ANNUAL REPORT 2014 Annual R eport 2014

Transcription

1 ANNUAL REPORT 2014

2 Fueled by the passion, dedication, and ingenuity of our employees, we re working every day to tell the world s best stories and help shape the future of media.

3 A Message from the Chairman and CEO Time Warner has a rich history of both extraordinary creativity and business-model innovation, and 2014 was another great year for both, which led to strong financial performance and returns for our shareholders. In many ways, 2014 was a milestone year for us. We spun off our publishing business, completing our transition to a company solely focused on creating and distributing the best video content across television, film, and new platforms; successfully managed an unsolicited takeover offer that was not in our shareholders best interests; and ushered in a new era for our industries when in mid-october we announced our intention to introduce a stand-alone, broadband-delivered version of HBO. Although the pace of change in our businesses is dramatic, I ve never been more confident about the strength of our lead position in an increasingly, and inevitably, on-demand world. As the new Time Warner, we are today more nimble, collaborative, and with a new generation of leadership in place at our divisions focused on sustained success. Financially, 2014 was a stellar year for us. We increased Adjusted Earnings Per Share by a robust 18% the sixth consecutive year of at least high teens growth. We also grew Free Cash Flow by 12%, which allowed us to return $6.6 billion to shareholders through dividends and share repurchases over the course of the year. All that translated into the strong performance of our stock and total shareholder returns at the very top of our industry in Continuing our commitment to direct returns to shareholders, we raised our dividend in 2015 by 10%, marking the sixth consecutive year of double-digit increases. And as we said at our investor event last October, we believe we can continue to deliver very attractive growth in the years to come. In a world of exploding media choices and technologies for consumers, that performance is a testament to the leadership position of our operating businesses Warner Bros., Turner Broadcasting, and Home Box Office. Fueled by the passion, dedication, and ingenuity of our employees, we re working every day to tell the world s best stories and to help shape the future of media. And as our company and industries evolve, we continue to adhere to the strategy that has guided us so well: Investing in, and being home to, the best content Leading in digital innovation Expanding our international presence Operating and allocating capital efficiently The following pages give you more details and highlights on how we ve successfully translated this strategy into actions across our company, and I encourage you to take a look. The greatest source of my confidence in our future is the caliber and integrity of Time Warner s people, who make our company the preferred home for the very best talent and ideas. In addition to passion and commitment to our business goals, we also share a common culture in which our employees care deeply about the communities where we work and live, and strive to make a positive impact on them and indeed the world. And, as an employer, we remain committed to fostering a workforce that reflects our global audience and allows distinct and diverse voices to flourish. So on behalf of all of us at Time Warner, I want to thank you for the confidence and trust you place in us. Jeff Bewkes Chairman and CEO 1

4 The Home For Great Content The Best in Entertainment, Sports, Kids, and News Turner Broadcasting System, Inc. is a leader in worldwide news, entertainment, sports, and kids networks and related businesses. Turner is home to leading cable television networks and brands including CNN, TNT, TBS, Cartoon Network, Adult Swim, Boomerang, trutv, and Turner Sports. In addition to its cable networks, Turner operates and manages digital sports properties, including BleacherReport.com, NBA.com, NCAA. com, and PGA.com. Turner s broad portfolio of brands and digital businesses reaches consumers in more than 200 countries around the world. In 2014, TBS, TNT, and Adult Swim claimed three of the top 10 spots on domestic ad-supported cable in primetime among adults TBS was the #2 ad-supported cable network in primetime among adults and in 2014, and TNT was home to six of the top 15 original series on ad-supported cable more than any other network including the three most-watched new shows on cable in The Last Ship, The Librarians, and Murder in the First. These hits represent only the first phase of Turner s commitment to double its investment in original series over the next few years. And building on its momentum, Turner continues to elevate its must-have lineup of programming across its brands and genres. In sports, Turner extended its content partnership with the NBA through the season, kicked off its new agreement to air Major League Baseball regular season and post-season games through the season, and brought the NCAA Men s Basketball Elite 8 and Final Four to cable for the first time ever. In 2014, Adult Swim continued to attract the largest audiences of young adults in total day of any ad-supported cable network, including the top two new shows among adults 18-34: Attack on Titan and Black Jesus. And in a year when most kids networks saw audience declines, Cartoon Network grew its kids 6-11 audience and has carried that momentum into In news, CNN demonstrated how Turner s commitment to bringing distinct programming to broad audiences can work. Building on its status as the place the world turns for authoritative news coverage and an expanding lineup of original nonfiction series, documentaries, and special programming, CNN grew its 2014 primetime ratings in the U.S. in adults and achieved an average total day monthly reach of almost 77 million total viewers, the largest cumulative audience of any cable news network. For more on Turner s digital and international activities, see pages In a fast-changing media landscape, Turner s powerful brands and must-have programming continue to lead the way, and the best is yet to come. John K. Martin, Jr., Turner Chairman and CEO 2 Time Warner Annual Report

