Well, it's happened. Time Warner's (NYSE: TWX) The Dark Knight reached $500 million. According to Boxofficemojo.com, the blockbuster's total tally stands at roughly $504 million as of this writing. Shareholders in the famous media company should be pretty darn happy, especially considering that the DVD will certainly be a big hit during the holiday season.
Yet, I have to wonder if there is a dark side to this monumental achievement. I mean, you do have to ask yourself whether Time Warner could possibly produce a follow-up to Knight. The success of the current flick means that all the Comic-Con geeks out there are going to demand a storyline that blows the pants off Knight. Who knows if that's possible (and I should point out that I, for one, wasn't impressed with Knight, and thought that the hype generated by it was irrational).
And if Time Warner isn't able to please its core audience, could it manage to convince mainstream audiences that the film is worth a shot? A movie doesn't reach $500 million with just the core demographic, of course. When people see big numbers flowing in from the first couple weekends, and subsequently hear about fans seeing a project multiple times, it instills interest in these other demographics, ones that are outside the target audience. This is how a phenomenon is made. And I think repeating such a feat represents a difficulty of the highest order.
According to this article, advertisers who use the Internet to get their message across may not like Microsoft's (NASDAQ: MSFT) Internet Explorer 8 beta. That's because the software giant is incorporating technology into the browser that will make it harder for data collection that could be used to target ads. In addition, the browser will be able to block some ads entirely, as well as block content from another website from appearing on the current site a user is viewing. The rationale for the latter is that the outside website could be capturing data on the user's habits.
All this adds up, in my mind, to a legitimate fear for advertisers. Look, I'm like anyone else. I don't want a lot of data collection going on. But, there are basically only two ways for companies like Yahoo! (NASDAQ: YHOO) and Google (NASDAQ: GOOG) to make money off web content: engage a subscription model, or utilize ad platforms to monetize eyeballs. The Internet has proven to be very resistant to subscription models. Sure, some do work to great success. For the most part, however, surfers don't want to have to throw a credit-card number into a form to be able to see content. It just doesn't work. They want unfettered access to sites. If this is to be the case going forward, then highly-targeted ads are going to play an increasing role in the solution to monetization challenges. Web sites aren't like cable channels, which have the dual revenue streams of subscriber fees and ad sales.
And, keep in mind that the companies mentioned above aren't the only ones who rely on targeted ads. How about Disney (NYSE: DIS)? News Corp. (NYSE: NWS)? Viacom (NYSE: VIA)? They all have major Internet strategies that utilize ad revenues. And let's not forget the incredible irony here. Mr. Softy has its own Internet strategy that needs ads to survive. I guess it's a tough position to be in: the designers want to enhance the attractiveness of Internet Explorer to users by helping them avoid the very thing that powers, in part, shareholder value for the maker of Internet Explorer. A conundrum, to be sure. I personally hope a solution can be found that will allow advertisers to continue selling their wares. I don't find advertising to be evil. I think it's a great industry that serves an important function in the economy. Microsoft had better consider that.
Disclosure: I own Disney; positions can change at any time.
Time Warner Inc. (NYSE: TWX) will be more conservative in the number of movies it produces in a 12-month period, according to this piece at The Wall Street Journal. As movies are becoming so expensive these days, and studios are becoming increasingly averse to taking on risk in the fickle world of celluloid, the thinking is that fewer investments in theatrical projects will concentrate funds on only the best concepts. These concepts will, in theory, be tentpole productions like The Dark Knight, ones that have enormous franchise potential to spawn sequels and merchandise windfalls and that oftentimes will be based on valuable source material, such as iconic comic-book characters. Sounds great, right?
Only problem is, it's wrong. I've argued this point in the past, and I'm here to argue it again. There's no question that studios such as The Walt Disney Company (NYSE: DIS), Viacom, Inc. (NYSE: VIA), News Corporation (NYSE: NWS), General Electric Company (NYSE: GE)'s Universal, and Sony Corporation (ADR) (NYSE: SNE) put precious capital at risk every single time they greenlight a project. But there's a huge illogicality at work here. Why would you want to put out less concepts as opposed to more? If the movie industry is such a gamble, wouldn't it be prudent to send more pictures to the marketplace?
