Animated movies are always tricky for a movie studio. They may have all of the high costs associated with action and sci-fi films because of extra labor required and they can prove difficult to forecast. However, Time Warner Inc. (NYSE: TWX) has scored a major win with its "Happy Feet" animated penguin movie.

If you had told me that it would beat out a "new" James Bond movie on opening weekend and that it would have been this successful, I would have said your crystal ball needs fixing. The movie was expected to be a success, but this level of success has been quite surprising.

Analysts and critics of Time Warner were pointing out just three and four weeks ago that the company did not have any major hits from its movie studios. Yet Happy Feet has now rung up $121 million in domestic box office sales. This weekend it rang up another $17 million in ticket sales, beating Bond's $15.1 million sales again.

Jeff Goldstein, general sales manager for Warner Bros. put a $185 million or more target on the sales according to the Associated Press. But with another four to six weeks of theater shelf life, Happy Feet could do far more than that.

So much for critics saying that Time Warner didn't have any mega hits in its pipeline.

After watching the music industry suffer from illegal digital piracy, the film studios are taking extra precautions to avoid the same fate. As a result, Apple Computer Inc. (NASDAQ:AAPL) is coming under pressure from some of Hollywood's biggest studios to rework the operating environment of its iTunes platform.

The studios, including Universal, 20th Century Fox, Paramount and Warner Bros, are enthusiastic about following Disney by offering their content via iTunes, but remain concerned about the platform's ability to prevent piracy.

Rightfully so when one considers that the average cost of a major studio release nowadays is approaching $100 million. The movie studios feel they have a lot more at stake than their (sister) record labels. One movie executive said, "We're very willing to do a deal but we're keen to get some concessions from Apple that will account for the differences between the value of music and television content and feature film content."

With the development and announcement of iTV, it is even more important for Apple to demonstrate that it can protect more than just copyrighted music. If it succeeds in placating the film industry, consumers might just plan to replace their DVD player with Apple's iTV player.

No one thought that the Indianapolis Colts would lose a game this year, and no one thought Warner Bros. would finish No. 1 at the box office. This weekend was one for the underdog.

"Happy Feet", and animated feature from Warner, a division of Time Warner Inc. (NYSE: TWX) bought in about $42 million. Sony's new James Bond film "Casino Royale" finished second at under $41 million. It was supposed to be the other way around.

Warner made a smart move by lining up approximately $150 million in promotional tie-ins for the film about penguins. Partners include Blockbuster, Comcast, Sears, Burger King, and General Mills.

The film also opening to almost universally good reviews.

Wall Street has been critical of the Warner unit this year. Disasters like " Lady In The Water" by director M. Night Shyamalan have hurt the studio's finances and its credibility as a "hit factory".

But the dancing penguins of "Happy Feet" may be the beginning of a good holiday season for Warner. The studio may even have an office Christmas party this year.

Douglas McIntyre is a partner at 24/7 Wall St.

With only two months left in a rough year, Warner Bros. may have caught some good fortune with "The Departed," Martin Scorsese's bloody film about the mob in Boston. The film has brought in $91.1 million in the U.S., and is likely to do well overseas and when it is released on DVD later. Critics loved the film.

It has been a comparatively long time since Warner's last big successes like "Harry Potter" and "The Matrix." Both movies came out with sequels as well, giving them "legs," as they say in L.A.. It's true that "Superman Returns" has brought in almost $200 million this year, but it was also very expensive to make, weighing in at $270 million.

Warner Bros. may be coming to the conclusion that smaller is better. Pictures like "Superman Returns" and "Poseidon" are so costly that getting a decent return may be nearly impossible.

If Warner stays away from very expensive films and has a few modest successes over the next couple of quarters, the management at the studio may avoid being the departed themselves.

Douglas McIntyre is a partner at 24/7 Wall St.

Warner Bros. has had some copyright infringement issues with YouTube. According to a report from a London newspaper, Dick Parsons, CEO of Warner parent Time Warner Inc. (NYSE: TWX) thinks it is time to take those problems up with YouTube's new parent, Google, Inc. (NASDAQ: GOOG).

Perhaps the chickens have come home to roost earlier than Google had hoped.

Time Warner is concerned, as it should be, that some of its films and TV shows might end up on YouTube without the media company's permission -- and with no revenue to show for the company's considerable efforts.