5 NBA on TNT CONAN, Teen Titans Go!, Black Jesus Anderson Cooper 360, The Librarians The Last Ship, Murder in the First Turner 3

6 The Home for Great Content The World s Most Successful Premium Television Company With its HBO and Cinemax services, Home Box Office, Inc. is at the vanguard of creating and delivering groundbreaking original programming and hit Hollywood films to consumers worldwide across a wide range of platforms and offerings. Home Box Office is the global leader among all premium subscription video businesses whether measured by subscribers, revenue, or profits. That success is built on its long-standing tradition of being home to the best video content, including top Hollywood films, acclaimed original programming, and special events, combined with innovating ways for viewers to access it. In 2014, HBO saw its highest domestic subscriber gains in more than three decades. HBO programming earned 19 Primetime Emmy Awards, the most of any network for the 13 th year in a row. Also, Game of Thrones became the most-watched HBO original series ever surpassing The Sopranos and True Detective, which earned five Emmys, was HBO s most-watched freshman series ever. Citizenfour and Crisis Hotline: Veterans Press 1 won the 2015 Academy Awards for Documentary Feature and Documentary Short Subject, respectively. HBO s sister channel Cinemax also continued to invest in innovative original programming, including Steven Soderbergh s critically acclaimed drama The Knick. To maintain the strength of its position, HBO is investing to increase its content advantage. In 2015, that includes the return of Game of Thrones, True Detective, VEEP, The Leftovers, and Silicon Valley, as well as new series including: Togetherness from Jay and Mark Duplass; Ballers from producer Mark Wahlberg and starring Dwayne The Rock Johnson; and The Brink, starring Jack Black, Tim Robbins, and Pablo Schreiber. Home Box Office is also expanding its leadership in offering subscribers more ways to enjoy its great programming through HBO GO and MAX GO, which give multichannel subscribers access to its library on demand from a wide variety of devices. And in April 2015, the stand-alone streaming service HBO NOW debuted, opening up HBO to a new, untapped audience in the U.S. For more on Home Box Office s digital and international activities, see pages This is a dynamic time for HBO, and the opportunities in front of us are unprecedented. Richard Plepler, Home Box Office Chairman and CEO 4 Time Warner Annual Report

7 Game of Thrones The Knick Last Week Tonight with John Oliver, Ballers Bessie, HBO Boxing VEEP 5

8 The Home for Great Content The Global Leader in Entertainment Warner Bros. stands at the forefront of the entertainment industry with businesses in feature films, television, home entertainment, videogames, and consumer products. Warner Bros. has entertained and captivated the world during its storied 90-plus-year history, and 2014 was no exception. Warner Bros. feature films crossed the $4 billion mark in worldwide box office for the sixth time, led by blockbusters including The LEGO Movie and The Hobbit: The Battle of the Five Armies. And American Sniper was the highestgrossing domestic film released in Warner Bros. Television Group continued to lead the industry with more than 60 series produced for the television season, including the leading scripted show, The Big Bang Theory, and top nonscripted show, The Voice. And Warner Bros. again led the home entertainment industry in sales of DVDs and Blu-ray Discs while trailblazing new business models that have helped make digital ownership of content more compelling for consumers. Looking ahead, Warner Bros. plans to build even further on its industry-leading positions as it taps into the growing global demand for content. Working with the world s best talent, Warner Bros. Pictures' and New Line Cinema s pipeline includes the most ambitious slate of tentpole films in their history. Next year s Batman v Superman: Dawn of Justice and Suicide Squad launch a slate of at least 10 films based on IP from the revered DC Entertainment (DCE) library. A series of films marking J.K. Rowling s screenwriting debut that are inspired by her Harry Potter Hogwarts textbook, Fantastic Beasts and Where to Find Them, are also in the pipeline. The smash success of last year s The LEGO Movie will be followed by at least three related releases over the next three years, including a sequel and LEGO Batman. In television this year, Warner Bros. is further mining the rich DCE lineup of characters that fueled two of 2014 s biggest hits Gotham and The Flash. DCE, as well as LEGO, are also key drivers of Warner Bros. videogames business, including last year s release of LEGO Batman 3: Beyond Gotham is expected to be a record year for Warner Bros. Interactive Entertainment, with the final installment of the Batman Arkham trilogy, Mortal Kombat X, several new mobile games, and the planned launch of LEGO Dimensions, combining physical and virtual play in the popular toys-to-life category. Warner Bros. is also deepening its strong relationships with Turner and HBO. The studio is forging a global kids partnership with Turner that will encompass programming and consumer products, and Warner Bros. is producing its second series for HBO, the upcoming Westworld, following the success of last year s The Leftovers. For more on Warner Bros. digital and international activities, see pages The demand for high-quality video content is growing rapidly all around the world, as new technologies have created new platforms and millions of new connected consumers. The opportunity is huge, and no studio is better positioned than Warner Bros. to take advantage of it. Kevin Tsujihara, Warner Bros. Chairman and CEO 6 Time Warner Annual Report