Has Viacom's (NYSE: VIA) Tropic Thunder succeeded where the Joker has failed? Has the film beaten Time Warner's (NYSE: TWX) The Dark Knight? According to early estimates at Boxofficemojo, it has. Can you believe it? Tropic Thunder, which stars Ben Stiller, right now has $26 million to its credit, enough to capture the top spot. That number will change most likely when final tallies are in, but it doesn't matter, since The Dark Knight is believed to have taken in a little under $17 million over the three-day weekend at domestic multiplexes, giving it a second-place finish. This is good news for shareholders of Viacom, who have so far been pretty happy with the studio's successful summer output. Box-office hits like Indiana Jones and the Kingdom of the Crystal Skull and Marvel's (NYSE: MVL) Iron Man have powered the media company.
Now, Time Warner's new animated flick, Star Wars: The Clone Wars, actually did worse than I expected. It came in third with $15 million. I admit, I totally misread this one. Believe it or not, I thought the film might do a huge number, like between $40 million and $50 million. I'm not sure the box-office dynamics at this time of year would have supported a statistic like that for this kind of film. And I guess I overestimated the number of geeks out there who were waiting to see it during the first weekend out. I really blew it on that one. News Corp.'s (NYSE: NWS) horror flick Mirrors came in fourth place, while Pineapple Express, distributed by Sony (NYSE: SNE), came in fifth. I saw Express last week. Cool movie.
Russian business runs on different rules. News Corp.'s (NYSE: NWS) Rupert Murdoch, who has been doing business in China for years, is nervous about his Russian enterprises. This morning, the FBI announced it had rounded up a ring of data thieves, many from former Soviet Union countries. And then there's the little matter of BP-TNK, a joint venture between BP (NYSE: BP) and a Russian company, whose Russian shareholders are booting out its Western executives so they can take over the operation.
Here's what Silicon Alley insider reports Murdoch had to say about doing business in Russia: "We have great growing business there but just -- this is purely me, I'm sorry, I'm -- the more I read about investments in Russia, the less I like the feel of it. The more successful we'd be, the more vulnerable we'd be to have it stolen from us, so there we sell now."
In case you missed it, The Detroit Free Press reports that an international ring of data thieves used wardriving -- the practice of stealing data from unprotected Wi-Fi networks -- to take 40 million identities, use the information to print fake ATM cards, and steal millions of dollars. The corporate victims include customers of TJX (NYSE: TJX), Barnes & Noble (NYSE: BKS), and OfficeMax (NYSE: OMX). Five of the 11 defendants are from former Soviet Union countries -- "one is from Estonia, three are from Ukraine, and one is from Belarus."
News Corp. (NYSE: NWS), a competitor of media entities such as Disney (NYSE: DIS), Time Warner (NYSE: TWX), Viacom (NYSE: VIA) CBS (NYSE: CBS), and General Electric's (NYSE: GE) NBC Universal, reported its Q4 and full-year numbers on Tuesday. Unfortunately, the stock received an after-hours yawn from investors. The share price didn't move much at all, about a nickel (the stock was up almost 5% on the day, however). The stats seemed pretty good in an overall sense, but they weren't overly compelling either, and I'm not sure I'd want to enter a position in News Corp. at the moment due to questions about the softening advertising market for television stations. But let's look at the data.
For the quarter, revenues increased over 16% and earnings per diluted share jumped over 50% to $0.43. There were, however, some asset gains thrown into that number. News Corp. likes to focus on operating income, and that metric grew 21% in Q4. Every operating segment, except for television, saw an increase in its profits. For the full year, revenues increased 15% and earnings per diluted share soared almost 68% to $1.81. Again, operating income gives a better account of performance due to the asset transactions affecting the bottom line, and here we see the growth is closer to 21%. For the full year, every operating segment saw growth.
