06 March, 2009

Time Warner Watching the Watchmen numbers

The movie business is a convoluted animal. Not only is profitability difficult to determine, the corporate structure of studios and production partners, along with a notorious history of skewered accountability on percentage based contracts, makes the exercise painstakingly complex. Add to this the lack of pure-play movie studio stocks (most being owned by conglomerate corporate parents) and the one industry thriving in a recessionary environment is the one most investors can't grasp at.

Box office receipts in the US were a record in January of this year as going to the movies has become one of the cheaper forms of entertainment. An industry showing any kind of growth in this environment will get investors talking, and as March kicks off the Spring season for film the big name studios are shrouded from investment by corporate giants who have increasingly bigger problems of their own.

Warner Brothers is one such studio, with its parent Time Warner Inc. (TWX) struggling in the face of the recession to get substantial interest in many of its properties. Consumer spending declines are hurting the cable, broadband and print businesses as is advertising on its AOL Internet portal. Despite the incredible success of Warner Bros as a studio in 2008, highlighted by the $1Billion worldwide box office haul of The Dark Knight, Time Warner has been unable to carry any momentum as shares have fallen to $7. The move to spin off Time Warner Cable moves TWX into more of a content company in hopes of locking further shareholder value.

Warner Bros. is looking to continue its string of Hollywood successes with an adaptation of the most revered comic book of all time, Watchmen. A Hugo award winning piece of literary work, and one of Time's 100 best novels of the 20th century, Watchmen stands out as a giant amongst superheros in the comic world. The film looks to capture audience minds in the same sense that the Dark Knight did last summer, however its skew towards an older audience and its hard R-rating will likely mute massive commercial success. With Zach Snyder helming Watchmen, critics and fans have had mixed reactions, so it will be interesting to see the staying power and first weekend might Watchmen will carry.

For a film to attain profitability in today's industry the norm is likely to make 2-3 times its production budget. With Watchmen having a budget reportedly about $120Million and a heavy marketing campaign behind it, its take will likely need to be near $300Million for the film to make Warner Bros. any money. So will it? Yes and No, like everything Watchmen, shades of grey to each of its fascinating characters mirror shades of grey in the money trail. No less than 4 companies are a part of Watchmen the film. A very public lawsuit between Warner Bros. and 20th Century Fox (owned by News Corp (NWS)) cut Fox in on some of the box office tally. Warner Bros has partnered with Legendary pictures to finance some of the film, giving cuts of box office money away there as well, and on the International stage, Paramount Pictures (subsidiary of Viacom Inc (VIA)) is handling distribution overseas.

A complex slicing of the pie to say the least, seemingly leaving Warner Bros. out in the cold. But if the film proves successful with audiences, everyone's happy and Time Warner may just get the last laugh. Being the owner of DC Comics, TWX owns the Watchmen graphic novel, and as interest in the film grew, sales of reprints of the graphic novel grew exponentially. With no less than 5 DVD releases for Watchmen on the upcoming slate the decision has been made to profit, and profit frequently, on the one-off film that Watchmen should and will be.

Motion Comics of the Watchmen book, where panels are slightly animated and the story is read through voice acting, has already been released on disc. Following later this month will be the animated Tales of the Black Freighter disc, which includes the Watchmen pirate story within a story literary device. And finally, 3 versions of the Watchmen film, including theatrical, director and ultimate editions. Add to that several books, toys and other Watchmen accessories and you can see Warner Bros is treating this property like a studio tent pole film.

Will it all add up to growth? With revenues of $46Billion, its hard to imagine Watchmen making a serious dent to TWX even with half of Dark Knight's performance, however with the spin off of Time Warner Cable, TWX will become more of a content pure play, and while not simply a "movie studio" it has shown, of the major Hollywood players, to know its audience of late best with recent darker hits like "300", "The Dark Knight" and now "Watchmen".

So, as the Alan Moore and Dave Gibbons magnum opus consistently asks with graffiti engraved surroundings, Who Watches The Watchmen? In this case, certainly Time Warner.

Disclosure: Author holds no position in any companies mentioned.

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