9 The LEGO Movie Videogame, American Sniper, Vacation The Big Bang Theory, The Flash, Gotham Batman v Superman: Dawn of Justice, The Leftovers, The Ellen DeGeneres Show 7

10 Digital Leadership Innovating New Business Models to Fuel Growth Time Warner has a proud tradition of driving innovation in the media and entertainment industry everything from releasing the first motion picture with sound nearly 90 years ago to leading the way with advanced digital video services. CONTENT EVERYWHERE We re executing our TV Everywhere (TVE) strategy to enhance the value of traditional pay-tv subscriptions by making access to our networks content available on multiple devices via an Internet connection. HBO GO is the TVE gold standard, offering on-demand access to HBO s rich catalog. Last year, Turner expanded live streaming so all its major networks are now available to authenticated subscribers, started to make stacking rights available, allowing binge viewing for some of its biggest hits, and expanded its digital rights under its new content partnership with the NBA. CNN also introduced CNNgo, a next-generation product that gives viewers unprecedented control over their TV news experience, melding live simulcast with access to additional CNN content. The Warner Bros.-backed UltraViolet (UV) initiative continued to gain traction in 2014 with more than 21 million users worldwide at year end, up more than 40% from the previous year. As of December 31, 2014, there were 110 million movies and TV shows in people s UV collections, which contributed to electronic sell-through (EST) revenue growth of 40% at Warner Bros. for the year. 8 Time Warner Annual Report

11 OUTSIDE THE TRADITIONAL TV ECOSYSTEM Last year, HBO announced, and in April 2015 launched, its highly anticipated domestic over-the-top (OTT) service, HBO NOW. Outside the U.S., HBO Nordic, HBO s first OTT offering, saw strong subscriber growth in And building on its experience in the Nordics, HBO plans to launch OTT services in additional international territories. HBO and Turner s channels are available on Sling TV and Turner channels are also available on Sony s PlayStation VUE, offering new bundles of programming directly to consumers via a broadband connection. Warner Bros. is partnering with Tencent in China s Hollywood VIP streaming service, and in early 2015 it launched an OTT service in Southeast Asia with Singtel and Sony Pictures Television. In content creation, Warner Bros. in 2014 announced the formation of Blue Ribbon Content, a short-form digital series production unit. And Warner Bros., Turner, and HBO each had subscription video-on-demand (SVOD) agreements with distributors such as Amazon and Hulu in 2014, finding new outlets for their content. I ve never been more confident about the strength of our lead position in an increasingly, and inevitably, on-demand world. Jeff Bewkes, Time Warner Chairman and CEO DIGITAL BRANDS CNN continued to see strong growth in usage across its digital platforms, posting another record year in average monthly video streams and was the #2 online news site in 2014, far ahead of its cable news network peers. In 2014, Bleacher Report passed Yahoo to become the #2 digital multi-platform destination in the U.S. for sports. Within Warner Bros., TMZ cemented its reputation for buzz and breaking news online while also providing the basis for the successful syndicated television show, and Rotten Tomatoes remains a leader in film reviews and news. Warner Bros. is also an investor in Machinima, the video and gaming-focused digital service. Venture INVESTMENTS The Time Warner Investments group targets new opportunities in early- to mid-stage companies that generate strategic value for Time Warner s businesses. The group has a strong track record and a forward-thinking strategy that helps ignite innovation by investing in companies that develop business partnerships with Time Warner's divisions. As of April 2015, recent investments include Epoxy, Krux, Mashable, We Heart It, and YieldMo. 9