News Corp.'s studio and cable divisions are doing well, and like I said, in a general sense, this was a good report. Plus, Fox Interactive Media saw its top line expand by well over 50%, driven by MySpace. But Rupert Murdoch has expressed some caution in terms of growth going forward. According to this article, he sees growth ahead, but it won't be of the stellar variety. And I'll add that operational cash flow for the year was down over 4%. I'd rather see that metric rise on a twelve-month basis. News Corp.'s shares seem cheap to me, but I don't feel compelled at this point to start a position. Given the current economic climate, I'd rather sit on the sidelines and wait for some more data.
Disclosure: I own Disney and GE; positions can change at any time.
Marvel Entertainment Inc. (NYSE: MVL) reported earnings for the second quarter on Tuesday, and as one might imagine, even though the numbers were solid, the stock sold off. Hey, this is Marvel we're talking about here. Its shares can be volatile little suckers. They're used as trading instruments by many. I'm even questioning if I should have trimmed my position before the report. As I write this at 2 pm, the stock is off by almost 9%. Let's see what the stats tell us.
The top line rose by 55% to $156.9 million. The bottom line increased by a whopping 73% to $0.59 per diluted share. Talk about hulking up! According to Earnings.com, the call was for $0.45 per share. That's a $0.14 beat, and that freakin' rules.
As one might imagine, Iron Man, which was distributed by Viacom (NYSE: VIA), and The Incredible Hulk, placed in theaters by General Electric's (NYSE: GE) Universal, helped drive the results. The films gave Marvel some nice licensing revenues and foreign pre-sale monies. There were no contributions from the box-office side of things yet. Marvel will certainly see a good boost to its revenues if, down the line, the home-video release of the projects sell well (which I think they will). Judging from statements made in the conference call (transcribed at Seeking Alpha), we'll see most of the ancillary benefit from the movies next year. I was disappointed to see that publishing was weak (there were some tough comps there), but I'll tell you what was pretty strong: cash flow. Net cash from operations for the last six months more than doubled to over $68 million. And I love cash.
CBS (NYSE: CBS) -- major competitor of Disney's (NYSE: DIS) ABC, News Corp.'s (NYSE: NWS) Fox and General Electric's (NYSE: GE) NBC -- issued a lackluster earnings report for Q2 on Thursday. The market sent the stock down 3% at the end of the trading day. The outlook and the continued softness in the economy seems to be giving Wall Street pause in terms of CBS' prospects. Also, the top-line growth was nothing to write home about.
Revenues increased a scant 1% to $3.4 billion. Adjusted earnings per share on a diluted basis, which exclude a benefit from an asset sale, were $0.53 versus $0.57 in the year-ago period. Here are a couple more bad stats. Operating income on an adjusted basis took a dive of 13%. Free cash flow was almost 19% worse this quarter compared to last year's Q2. Not very cool, huh? According to this AP article, CBS beat by a penny, but is that really so impressive given the full context of things? No.
Still, I don't think shareholders should revolt just yet. The free cash flow on the six-month timeframe went up 6%, and even with the decrease experienced in Q2, the cash flow was enough to cover the dividend, which is a major attractant of the stock. Income investors who like the media sector definitely have to keep CBS on their list of potential buys, considering the company's 6%+ yield.
CBS believes that the advertising slowdown will inhibit growth for the rest of the year. So don't expect any fireworks in upcoming quarters. I like that management will be getting rid of fifty radio stations and intends to use the proceeds to buy back stock. That's shareholder friendly, of course. What probably won't be shareholder friendly is the stock itself. I'm not sure it's going to do much of anything while the economy suffers through its current malaise. But you do get that dividend. If investors are patient, then they should see some capital appreciation down the line.
Disclosure: I own Disney and GE; positions can change at any time.
Revenues for the second quarter increased 21% to almost $3.9 billion. Net income from continuing operations expanded 19% to 64 cents per share. That beat the estimate I was using by three pennies (other sources listed a lower estimate for earnings). No matter how you slice it, Viacom showed Wall Street how it's done.
