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Time Warner (TWX)Stock (Television Broadcasting Industry, Internet Advertisers Industry, Internet Industry, Internet Advertising Industry, Internet services providers Industry, Internet Service Providers Industry, Broadcasting TV Industry, Broadcasting - TV Industry, Media & Entertainment Industry)
Time Warner Inc. (NYSE: TWX) is one of the world’s largest media conglomerates. It's properties include Time Warner Cable, America Online, Time Inc., Warner Brothers, and HBO. Time Warner was already a huge media conglomerate before its merger with America Online in 2000, but the added Internet presence was not the positive force that was expected with the merger forcing Time Warner into massive debt, and causing the dissolution of many smaller assets in the company. While TimeWarner entertainment properties have been extremely successful with block buster movie franchises like "Harry Potter" and successful Series like "The Corner," its online (AOL) and print divisions have struggled. In an effort to simplify the huge conglomerate, it was announced that Time Warner Cable will be released from Time Warner Inc. for $9.25 billion. AOL's fundamental problem is that its subscriber base has been rapidly diminishing. As broadband penetration has increased in the US there has been an increasing move away from dial up service to broadband providers, including Time Warner Cable. From 2002 through 2005, AOL saw its subscriber base fall by 30%. Not surprisingly, its revenue has followed a similar pattern. The Time Warner management recently decided to shift AOL's business model from subscription based to ad based. AOL now provides free webmail service to users and charges other companies for the privilege of advertising to its user base. To date this strategy has been successful. AOL will however, face stiff headwinds in the form of increased competition from social media sites, which have significantly increased the amount of advertising inventory on the market. Like many other providers of traditional media, Time Warner's print division has also suffered from a shift of revenue away from print media to online destinations. Over the last several years, AOL has sold off several of its less profitable print properties, and continues to build its online advertising capacity for its properties.
[edit] History and Business Overview Warner Communications, the parent company of Warner Brothers and Warner Music Group, was established in 1972 as a spinoff of Kinney National Company. In 1987, it was announced that Warner would merge with publishing company Time Inc., the merger closed in 1989 and in 1990 the merged companies changed their name to Time Warner. In 2000, Time Warner made a big splash by merging with America Online. The new company, AOL Time Warner, was owned primarily (55%) by AOL shareholders, while Time Warner shareholders owned the remaining 45%. The merger was almost immediately unsuccessful, with AOL Time Warner reporting USD 99 billion in losses in 2002. After 2002, AOL was dropped from the name. Time Warner’s 3Q 2008 revenues had no substantial growth and remained nearly the same as 3Q 2007 revenues, at $11.7 billion.[1] Its net income of $1.0 billion was also essentially flat compared to 3Q 2007 earnings.[1] However, for the first nine months of operation in 2008, its net income has decreased 28% to $2.6 billion, compared to $3.3 billion during the first nine months of 2007; in this same time period, total revenue increased 2% to $34.6 billion.[1] The lack of growth is attributed to the challenging economic environment. Time Warner has five divisions of their conglomerate:
[edit] Success of New AOL StrategyBeginning in 2006, AOL offered their mail service free to all Internet users when it had previously been only available to paying customers. The move has severely cut AOL's subscription revenue, but the hope is that advertising revenue will increase with more users using AOL mail. Another aspect of web browsing that generates revenue is the ad revenue from search queries. The Time Warner network of searching, primarily AOL, has been falling off in recent years with users favoring search engines like Google or Yahoo!. The search query percentage share from the last three years is shown in the table below.
Source: Company Data [edit] Trends and Forces[edit] Ability of Film Division to Find New Film FranchisesTime Warner's film division has been very successful due to franchises such as Harry Potter, The Lord of The Rings, Rush Hour, and Ocean's. The film industry tends to be extremely variable, in that it is often very difficult to predict hits with any sort of regularity. Franchises play an important role in that they provide a certain measure of stability given that they are based on an already proven concept. Time Warner's success in identifying successful franchises has led to an industry leading 21.3% market share has come primarily from these franchises.
Source: Company Data [edit] Decline in cinema viewership and maturation of DVD marketMost movies, even block buster movies are break even at best. As the costs per movie continues to rise and cinema viewership continues to decline, theatres are increasingly dependent on revenues from DVD sales in order to maintain profitability. DVD sales grew very quickly during the beginning of this decade, but are now starting to slow as the market for DVD players becomes saturated. This limits the growth potential for filmed entertainment. [edit] Integration of Divisions Within the CompanyAs a media conglomerate with outlets for almost any type of media, there has been very little crossover within Time Warner, with each division effectively acting as a separate entity. For example, Time Warner could have offered AOL customers incentives to upgrade to Time Warner Cable's faster broadband service but did not. Time Warner could have also combined the distribution of their film, TV, and publishing assets on the Internet, but so far have not done so. As the Internet becomes a more and more integral part of people's everyday lives, Time Warner will have to incorporate their departments better and deploy their resources more strategically. If they are able to do that, profits that have been down since the AOL merger could begin to rise again. [edit] Broadband Adoption RatesOver the last decade the US has seen a dramatic shift away from dial up access to broadband access. In addition to increasing the number of applications that are practical on the internet, the shift to broadband has had liberalizing affect on the web. Previously subscription based internet access providers had a stranglehold on the web. Companies like AOL provided not only access to the internet but content and search as well. Now that companies like Comcast and in indeed Time Warner Cable are offering broadband there has been a continuous decline in AOL subscribers as users opt for higher speed connections and broader content choices. [edit] Decline of Traditional MediaIncreased US internet penetration rates and the accompanying explosion of digital media has led to declining readership for publications across the print industry. As readers have declined so have advertising dollars. [edit] Competition
As a conglomerate with a hand in five different aspects of media, Time Warner faces competition from a lot of different angles. AOL faces a lot of competition for Internet revenue, as shown in an above table, Time Warner Cable faces competition from a number of companies as well, shown on the Time Warner Cable page. While certain sectors struggle for market share, Time Warner subsidiaries are firmly entrenched as the leader in the film industry, with Paramount Films leading the way in 2007.
[edit] Studio Market ShareThe following chart shows 2007 domestic studio market share by gross revenue. Total gross revenue in that year was ~$9.7B for the industry as a whole[4].
 Time Warner2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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