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Time Warner And Disney Focused On Magazines, iPad, And Social Gaming

Posted on Wednesday, Aug 25th 2010

As the U.S economy recovers, analysts expect spending on media and communications to increase at an annual average rate of 6.1% to $1.42 trillion over 2009 to 2014. Entertainment and leisure media spending will grow 6.3% annually to $353.9 billion by 2014. Internet and mobile services within the segment are forecast to increase 15% annually during the same period. Media giants reporting their quarterly earnings are already seeing strong growth. Time Warner (NYSE:TWX) had its highest growth in revenues in two years.
For the quarter, revenues climbed 8% over the year to $6.38 billion, exceeding the market’s projected $6.2 billion. EPS of $0.50 was also higher than the Street’s projected $0.45. The company attributed its revenue growth to the rise in cable advertising spending. Across the company, ad revenues grew 11% with cable ad revenues growing 14% over the year. Overall cable revenues of $3.2 billion grew 11% over the year. Film entertainment revenues increased 8% to $2.5 billion, and publishing revenues remained flat at $919 million.

In a study sponsored by the Next Issue Media, iPad magazines and other tablet devices are expected to generate $3 billion in advertising and circulation revenues by 2014. The report claims that after netting off cannibalized print revenues, the digital versions are still expected to generate $1.3 billion in revenues. Warner is also focusing on increasing its tablet device audience. Until last quarter, iPad editions of newspapers and magazines cost readers almost the same to readers as their print subscriptions. Recently, however, Time Warner’s People magazine came up with a pricing model that offers print subscribers the iPad application free. The company is evaluating other flagship magazines to migrate to a similar model. Similar to its TV Everywhere initiative, where cable TV subscribers can access TV programs on any device, Time Warner is looking to extend the model to its print subscribers so that magazine subscribers can access their content anywhere, anytime.

Further, Time Inc, owned by Time Warner, is one of the backers in the “Power of Print” campaign, which aims to dispel misconceptions about print business model. People and Time are two magazines participating in the campaign, which shows how the Internet has helped increase print subscriptions, and that digital and print are working together in ways that don’t always match up to the predictions of those who say that print is dead. People‘s pricing model is another step in ensuring that both print and digital media can thrive together.

The stock is trading at $29.74 with a market capitalization of $33 billion. It touched a 52-week high of $34.07 in April of this year.

Walt Disney (NYSE:DIS) too saw earnings rise. Q3 revenues grew 16% over the year to $10 billion with EPS rising 31% to $0.67. Analysts were expecting revenues of $9.4 billion with EPS of $0.58.

By segment, Media Networks revenues for the quarter grew 19% to $4.7 billion driven by 28% growth in cable revenues. Disney also benefited from strong growth at ESPN, which saw 30% growth in ad revenues owing to World Cup and NBA finals. Studio Entertainment revenues for the quarter increased 30% to $1.6 billion due to the strong performance of “Toy Story 3,” “Alice in Wonderland,” and “Iron Man 2.” Consumer Products revenues for the quarter increased 19% to $606 million and Interactive Media revenues grew 74% to $197 million. Parks and resorts was the only segment to witness lower growth, a mere 3%.

I have written about the need for media companies to focus on social gaming to address the growing virtual economy. Disney seems to have realized the importance of social gaming and recently acquired Playdom, a social game developer, and Tapulous, a mobile games and apps developer. Last year, Playdom reported annual revenues of nearly $50 million. It’s ranked as the leading social game developer on MySpace and the fourth-largest developer on Facebook. Disney aims to leverage Playdom’s talents with its own brands. The deal is said to have cost Disney $563.2 million plus an additional performance linked earn-out of nearly $200 million.

Meanwhile, Disney’s online initiatives are successful. A recent comScore report ranked Disney Online as the leading community-family and parenting destination on the Web, with a record-breaking 36 million unique visitors in July. In the mobile space, Disney recorded 1.9 million mobile video views and 900,000 game starts. The Disney application also surpassed 1 million downloads and boasts of an app engagement rate 14% higher than that of the average entertainment app.

Their stock is trading at $33.05 with a market capitalization of $63 billion. It touched a 52-week high of $37.98 in April of this year.

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