Now, let me admit how wrong I was. I thought media networks would shine during the quarter and that the film division might not do as well. Operating income at media networks increased 4%, while Paramount and its colleagues increased their segment's profit by almost 300%! You can thank the new Indiana Jones movie, as well as Marvel's (NYSE: MVL) Iron Man and DreamWorks Animation's (NYSE: DWA) Kung Fu Panda, for bringing the crowds into the multiplex and the money into Viacom's coffers.
Viacom (NYSE: VIA) is due to report Q2 earnings on Tuesday, July 29, after the market closes. What will be in store for the media company and fierce competitor of Disney (NYSE: DIS), News Corp. (NYSE: NWS), Sony (NYSE: SNE), and Time Warner (NYSE: TWX)? According to data at Zacks.com, the company may report something in the vicinity of $0.61 per share, which would be good for 12% growth on the bottom line. Viacom has a reasonable chance of beating the estimate, based on past history.
There will be a few key elements that investors will be looking at. One product that has been a driving factor for Viacom's success is, believe it or not, a video game. Rock Band, which competes against Activision Blizzard's (NASDAQ: ATVID) Guitar Hero titles, has been a boon for the company, and the MTV segment specifically. The game, which is distributed by Electronic Arts (NASDAQ: ERTS), will have a sequel coming out this fall, and I hope management enlightens Wall Street about how it feels it will do against Activision Blizzard's new iteration of its own musical-gaming system and how it plans to promote it. Will there be any special synergies between MTV and the sequel? Watch for data on the number of song downloads that Rock Band is fueling.
When I took a look at Viacom's last earnings report, I found that the media-networks division was doing great business. Its operating income had jumped 15%. The media segment, which includes the valuable MTV Networks, should do well again in Q2, and I would expect something close to this kind of growth rate. However, I would be watching for signs from management that the economy may be affecting advertising. Going forward, this will be the challenge for MTV, Nickelodeon, etc. And speaking of Nickelodeon, are there any initiatives on the board to counteract the incredible growth that the Disney Channel has seen thanks to properties such as Hannah Montana? Investors should listen to the conference call for information about marketing plans and new shows, as well as merchandising schemes for the upcoming holiday season.
As a Disney (NYSE: DIS) shareholder, the High School Musical juggernaut is important to me. It means money for the company. It means a point of distinction for Disney that adds value to its content and differentiates it from other media businesses such as News Corp. (NYSE: NWS) and Time Warner (NYSE: TWX). It means that tweens have something realistic to relate to that reflects their own days of breaking out in song while walking through school (okay, that was a joke).
But I was disappointed to hear that a reality show extension of the brand is having a tough time in the ratings. According to this blog post at The Hollywood Reporter, the show, called High School Musical: Get in the Picture, had the worst ratings on Monday night. It's some sort of competition show with a prize related to being in some sort of video in the Musical franchise.
I'm not sure of the specifics, but my main concern is that it couldn't offer any competition to CBS (NYSE: CBS) or General Electric's (NYSE: GE) NBC. Remember, Disney's big model is to take its content and spread it around to enhance the value of the company's other platforms. It's all about the synergy. Unfortunately, it didn't work this time. I honestly thought that ABC would have seen huge numbers from the kids on this one. It makes me wonder if Musical might be getting long in the tooth.
Time Warner (NYSE: TWX) bombed earlier in the summer with a movie called Speed Racer. If you said you didn't see that one, I wouldn't be surprised. However, in the interest of cosmic balance, the media company scored with its new Batman flick, The Dark Knight. And when I say scored, I mean it. The film is estimated to have taken in about $155 million over the past three-day weekend at domestic theaters, according to Boxofficemojo. If this estimate holds, then it represents record business. Spider-Man 3 currently holds the three-day record of $151.1 million.
