Sports, Cartoon Network,
Boomerang, CNN and HLN. The Turner networks generate revenues principally from providing programming to affiliates
that have contracted to receive and distribute this programming to subscribers, from the sale of advertising and from
licensing its original programming, including to subscription-video-on-demand (“SVOD”) and other over-the-top (“OTT”)
services, and its brands and characters for consumer products and other business ventures. Turner’s programming is available
to audiences for viewing live and on demand across television, mobile devices and other digital platforms through services
provided by affiliates and on Turner’s digital properties. Turner also owns and operates various digital media businesses,
including Bleacher Report; the CNN digital properties, including CNN Go,CNN.com and CNNMoney.com; and other digital
properties associated with its networks, all of which generate revenues principally from the sale of advertising and
sponsorships. In addition, Turner manages and operates sports league digital properties in conjunction with associated
television rights, such as NBA Digital and NCAA.com, which also generate revenues primarily from the sale of advertising
and sponsorships.
Home Box Office. Time Warner’s Home Box Office segment consists of businesses managed by Home Box Office,
Inc. (“Home Box Office”). During the year ended December 31, 2015, the Home Box Office segment recorded Revenues of
$5.615 billion (20% of the Company’s total Revenues) and Operating Income of $1.878 billion.
Home Box Office operates the HBO and Cinemax multi-channel premium pay television services, with the HBO
service ranking as the most widely distributed multi-channel premium pay television service. HBO- and Cinemax-branded
premium pay, basic tier television or streaming services are distributed in over 60 countries in Latin America, Asia and
Europe. In April 2015, Home Box Office launched HBO NOW, a stand-alone premium streaming service available to
consumers in the U.S. During 2015, the HBO and Cinemax services, including HBO NOW, increased domestic subscribers
by approximately 2.7 million, and, as of December 31, 2015, the services had approximately 49 million domestic subscribers.
In the U.S., Home Box Office generates revenues principally from providing programming to affiliates that have
contracted to receive and distribute such programming to their customers who subscribe to the HBO or Cinemax services.
HBO and Cinemax programming is available in the U.S. to subscribers of affiliates for viewing on its main HBO and
Cinemax channels and its multiplex channels, through Home Box Office’s on demand services, HBO On Demand and
Cinemax On Demand, and through Home Box Office’s streaming video-on-demand services, HBO GO and MAX GO. HBO
GO and MAX GO are available on a variety of digital platforms, including mobile devices, gaming consoles and Internet
connected streaming devices and televisions. Home Box Office’s agreements with its domestic affiliates are typically long-
term arrangements that provide for annual service fee increases and marketing support. While fees to Home Box Office
under affiliate agreements are generally based on the number of subscribers served by the affiliates, the relationship between
subscriber totals and the amount of revenues earned depends on the specific terms of the applicable agreement, which may
include basic and/or pay television subscriber thresholds, volume discounts and other performance-based discounts. Most of
the subscriber additions in 2015 did not generate revenues for Home Box Office in 2015 due to the terms of the affiliate
agreements. Marketing and promotional activities intended to retain existing subscribers and acquire new subscribers may
also impact revenue earned.
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