Entrepreneur Mark Cuban and others have warned that Google would face copyright issues from content providers, particularly now that there is a deep-pocketed parent who can afford damages, assuming of course that the courts would side against YouTube.

Time Warner may have another, competitive agenda. With seven billion videos streamed in the US market during July, AOL is trying to establish itself as a major video platform. Yahoo!, YouTube, and MySpace are all ahead of AOL in video user audience, so anything that might slow the competition has an important tactical purpose.

Google will have to deal with Time Warner on content rights issues. It is likely that the matter will get resolved with some revenue coming to the media giant. But, even if it only slows the pace of YouTube's growth just a little, Time Warner may benefit.

Douglas McIntyre is a partner at 24/7 Wall St.

In the second quarter of 2006, Time Warner Inc. (NYSE: TWX) had revenue of $10.7 billion, a 1% increase from the same quarter a year ago. Operating income was $1.8 billion. By the five major operating segments, here is what investors will look for in TWX third quarter results.

In Q2, AOL had revenue of $2.046 billion, off 2% from the year before. Operating income for the unit was down 4% to $336 million. As the big Internet operation begins its transition to an advertising base model, watch for revenue to fall further, to under $2 billion, and for operating income to drop below $300 million. With AOL's audience numbers flat, ad revenue will not make up for the ongoing drop in subscription revenue.

Revenue at the company's cable operations rose 15% in Q2 over the same period a year ago hitting $2.721 billion. Operating income was up 22% to $600 million. Excluding any impact from the company's deal to take on Adelphia subscribers, which should not show up until Q4, revenue at TWX cable should rise to nearly $2.9 billion as high-speed data and VoIP sales continue sharp increases. Operating income could hit $700 million.

The company's film entertainment business should continue to struggle. In Q2 revenue was $2.363 billion, a drop of 10% from the same quarter a year ago. Operating income rose 11% to $141 million. There is no reason to think that home video and studio revenue will improve. The box office has continued to be poor for the studio, which now ranks sixth in receipts among major studios in 2006. Look for revenue to fall below $2.25 billion, and operating income to be below $125 million.

Today's New York Times made the point that Warner Bros. is in the midst of a year of disappointment. Last year, Warner was No. 1 at the box office. This year, it is No. 6. Movies like "Poseidon" have done poorly. The film cost $150 million to make and sold only $60 million worth of tickets in the U.S.

The studio will get some money back from overseas and DVD markets, but being No. 6 among all studios in not what the sometimes beleaguered management at parent Time Warner needs.

The studio is not attempting to play "small ball." Instead of pushing films with massive production and marketing budgets, the studio hopes to rely on more modest films like this weekend's release of "The Departed" with a cast lead by Jack Nicholson. The film brought in $27 million, which was considered a success given that it was not a film that cost more than $100 million to make.

Even though Warner Bros. will still likely post decent numbers this year, it would be nice to go into earnings season with some good news.

Douglas A. McIntyre is a partner at 24/7 Wall St.

"Beerfest" is one of the handful of movies that Warner Bros. has on the 2006 annual box office list (it ranks no. 83, with $19 million in total gross). I saw it and would say it is one of the worst movies in the past ten years (and I loved "Jackass: Number Two" so don't think I am just being a film snob).

The point is, investors were certainly hoping that Warner would do better this year. A recent downgrade of the TWX stock by JPMorgan was based, in part, on the projections that the financials of the company's film unit would get worse.

And, things are not looking up at the Time Warner film unit. It has had no hits this year, and even "Jackass" ($51.4 million so far), could ultimately pass "Superman Returns" ($198.5 million), which is Time Warner's biggest box office release in 2006. "Superman" cost so much to make that it almost did not matter how much money it brought in. It was going to lose money under even the best of circumstances.

Aside from "Superman," Warner has had some other pictures that the studio had hoped would be hits. "Poseidon," a remake of the ship disaster movie demonstrated that hope springs eternal. Even the first version with Gene Hackman in the starring role was an awful movie. "Lady In the Water," by kooky director M. Night Shyamalan, was another hopeful. The movie will probably not hit $50 million. Most analysts thought that the animated film "The Ant Bully" would do well. It had voice-overs by Julia Roberts, Nicolas Cage, and Meryl Streep. It is unlikely that any of them worked for free. The film may not do $30 million in the US.