Mamma Mia!, distributed by General Electric's (NYSE: GE) Universal didn't come close to the Bat. It came in second with around $27 million. Hancock from Sony (NYSE: SNE) was third with $14 million, and it will be crossing the $200 million mark in about a week or so. Time Warner's Journey to the Center of the Earth was fourth, while Universal's Hellboy II: The Golden Army was fifth. That film took a steep 70% drop compared to its debut-weekend performance. I didn't think it would fall that far, but I suppose the Batman juggernaut left it no choice but to step aside. It took in a weak $10 million for the weekend.
General Electric (NYSE: GE) didn't see a huge reaction to its earnings on Friday. I think the stock closed up by only a couple pennies. But at least its NBC Universal asset scored a hit with Hellboy II: The Golden Army. According to Boxofficemojo, it topped this weekend's domestic box office with a gross of more than $35 million. Sony's (NYSE: SNE) Hancock, however, is close. That film was in second place with a haul of $33 million. By the time final figures are out, Hancock could find itself in first place, but I doubt that's going to happen. This really seemed to be Hellboy's weekend. I have to say, though, that Hancock did much better than I thought it would for its second weekend at bat. The film will easily pull in over $200 million, maybe $250 million, before all is said and done.
Time Warner's (NYSE: TWX) Journey to the Center of the Earth 3D was number three with over $20 million. Not a particularly great debut, I don't expect too much action in the coming weeks from this one. Now, Wall-E is an important project for Disney (NYSE: DIS) shareholders since it is another effort from Pixar. Investors are still trying to figure out if the price paid for Pixar will be ultimately worth it. Wall-E is doing pretty well; it came in fourth over the weekend, and its total box-office take so far is about $162 million. Incidentally, Eddie Murphy failed horribly with his film Meet Dave. The movie, from News Corp. (NYSE: NWS), came in seventh with a little over $5 million. I didn't even know it was in the marketplace.
GE and Universal scored again at the multiplex with Wanted, which came in fifth. Its cumulative gross is now more $110 million. See that? GE can leverage quality content to bring in the revenues. If NBC Universal can synergize better with hits like these, then perhaps there won't be such pressure in terms of dumping the asset. For now, though, NBC Universal is a show-me division, and it better keep the hits coming to placate the board.
Disclosure: I own Disney and GE; positions can change at any time.
Have you checked News Corp.'s (NYSE: NWS) stock price lately? It's pretty close to the 52-week low. Last Thursday, before the Fourth of July holiday began, News Corp.'s shares closed at $14.76. The 52-week low is $14.58, and the 52-week high is $24.95. As can be seen, it's had quite a fall. And what about competitor Viacom (NYSE: VIA)? The company's stock closed on Thursday with a price of $29.70. That was, in fact, the 52-week low. The 52-week high for Viacom is $44.95. Again, a pretty big dive.
Is it time to enter these two names? From a valuation perspective, considering their growth prospects, the stock prices do make one pause for consideration. They seem cheaper than colleagues Disney (NYSE: DIS) and Time Warner (NYSE: TWX) from certain angles, although the latter two media businesses do have higher dividend yields. But with the big decline in the stock prices, traders certainly have to be looking at them as perhaps candidates for a bounce-back in the second half of the year, especially if the oil situation improves.
I think that's the big problem here. With oil and financials acting in negative ways for the economy, the entire market is one huge growling bear in a bad mood. And that has made me very reticent about initiating a trading position in either News Corp. or Viacom, though I really, really am interested in doing so. I think value trades like this might very well simply be tests of patience at this point. I sense that both these stocks will be higher by the end of the year, but so what? These stocks will probably merely move along with the rest of the major averages, and that movement could be in the downward direction. And News Corp. has been having issues with MySpace.
Well, it's happened. Time Warner's (NYSE: TWX) The Dark Knight reached $500 million. According to Boxofficemojo.com, the blockbuster's total tally stands at roughly $504 million as of this writing. Shareholders in the famous media company should be pretty darn happy, especially considering that the DVD will certainly be a big hit during the holiday season.
According to this 
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Russian business runs on different rules. 
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