Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Crazy Stocks

The Strange World of Time Warner

We all know that the entertainment business is supposed to be weird. Well, now one entertainment company has taken strangeness to a whole new level. Time Warner (NYSE: TWX), a mashed up conglomerate that owns everything from DC Comics to the Warner Brothers movie studio is laying off hundreds of employees at a time when its revenues are rising to record highs.

On Sept. 30, 2014, Time Warner reported a TTM revenue of $31.51 billion; that’s a $3.76 billion increase over September 2013, when Time Warner reported a TTM revenue of $27.75 billion. So it looks like Time Warner is doing great and making money. Perhaps it should be expanding its operations.

Yet less than a week later, Time Warner announced a massive round of layoffs. It eliminated 800 jobs, or nearly 10% of the workforce, at Warner Brothers alone. Around 300 jobs are on the chopping block at CNN, one of Time Warner’s flagship networks.

Profits and Lay Offs: The Time Warner Story

This is occurring at a company that reported a profit margin of 15.49% and a free cash flow of $522 million just a week before the layoffs—a company that also reported a net income of $4.092 billion.

I might also add, a company that operates in a very profitable and growing industry. On September 30, 2014, the Walt Disney Company (NYSE: DIS) reported a TTM revenue figure of $48.81—a $3.77 billion increase over September 2013, when it reported a TTM revenue figure of $45.04 billion.

One would think if you’ve got a business model that’s making money, why change it? Obviously that kind of advanced thinking is beyond the people in the entertainment business. It looks as if Time Warner is making a lot of money with the resources it has, so it is getting rid of them.

Now, if that wasn’t insane enough, Time Warner has set its sights on expansion. The company is considering spending $588 million on a money-losing Australian broadcast operation called the Ten Network (AX: TEN). The Ten is the lowest rated of Australia’s three broadcast networks, and it reported a net loss of $144.42 million last year because of slumping revenues and rising costs.

One would think Time Warner would be expanding its streaming video presence, much like CBS, or developing new programming it can sell through Netflix or Sony. Yet it is not.

Time Warner, it appears, is completely insane. Here is a profitable company in a great position to cash in on the growing streaming video market, and it is expanding its broadcast holdings. The Ten Network will do little or nothing for Time Warner besides help it lose a lot of money.

Particularly bothersome is the way that Time Warner is slashing its production resources at a time when Netflix (NASDAQ: NFLX) is willing to pay $2 million an episode for the rights to an NBC series. That sounds like a good time to ramp up production and start making new shows that video streamers might be interested in.


Time Warner’s vast trove of pop culture, which includes DC Comics superheroes, and Warner Brothers’ vast library of films probably contain many properties that could potentially be made into addictive series. Yet Time Warner isn’t paying attention.

Welcome to Bizarro World

After looking at Time Warner, I have to see the inherent wisdom in the old advice to “not put money in show business.” The industry, or at least some of those in it, appears to be absolutely insane. One has to wonder what the geniuses at Time Warner are going to do next.


The best way to describe Time Warner I can think of is a slang term from an old DC Comic: Bizarro World. In back issues of Superman, Bizarro World was another planet where everybody and everything was an insane and substandard imitation of something on Earth. Time Warner seems to be an insane and substandard imitation of an entertainment conglomerate whose leaders don’t seem to be smart enough to realize that they are actually making money.