The film-making business is notoriously fickle. But the costs of running a studio are not. Disney decided to cut 450 people at its production unit earlier this year and cut the number of movies it would put out. At least if it had a dry spell its costs should be less.

For Time Warner and its stock to stage a full recovery, it will not suffice that its cable and network businesses do well. The film unit will have to pull its own weight. Right now, it isn't.

Douglas McIntyre is a partner at 24/Wall St.

There was a lot of news around the edges of Time Warner today, but none of it was close enough to the core to change the stock price.

Newsweek named a new editor, but whether this will hurt or help Time Magazine will not be know for many months.

Viacom, a competitor in some critical areas like film production and cable TV programming, lost its CEO as Sumner Redstone showed he could "shake hands and stab a man in the back at the same time" as Hunter Thompson used to say.

Warner Bros. release for the last weekend, "The Wicker Man", did less than $12 million at the box office.

Trading in TWX was extremely light, only about 12.5 million shares against a three month volume average of 21.7 million.

The market knows that some critical data for August will be coming in. This will include revenue and ad page performance for the Time, Inc. publishing group and audience figures for AOL. But, neither will be out for several days.

Time Warner's stock closed at $16.80, up $.04, or .24%.

Warner Bros.' summer blockbuster Poseidon opened last weekend to a less than spectacular reception. The ticket sales of the $160 million film indicated that the venture was a sinking ship, a capsized boat and a Titanic disappointment (all puns intended).

Based on Warner Bros. estimates, Poseidon spent the weekend at position number two in box office sales with $20.3 million dollars versus the number one -- Mission: Impossible III, which brought in $24.5 million. The remake of the 1972 film, The Poseidon Adventure, which is based on a Paul Gallico novel, Poseidon, was directed by a veteran of boat movies, Wolfgang Petersen -- the guy who directed the movie Das Boot and The Perfect Storm.

I'm sure that, as we speak, the brains over at Warner Bros. are scratching their heads over this one. Completely baffled by the unimpressive ticket sales, they are probably desperate for an explanation.

Well, call me crazy, but I have to think that the MI 3 success probably had a lot to do with Tom Cruise's recent feats of crazy. Had Kurt Russell put in a comparable amount of tabloid time, Brooke Shields insults, and Oprah couch-jumping, Poseidon might have enjoyed a better opening weekend.

Former Latin students of the world:

Salvete! I have good news!

No, your Latin teacher didn't actually give herself a lethal paper cut on your shoddy translation of Virgil's Aeneid. And, no, your local school board didn't finally decide that Latin was, in fact, "dead enough" to give up on trying to teach it.

But it's almost as good. Earlier today, Warner Bros. movie studio, a unit of Time Warner, announced plans to remake the old Latin class stand-by Clash of the Titans. The original feature film, which follows the codpiece-wearing hero, Perseus, as he fights monsters and Medusa, to save the beautiful Princess Andromeda. Andromeda, in typical princess style, spends most of the movie chained up to a rock, waiting to be rescued by the divinely chartered hero.

As the summer movie season (4 months) kicks off on May 5 with Mission Impossible III, Hollywood studios are likely waiting with baited breath to guage the summer box-office potential.

To qualify the importance of the summer box-office season.  The four months from roughly May to August contribute up to 40% of the annual ticket sales.  Annual ticket sales being in the neighborhood of $3.6 billion (2005), $3.9 billion  (2004).

Studios are hoping for a record year, as year-to-date box-office revenues are already up 6.7% at $2.6 billion.  With many of the major studios putting out at least one blockbuster ($200 million ) hope for the summer season, Hollywood could see a crowning year even before we enter the Winter Season.

The line-up looks like this: Movie : Studio : Company : Opening Date

M:I:III : Paramount   :  Viacom (VIAb) : May 5
Poisedon : Warner Bros : Time Warner (TWX) : May 12
Da Vinci Code : Sony Pictures : Sony (SNE) : May 19
Over the Hedge : Dreamworks SKG : Viacom (VIAb) : May 19
X-Men: The Last Stand : FFE : News Corp (News) : May 26
The Break Up : Universal : General Electric : June 2