Warner Bros.

FOUNDED: 1923

Contact Information:

HEADQUARTERS: 4000 Warner Blvd.
Burbank, CA 91522
PHONE: (818)954-6000
URL: http://www.warnerbros.com

OVERVIEW

Warner Bros., Inc. is a subsidiary of Time Warner Inc., the world's largest entertainment and information company. It accounted for about 11 percent of Time Warner's profits in 1997. Warner Bros. is a producer of films, television programs, and home video. Warner produces and finances its own films under the Warner Bros. name and also produces films with independent film producers, such as Castle Rock Entertainment, in which it is usually the main source of financing. Warner also distributes films produced by other companies, such as Morgan Creek Productions, Inc. Of the 28 motion picture films Warner expected to release in 1998, 14 were produced by others. Warner Brothers also produces and develops television shows, including ER and Friends, made-for-television movies, miniseries, and cartoons.

Warner Bros. is the world's leading supplier of television programming. Its vast library of television programming includes more than 6,000 feature films; 28,500 television titles; l0,000 cartoons; and l,500 classic cartoon shorts. It also distributes television programming to national networks, cable networks, and syndicated television as well as to international television distributors. Through Warner Home Video, the company distributes video cassettes and laser discs both domestically and internationally. Besides its movie and television business, it also operates Warner Bros. Studio Stores, which retails clothing and other consumer goods in numerous outlets both in the United States and overseas. The company also owns its own television network, The WB Television Network, which is carried by 97 stations nationwide. Warner's also was involved in the domestic theme park business until 1998, when it sold off its approximately 50-percent ownership stake in the Six Flags theme parks.

COMPANY FINANCES

In 1997 Warner Bros. Film Entertainment revenues were $5.46 billion, a decrease from its 1996 revenues of $5.64 billion. Its 1995 revenues were $5.07 billion. The WB Network had revenues of $136 billion in 1997, $87 billion in 1996, and $33 billion in 1995. Warner Bros.' market share slipped to third place in 1997, according to a New York Daily News story, while Variety, an industry trade magazine, claimed the company averaged the lowest gross per film of the six major studios in 1997. The magazine also said the company slid from second to fourth in market share, dipping 11.5 percent.

ANALYSTS' OPINIONS

Industry analysts have been especially critical of Warner Bros. for making "formula" films. Admittedly, beginning in the early 1980s, the company's strategy has been to produce lavishly expensive formula films with famous stars. For most of this period, this strategy worked, and so Warner saw no reason to change course. Unfortunately, however, Warner produced a number of films in the 1990s that lost the company millions of dollars, and analysts have been quick to accuse the company of refusing to change a formula that worked in the past but is not working now. Said Peter Bart of Variety magazine: "A decade ago, when the Warner machine started sputtering a bit, Daly and Semel [co-CEOs] themselves got impatient and decided to do some renovation of their extended family. They dropped a few producer deals and started signing actor-filmmakers like Eastwood, Costner and Mel Gibson." Bart went on to say that Warner's competitors, on the other hand, were signing up fresh faces to star in lower-cost productions that became big hits, while the films of the famous older stars were box office failures. Robert Bucksbaum, president of Reel Sources Inc., which advises theater chains, stated in the New York Daily News: "Semel and Daly banked on big talent and it didn't work."

HISTORY

Warner Bros. began as a motion picture studio in 1923 when four sons of immigrants—Harry, Albert, Samuel, and Jack Warner—founded the company as Warner Brothers Pictures, Inc. They had gotten their start in the movie business through theater ownership and had then moved into film distribution and production. Amid financial difficulties and stiff competition from other studios, Sam Warner invested in a new technology, Vita-phone, which incorporated sound into films. In 1927 the studio produced The Jazz Singer, the first talking film, which began a new era in motion picture making. Subsequent sound films established the company as a major force in the film industry.