12 International Focus Extending our Global Reach Time Warner is home to some of the few truly global names in entertainment and media Warner Bros., CNN, HBO, and Cartoon Network among them and we use our scale advantage to continue to extend our reach across geographic and technological boundaries. In 2014, international revenues represented approximately one-third of Time Warner s overall revenues. We continued to emphasize investments in territories with attractive growth profiles and, as a result, have a particularly strong position in Latin America. Warner Bros. is Time Warner s biggest international business, generating approximately half of its revenues outside the United States in Last year, Warner Bros. films grossed a record $3.2 billion at the international box office, making it the only studio to surpass the $3 billion mark twice. Warner Bros. licenses its feature film and television programming to international television networks and other outlets in more than 175 countries, appearing in more than 60 languages. In 2014, Warner Bros. released 29 locallanguage films that it either produced or acquired from other companies. And with Warner Bros. emphasis on tentpole productions, worldwide hits from 2014 such as The Hobbit: The Battle of the Five Armies, 300: Rise of an Empire, and Godzilla generated more box office revenue abroad than in the U.S. In television, the growth of its local-language production businesses, most recently through the Eyeworks acquisition, gives Warner Bros. production capabilities in 16 countries outside the U.S. as well as a new pipeline for programming that can be sold all over the world. Turner s broad portfolio of brands and digital businesses reaches consumers in more than 30 languages in more than 200 countries, and Turner operates more than 165 channels globally. It is the largest global multichannel network provider in Latin America. Turner recently bolstered that position by acquiring Esporte Interativo, a Brazilian television channel that airs sports programming, including programming from South American and European soccer leagues, the UEFA Champions League among them. CNN International further expanded its footprint in March 2015 by launching a free-to-air news channel in the Philippines in partnership with Nine Media. And going forward, Turner is building out the Cartoon Network and Boomerang brands around the world, including in a new global programming and consumer products partnership with Warner Bros. Among premium television brands, HBO is the worldwide leader in subscription services, with premium-pay and basic-tier television services distributed in more than 60 countries. HBO also licenses programming in more than 150 countries, including arrangements that are branded as the Home of HBO in markets such as the UK, Australia, France, Germany, and Israel, and as HBO Canada in Canada. HBO also has a growing subscriber base at HBO Nordic, its first OTT offering. Ben 10 Ultimate Challenge Asia, Malaysia The Voice UK CNN Philippines Sr. Ávila, Mexico 10 Time Warner Annual Report

13 Oh!K, Malaysia Adam Looking for Eve, Germany Medcezir The O.C., Turkey 11

14 FINANCial DISCipline 2014 Financial Highlights 1 Adjusted EPS rose 18% to $4.15, the sixth consecutive year of at least high teens growth Total Revenues of $27.4 Billion By Division Posted Adjusted Operating Income of $5.8 billion in 2014 and grew Adjusted Operating Income at a 6% CAGR since % warner bros. 19% hbo 38% turner Free Cash Flow grew 12% to $3.5 billion By Geographic Region Latin Other America Asia Pacific Rim 6% 3% 6% 17% europe 68% u.s. 1 See page 116 for reconciliations of non-gaap financial measures to the most directly comparable GAAP measures and other information. 12 Time Warner Annual Report

15 We are delivering strong returns to our shareholders Total Shareholder Returns Time Warner S&P % 162.5% 105.1% 74.6% 13.7% 30.0% 1-YR 3-YR 5-YR 13

16 Board of Directors & Management Time Warner Board of Directors Time Warner Senior Corporate Executives Jeffrey L. Bewkes Chairman of the Board and CEO, Time Warner Inc. James L. Barksdale Chairman and President, Barksdale Management Corporation William P. Barr Former Attorney General of the United States Stephen F. Bollenbach Former Co-Chairman and CEO, Hilton Hotels Corporation Robert C. Clark Distinguished Service Professor, Harvard University Mathias Döpfner Chairman and CEO, Axel Springer SE Jessica P. Einhorn Former Dean, Paul H. Nitze School of Advanced International Studies (SAIS), The Johns Hopkins University Carlos M. Gutierrez Chair, Albright Stonebridge Group Fred Hassan Partner and Managing Director, Warburg Pincus LLC Kenneth J. Novack Former Partner, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC Paul D. Wachter Founder and CEO, Main Street Advisors, Inc. Jeffrey L. Bewkes Chairman of the Board and CEO Howard M. Averill Executive Vice President and Chief Financial Officer Paul T. Cappuccio Executive Vice President and General Counsel Gary L. Ginsberg Executive Vice President, Corporate Marketing and Communications Karen Magee Executive Vice President and Chief Human Resources Officer Carol A. Melton Executive Vice President, Global Public Policy Olaf Olafsson Executive Vice President, International and Corporate Strategy Time Warner Senior Operating Executives John K. Martin, Jr. Chairman and CEO, Turner Broadcasting System, Inc. Kevin Tsujihara Chairman and CEO, Warner Bros. Entertainment Inc. Richard Plepler Chairman and CEO, Home Box Office, Inc. Deborah C. Wright Senior Fellow in the Economic Opportunity and Assets Division at the Ford Foundation, and Non-Executive Chairman, Carver Bancorp, Inc. 14 Time Warner Annual Report

