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New Line Folding into Warner Bros.

February 28, 2008 23:27 by Erica Fetterman

Tagged with The Golden Compass 9 comments

Reuters reports: Time Warner Inc (TWX.N: Quote, Profile, Research) said on Thursday it will consolidate its New Line Cinema film studio under Warner Bros. Entertainment.

View the Official Press Release

New Line's Co-Chairmen and Co-CEOs Robert Shaye and Michael Lynne have elected to leave the studio, which will become a unit of Warner Bros., but are in discussions about possible future business relationships with the company, Time Warner said.

See the rumoured Staff email

The LA Times adds more information, noting that New Line will maintain its own development and production:

It is unclear how many people will lose their jobs as a result of the consolidation. New Line Cinema employs more than 600 people in Los Angeles and New York.

While New Line will maintain separate development, production, marketing, distribution and business affairs operations, it will rely on Warner's global infrastructure to save significant costs and improve profit margins in the volatile movie business.

The decision is the boldest effort yet by Time Warner's recently named Chief Executive Jeff Bewkes to slash costs at the media giant, whose stock price has largely stagnated since its merger with America Online eight years ago. Bewkes is under pressure from shareholders to take steps to improve the stock price and profitability of the company, which owns cable channels such as CNN, TBS and HBO -- cable systems that are the largest in Southern California and publishing operations that include Time, Sports Illustrated and In Style magazines.

"This is a no-brainer move," said Richard Greenfield, an analyst with Pali Research. "There's no reason to have two separate infrastructures. The question is why did it take so long for this decision?"

Earlier this month, in his first conference call with media analysts since succeeding Richard Parsons as chief executive in December, Bewkes announced plans to immediately eliminate 100 jobs at corporate headquarters, to split AOL into two parts, and to potentially reduce its 84% ownership of Time Warner Cable. At the time, he said New Line would be targeted for "near-term costs cuts."

In a statement Thursday, Bewkes said: "We are moving quickly to improve our business performance and financial returns. New Line has built a strong franchise of cutting-edge entertainment. We can enhance its value by combining it with Warner Bros. Given the trend toward fewer movie releases, New Line and Warner Bros. will now have more complementary release slates, with New Line focusing on genres that have been its strength. With the growing importance of international revenues, it makes sense for New Line to retain its international film rights and to exploit them through Warner Bros.' global distribution infrastructure. We can also take better advantage of digital distribution platforms by combining our studios. These changes will enhance our revenue opportunities and drive dramatic cost efficiencies and higher margins at New Line."

New Line Cinema becomes Hollywood's latest distributor to downsize its ambitions and business strategy in a tough market, where bloated overhead and soaring production and marketing costs have compromised profitability, once-reliable DVD sales have cooled and movie attendance is flat.

Over the past three years, DreamWorks, the once high-flying live-action studio founded by Steven Spielberg, David Geffen and Jeffrey Katzenberg, was sold to media giant Viacom Inc. and scaled back as part of the media company's Paramount Pictures. At the same time, Harvey and Bob Weinstein's Miramax Films became a much smaller unit of owner Walt Disney Co. after the brothers were forced out. The Metro-Goldwyn-Mayer studio was gobbled up by a consortium of investors including Sony Pictures, Comcast Corp. and two major private equity firms.

"People start out with high hopes for these indie studios," said media analyst Harold Vogel, "But ultimately they encounter rising costs and difficulties in managing the businesses. At some point, the cash flow and balance sheets fall short of their ambitions."

Please note that this report is premature. We don't yet know what this will mean in terms of the His Dark Materials franchise. We hope to have more information soon. A meeting with corporate heads is scheduled for tomorrow (29 February).

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