Throughout the 1930s into the early 1950s—Hollywood's "Golden Age"—the studio produced about 100 films a year and was best known for producing low-cost, highly entertaining swashbucklers and adventure films. Some of its old films are now considered classics—such as The Maltese Falcon (1941), Casablanca (1942), and A Streetcar Named Desire (1951)—and starred famous actors such as James Cagney, Humphrey Bogart, Errol Flynn, Bette Davis, and Marlon Brando. During the 1930s Warner owned about 360 theaters nationwide and 400 overseas. The studio also produced cartoons that were shown before the featured film. The popularity of some cartoon characters such as Daffy Duck and Bugs Bunny endures to this day.

By the early 1970s the old studio system had ended and the company had expanded into television, book publishing, and music recording. In 1971 the company's name changed to Warner Brothers Inc. when it became a subsidiary of Warner Communications, and in 1989 it became part of Time Warner Inc., the world's largest media and entertainment company, when Warner Communications merged with Time Inc.

STRATEGY

In January 1998 the company appointed James R. Miller as president of worldwide theatrical business operations. His job is to primarily concentrate on creating co-financing agreements with independent filmmakers who have so successfully challenged Warner's expensive blockbuster films at the box office. Warner also continues to strengthen its position overseas. In December 1997 Warner and an Australian film distribution company made a production and distribution agreement to jointly finance 20 films that will be produced by the much smaller Australian company. In 1998 it also formed an agreement with a Spanish distribution company to distribute its films in Spain. In 1997 Warner announced that it would enter the action and adventure market with a new adventure program of its own. Analysts were quick to point out that the market for these kinds of programs is already very crowded, and most of these shows have low ratings.

INFLUENCES

Warner Bros.' weak financial position and lost market share in recent years has been attributed to a series of box office and creative flops. As film production costs and actors' fees skyrocket, a film must at the very least break even, and production companies can go bankrupt after losing millions on a single film. As a result, Warner Bros. and other companies often will partly finance films of other production companies or finance independent films in order to share financial risk. To minimize risk further, Warner Bros. has tended to make films that repeat past successes. Overseas audiences in particular seem to prefer action and adventure extravaganzas, and Warner Bros. has responded accordingly with films for that market. Much is at stake if the film fails at the box office. As one studio executive said in the February 1998 issue of Fortune, "The general atmosphere pervading the studios is no more that of a factory than it is of a creative human enterprise. Rather, it is that of the gamblers' den."

CURRENT TRENDS

Warner Bros. was in the vanguard of the digital technology revolution in 1995 when Warner Bros. Home Entertainment and Toshiba introduced the digital video disc, or DVD. The company sees DVD technology—with 15 times the storage capacity of audio CDs or CDROMs—as a way to break new ground in video distribution, and DVD was endorsed by several major electronics firms and film companies. In 1994, Warner Bros. joined The Walt Disney Co. in the overseas theme park business when it began construction of Warner Bros. Movie World, a regional theme park and studio complex in Germany, with another planned near London, England.

Warner Bros. and other large film production companies are experiencing a revival of the Hollywood studio lots where films have been made since the 1920s. Between the 1950s and late 1970s, many old studios began to decline because of falling box office receipts and preferences for location filming and greater realism. Some studios were sold outright, while others were largely dismantled. According to a 1998 Fortune article by Frank Rose, the Star Wars films heralded the return of big action adventure movies with spectacular special effects that could only be made in a studio. The studios began a renaissance in the 1980s, and in the 1990s studios that were once 40 percent vacant ran at full capacity. Between 1988 and 1996, 121,000 jobs were created in the Los Angeles entertainment industry.

Big movie companies are now part of large entertainment conglomerates such as Time Warner, which owns broadcast networks, record companies, magazine and book publishers, newspaper companies, and theater chains in addition to its filmmaking operations. Films have become the core business of media giants that view them as property to be exploited in a variety of ways. According to Rose, Warner Bros. has the largest studio in Hollywood with 34 sound stages on its studio lot, 7 more at the Warner Ranch, and 7 it took over from the old Goldwyn studios. Warner uses 85 percent of its facilities and rents the remainder to other production companies. Although overhead is high, Warner Bros. is confident that the studios will remain profitable. Says Warner facilities head Gary Credle: "All the studio lots are now profit centers; it's your factory, but your factory has to make money as well as your product."