17 INDEX TO COMPANY INFORMATION Company Description... 3 Risk Factors Management s Discussion and Analysis of Results of Operations and Financial Condition Consolidated Financial Statements: Consolidated Balance Sheet Consolidated Statement of Operations Consolidated Statement of Comprehensive Income Consolidated Statement of Cash Flows Consolidated Statement of Equity Notes to Consolidated Financial Statements Management s Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm Selected Financial Information Quarterly Financial Information Comparison of Cumulative Total Returns Financial Highlights Reconciliations and Other Information Page 1

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19 COMPANY DESCRIPTION Time Warner Inc. (the Company or Time Warner ), a Delaware corporation, is a leading media and entertainment company. The Company classifies its businesses into the following three reportable segments: Turner, consisting principally of cable networks and digital media properties; Home Box Office, consisting principally of premium pay television services domestically and premium pay and basic tier television services internationally; and Warner Bros., consisting principally of television, feature film, home video and videogame production and distribution. For more information about the Company s reportable segments, see Management s Discussion and Analysis of Results of Operations and Financial Condition Overview. At December 31, 2014, the Company had a total of approximately 25,600 employees. On June 6, 2014, the Company completed the legal and structural separation of Time Inc. from the Company (the Time Separation ). With the completion of the Time Separation, the Company disposed of the Time Inc. segment in its entirety. See Management s Discussion and Analysis of Results of Operations and Financial Condition for additional information. BUSINESSES Turner Turner Broadcasting System, Inc. ( Turner ) owns and operates a leading portfolio of domestic and international cable television networks and related properties that offer entertainment, sports, kids and news programming on television and digital platforms for consumers around the world. Turner operates more than 165 channels globally. In the U.S., its networks and related properties include TNT, TBS, Adult Swim, trutv, Turner Classic Movies, Turner Sports, Cartoon Network, Boomerang, CNN and HLN. Outside the U.S., Turner s broad portfolio of brands and digital businesses reaches consumers in more than 200 countries. Turner s programming is distributed by cable system operators, satellite service distributors, telephone companies and other distributors (known as affiliates) and is available to subscribers of the affiliates for viewing (i) on television and (ii) via streaming online and on mobile devices and on demand on television through Turner s digital properties and services provided by affiliates. Some of Turner s programming is also available through SVOD services. Turner has been expanding the amount of programming available to subscribers on demand on television and digital properties to include complete current seasons of popular programming from Turner s portfolio of networks. As of December 31, 2014, Turner s programming was available on demand and for streaming to approximately 87 million U.S. television households that subscribed to multichannel video services. Turner generates revenues principally from fees received from affiliates that distribute Turner s programming to subscribers, the sale of advertising on its networks and the digital properties it owns or manages for other companies and the license of its original programming to SVOD services and its brands and characters for consumer products. Turner is continuing to increase its scale and strengthen its competitive position internationally through strategic regional channel launches, partnerships and acquisitions in key territories. In addition, Turner is placing greater emphasis on creating local programming to strengthen its brands internationally. Historically, Turner has managed its international entertainment and kids networks separately from its domestic networks, but it is transitioning its kids businesses to a more globally managed operation, similar to its news business. Turner s digital properties consist of its own websites and websites that Turner manages and/or operates for others. Turner s CNN digital network is a leading digital news destination, and Turner s Bleacher Report is the number two digital sports destination, in each case, based on the number of average monthly domestic multi-platform unique visitors for 3

