What’s Potter worth to Time Warner?

What’s Potter worth to Time Warner?
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First Published: Wed, Jul 18 2007. 12 31 AM IST
Updated: Wed, Jul 18 2007. 12 31 AM IST
The Order of the Phoenix smashed records in its first five days on the big screen. Yet, Time Warner’s stock isn’t levitating. The volatility of movie revenues and opacity of studio profit margins may be the culprits.
Since the film’s strong opening last week, Time Warner’s stock has lagged its peers in the Bloomberg US media index. Even after Warner Brothers said it took in a healthy $330 million (about Rs1,330 crore) worldwide in its first five days—and 9% more in the US than the first and most successful Potter film, the Sorcerer’s Stone—its parent’s stock only rose 7 cents on Monday. And that rise was triggered by an analyst’s new “buy” rating unrelated to the film business.
If Phoenix continues to outperform its Potter predecessors, which grossed an average of $880 million each, it could easily take in more than $1 billion this year. At 2% of Time Warner’s expected revenues, that should be worth about 40 cents a share. So why aren’t investors giving the company’s stock credit for the film’s success?
Two reasons. First, shareholders don’t like volatile earnings. And film revenues are about as volatile as it gets. On average, for every Order of the Phoenix there are about 17 Evan Almightys.
Second, studios don’t disclose exactly how much their movies cost to make. Nor do they say what related Potter franchises, say lunchboxes or videogames, might bring in. Since there’s no way to tell how much Time Warner will really earn from the full Phoenix juggernaut, investors may be loathe to give it the benefit of the doubt.
In order for its film business to begin to enchant its shareholders, Time Warner may have to provide a clearer view of its profits. If that’s not a picture the company wants investors to see, it may be time to consider whether its shareholders would prefer that it stop making movies altogether.
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First Published: Wed, Jul 18 2007. 12 31 AM IST
More Topics: harry potter | Money Matters | Equities |