A version of this story first appeared in the March 1 issue of The Hollywood Reporter magazine.
Big international box office, Netflix licensing deals and growing TV production arms helped the filmed entertainment divisions of the six big Hollywood conglomerates post more than $3.5 billion in operating profits in 2012. But that was no match for the year before.
Theatrical performance was mixed -- as always. And while home entertainment stopped declining, it didn’t provide a big boost. Overall, the studio units of all sector biggies except for Comcast's NBCUniversal recorded profit declines for 2012.
Mini-major Lionsgate had "huge profit improvement" and might have eaten into the box office of others, Wunderlich Securities analyst Matthew Harrigan argues. "A couple of the top five film spots that ordinarily go to majors went to Hunger Games and Twilight," he says.
Helped by their big TV production arms, Time Warner and News Corp. again led the charge in terms of film unit profitability last year.
The Hollywood Reporter's annual look at studio profits for the latest calendar year follows the release of financials for the fourth quarter. Figures aren't always directly comparable. After all, some companies have fiscal years that differ from the calendar year, and Time Warner, News Corp. and Sony include big TV production businesses, while the other companies don't.
The annual figures nonetheless provide insight into how 2012 played out for the major studios. Here is a look at each company:
Adjusted film unit operating profit: $1.24 billion, down 3.3 percent from $1.28 billion in 2011
As expected, a record result in 2011 and the end of the lucrative Harry Potter franchise that year were tough acts to follow.
Still, Time Warner reported its second-most profitable year ever in the filmed entertainment business -- and it was more than 10 percent higher than in any other year in its history other than 2011. The unit's adjusted operating profit came in at $1.237 billion, just slightly below the year-ago record. The success of The Dark Knight Rises, which grossed $1.1 billion at the global box office, and early business for the first The Hobbit installment helped the performance.
The company said that the film unit benefited from a shift toward higher-margin TV revenue, thanks to the strong performance of its TV studio, and a decline in P&A spending due to fewer theatrical releases.
All this meant that, just like in 2011, TW reported the highest film unit profit out of all Hollywood conglomerates.
Its film figures also include video games and Warner Bros. Television, whose hits include The Big Bang Theory. WBTV accounted for about 60 percent of Warners' 2012 profits. The TV studio posted financial growth despite what TW CFO John Martin called an "extremely challenging comparison against the syndication of The Big Bang Theory and Friends in 2011." He explained, "It was able to overcome those comparisons partially due to growth in demand from subscription VOD services [which brought in around $350 million in revenue in 2012] and international syndication."
How will 2013 shape up? "It's hard to top that, but our 2013 theatrical slate looks even better," TW CEO Jeff Bewkes said in his year-end earnings call. "It includes Man of Steel, The Hangover 3, Great Gatsby, Pacific Rim, the sequel to 300 and, of course, the second film in the Hobbit series."
Added Martin: "We expect Warners to post another very strong year in 2013. And with a little luck, the year should be as good -- or maybe even a little bit better -- than 2012."
Film unit operating profit: $1.18 billion, down 1.9 percent from $1.2 billion in 2011
As in 2010 and 2011, Rupert Murdoch's News Corp. reported the second-highest film division profit for 2012. The unit's operating profit declined minimally to $1.175 billion after a 9 percent improvement in 2011.
That was in line with expectations. News Corp. president, COO and deputy chairman Chase Carey had said early in 2012: "We believe the prudent approach for setting expectations in the content business is to be cautious in projecting film contributions so our guidance reflects essentially flat year-on-year results at a very large base of profits."
The company's box-office successes last year included Ice Age: Continental Drift and Taken 2. And the latest Ice Age release was also among those bringing in solid home entertainment sales along with Alvin and the Chipmunks: Chipwrecked.
But revenue from hits Avatar and Ice Age: Dawn of the Dinosaurs recognized in calendar year 2011 skewed comparisons for 2012.
Like in the case of Time Warner, News Corp.'s 20th Century Fox Television studio continues to produce hits, including Modern Family and Glee.
"Our content businesses in film and TV have both continued to be industry leaders," Carey said recently. "The slate we have as we look toward the summer looks great."
Walt Disney Co.
Film unit operating profit: $543 million, down 17.2 percent from $656 million in 2011
Disney's filmed entertainment operating profit dropped for the second year in a row in 2012, coming in at $543 million, down from $656 million in 2011 -- even though the studio had the year's biggest theatrical release in Marvel's The Avengers, which earned $1.5 billion worldwide.