PRODUCTS

In addition to suppling television programming, Warner Bros. is involved in the retail business. One division, Warner Bros. Toys, has launched its own line of toys based on Warner Bros. film, television, and animation properties such as "Superman" and "Batman and Robin," along with many of its famous older cartoon characters. Warner Bros. also has a line of sports clothing and accessories.

CORPORATE CITIZENSHIP

Warner Bros. is involved with several charitable causes. "Toys For Tots" was founded in 1948 by Col. Bill Hendrix, a longtime employee of Warner's motion picture marketing department, to distribute toys donated by various Warner divisions to needy children. The company is also allowing the use of one of its best known cartoon animation properties, the stammering Porky Pig, on a web site poster promoting tolerance and respect for diversity.

GLOBAL PRESENCE

Other retail ventures include the global Warner Bros. Studio Store outlets. First launched in Los Angeles in September 1991, by July 1995 there were 124 outlets worldwide. In 1993 a 30,000-square-foot flagship store opened in New York City, followed a few years later by stores in London, Berlin, and Glasgow, with future stores planned for Hong Kong, Singapore, Japan, Australia, and Canada. Some Asian operations were made possible through a joint venture with Daiei, Inc., Japan's largest retailer, and Warner will expand its franchise partnerships by similarly teaming with retailers in each of the other countries it enters. According to John Hau, chairman of Taiwanese partner Taishoe International, "Warner Bros. has revolutionized entertainment retailing. Consumers in Taiwan will be able to enjoy a unique shopping experience in a highly entertaining environment." Outlets were also planned for Indonesia, with a 10,000-square-foot flagship store in Jakarta. With the popularity of Warner Bros. cartoon characters in Asia, the company expected a great deal of success with this venture.

SOURCES OF INFORMATION

Bibliography

Bart, Peter. "Bad Luck Meets Bad Karma." New York Daily News, 24 November 1997.

Freeman, Michael. " Many Pieces of the Action: Warner, Universal, Rysher Mull New Entries to Crowded Genre." MEDIAWEEK, 24 November 1997.

"Full-Court Marketing Campaign."Discount Store News, 9 February 1998.

Hopewell, John. "WB Creates Spanish Axis." Variety, 5 January 1998.

Karon, Paul. "Warner Ups Miller to Biz Top Slot."Variety, 19 January 1998.

——. "WB, Village Ink Prod'n Pact." Variety, 15 December 1997.

Masters, Kim. "Alas, This Postman Doesn't Ring at All." Time, 19 January 1998.

Pulliam, Liz. "Warner Bros. Uses Porky Pig to Promote Tolerance." The Orange County Register, 13 June 1997.

Rose, Frank. "The Dream Factories Reborn." Fortune, 16 February 1998.

"Time Warner's Stock Rebounds Despite Woes of Warner Bros." Knight-Ridder/Tribune Business News, 5 December 1997.

Turner, Dan. "Warner Bros. Becomes Target of Cost Cutting." Los Angeles Business Journal, 17 March 1997.

"Warner Brothers." Britannica Online, January 1998. Available at http://www.eb.com:180/cgi-bin/g?DocF=micro/631/18.html.

Warner Bros. International Television Distribution Fact Sheet, April 1997.

For an annual report:

on the Internet at: http://www.sec.gov/edaux/formlynx.htm

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Warner Brother's primary SICs are:

2741 Misc. Publishing

4833 Television Broadcasting Stations

4841 Cable and other Pay TV Services

5399 Misc. General Merchandise Stores

7812 Motion Picture and Video Production

7822 Motion Picture and Tape Distribution