But Disney also had a big box-office flop with the effects-laden sci-fi movie John Carter, for which the company ended up booking an operating loss of $200 million during its second fiscal quarter, which was the first calendar quarter of 2012.
Like in some other quarters, home entertainment results late in the year had a difficult comparison due to 2011 releases Cars 2 and The Lion King 3D.
"Studio Entertainment operating income was down in the [final] quarter due to declines in our home entertainment and theatrical businesses, despite an increase in television and subscription video-on-demand distribution revenue," Disney CFO Jay Rasulo said in summarizing a key trend.
While theatrical revenue was higher in the quarter, he cited "higher distribution and film amortization costs."
Disney last year brought in former top Warner Bros. executive Alan Horn as studio boss to replace Rich Ross after the John Carter loss. And Disney CEO Robert Iger on a recent earnings conference call predicted a strong year.
"It’s a strong, diverse slate of movies that we are very excited about," including Marvel’s Iron Man 3, he said. "This summer we’re looking forward to Disney/Pixar’s Monsters University in June as well as The Lone Ranger, an extraordinary action adventure starring Johnny Depp, which opens in July. In November, we’ve got Marvel’s Thor: The Dark World as well as Disney Animation's next adventure, Frozen, and we’ll close out the year with Saving Mr. Banks, the story behind one of our most beloved classics, Mary Poppins with Tom Hanks as Walt Disney."
Film unit operating profit: $434 million, down 43.1 percent from $763 million in 2011
Sony Pictures Entertainment led all other Hollywood companies in worldwide and U.S. theatrical market share in 2012, with $4.4 billion in global and $1.8 billion in U.S. ticket sales.
But Sony Corp.'s "pictures" unit recorded an operating profit drop to $434 million last year, following a big 95 percent gain in 2011. That proved again that box-office revenue alone isn't a reliable way to forecast film unit profitability, especially with the cost of marketing and releasing movies ballooning in recent years.
In Sony's case, though, the year-ago profit figure was boosted by $278 million from the sale of Spider-Man merchandising rights. Excluding that, the year-over-year drop would have been much smaller: 10.5 percent.
Sony's big theatrical successes of 2012 included James Bond movie Skyfall, which drew more than $1 billion in global grosses, and The Amazing Spider-Man.
Other hits included Men in Black 3, Hotel Transylvania and 21 Jump Street. Spider-Man and MiB 3 also were among the company's strongest home entertainment releases.
Film unit operating profit: $217 million, down 10.3 percent from $242 million in 2011
Viacom's Paramount Pictures celebrated its 100th anniversary in 2012, but the company's film segment reported a profit drop following a big 128 percent increase in 2011. Cost management partially helped offset fewer releases and lower box-office revenue in 2012 and tough comparisons with 2011 hit Transformers: Dark of the Moon.
The mix of releases and timing played a key role. Specifically, calendar year 2011 included Transformers: Dark of the Moon and the opening weeks of Mission: Impossible -- Ghost Protocol.
In the final quarter, DreamWorks Animation’s Rise of the Guardians, the animation studio's final film distributed by Paramount, also underperformed expectations.
Viacom CEO Philippe Dauman and studio boss Brad Grey have focused on tentpole releases that can become franchises.
Late in 2012, Dauman lauded the studio’s “remarkable slate” for the fiscal year that started in October, which will cover much of calendar year 2013. He particularly highlighted “the return of key tentpole franchises, such as Star Trek, and the launch of new ones, including World War Z” and a mix of “star-driven tentpoles, prestige films and the type of highly targeted, high-margin releases it pioneered with the Paranormal Activity franchise.” He added: “The studio continues to demonstrate significant long-term progress in enhancing its [profit] margins.”
Film unit operating cash flow (the metric the company uses): $79 million, up 229 percent from $24 million in 2011
Under Comcast's leadership, NBCUniversal has focused on turning around its broadcast business and ensuring improved film unit results. For 2012, the entertainment company reported $79 million in film operating cash flow, the profitability metric it uses. That was more than three times the $24 million recorded in 2011 thanks to better box office, driven by such successes as surprise hit Ted, which also brought in strong home video sales, partially offset by an increase in the amortization of film costs.
The flop Battleship apparently wasn't a big-enough drag to hurt the overall picture.
Comcast CEO Brian Roberts in his year-end earnings call lauded the "stronger box-office performance in film" and said, "We’re also reinvigorating our franchises in the film business."
Comcast CFO Michael Angelakis highlighted that 2012 film revenue rose 12 percent to $5.2 billion "driven by higher theatrical revenue from the strong box-office performance of Ted, The Lorax and Les Miserables, as well as higher home entertainment and content licensing revenue."