20 the year ended December 31, Turner s Bleacher Report provides team-specific sports content and real-time event coverage and provides Turner cross platform programming and marketing opportunities. Turner s other websites include tntdrama.com, TBS.com, adultswim.com and cartoonnetwork.com. Digital properties that Turner manages and/or operates for others include NBA.com (which provides live streaming of games), NCAA.com, NCAA March Madness Live (which provides live and on-demand streaming video of games), and PGA.com. Turner s digital properties collectively averaged approximately 124 million average monthly domestic multi-platform unique visitors during the year ended December 31, Domestic Entertainment Turner s domestic entertainment networks collectively provide a blend of original series, acquired series and movies, sports, classic film and reality programming. For the year ended December 31, 2014, Turner s TNT and TBS were two of the top five primetime advertising-supported cable networks among adults in the U.S., and Adult Swim was the top total day advertising-supported cable network among adults in the U.S. Turner is focused on optimizing the mix of original series and acquired programming on its domestic entertainment networks to strengthen its brands with its audiences, advertisers and affiliates. In addition, Turner is investing in distinctive original programming for its TNT, TBS and trutv networks that will appeal to younger audiences. Turner also plans to increase the amount of original programming on TNT and TBS over the next several years. Ownership of a larger portion of its content will enable Turner to take advantage of increasing licensing opportunities for that content and distribute the content across international territories. TNT focuses on drama and is home to syndicated series and a growing roster of original series (including unscripted series), as well as sports and network premiere motion pictures. For the season, TNT s returning original series include Cold Justice, Falling Skies, Major Crimes and Rizzoli & Isles, and its new original series include The Last Ship, Legends, The Librarians, Murder in the First, On the Menu, Proof, Public Morals, Transporter: The Series and Wake Up Call. For the season, TNT s syndicated series include Bones, Castle and Grimm. TBS focuses on contemporary comedies, as well as a growing roster of original series, sports and acquired television series and motion pictures. For the season, TBS returning original series include American Dad!, Deal With It and King of the Nerds, and its new original series include Angie Tribeca, Buzzy s and Your Family or Mine. Syndicated series for the season include The Big Bang Theory, Family Guy and The Office. TBS is also the home of the late night talk show Conan. Adult Swim is an evening and overnight block of programming airing on Turner s Cartoon Network. Adult Swim targets young adults and offers original and syndicated animated and live-action comedy programming. For the season, Adult Swim s original series include Aqua Teen Hunger Force, Black Jesus, Childrens Hospital, The Eric Andre Show, The Jack and Triumph Show, Mike Tyson Mysteries, Rick & Morty and Squidbillies. trutv focuses on entertainment programming targeted to adults with the tag line Way More Fun. For the season, trutv s returning original series include Hardcore Pawn, Impractical Jokers, South Beach Tow and trutv Top Funniest, and its new original series include Barmageddon, The Carbonaro Effect, Fake Off, Friends of the People, Hack My Life, Hair Jacked and How to Be a Grown Up. Turner Classic Movies is a commercial-free network that presents classic films from some of the largest film libraries in the world. Turner Classic Movies also offers interviews, original documentaries, specials and regular programming events that include The Essentials, 31 Days of Oscar and Summer Under the Stars. International Entertainment Outside the U.S., Turner owns and/or operates regional entertainment networks providing a variety of programming, such as motion pictures and series, documentaries, fashion and lifestyle content, music videos, sports and travel. In Latin America, Turner is the number one provider of multichannel television in the region, and it owns and operates regional entertainment networks, including Esporte Interativo, Glitz*, HTV, I-Sat, Infinito, MuchMusic and Space. Turner also owns and operates Chilevisión, a free-to-air television broadcaster in Chile. Turner also operates several regional entertainment networks in 4

21 Europe and the Middle East, including TCM, TNT and TNT Glitz. In Asia, Turner operates several regional entertainment networks, including TCM, trutv, HBO Basic, WarnerTV and WB in India, Oh!K in Singapore, and MondoTV and Tabi Channel in Japan. Sports Turner Sports produces award-winning sports programming and content for Turner s TNT, TBS and trutv networks and related digital properties. Turner s sports programming helps drive value across its networks in the form of higher affiliate fees, ratings, advertising and promotional opportunities. Turner s sports programming features licensed programming from the National Basketball Association ( NBA ) through the season, Major League Baseball ( MLB ) through 2021, The National Collegiate Athletic Association for the Men s Division I Basketball Tournament through 2024, and the Professional Golfers Association ( PGA ) through NBA games and PGA tournaments air on the TNT network, and MLB games air on the TBS network. Turner also operates NBA TV, an advertising-supported cable network owned by the NBA that features NBA exhibition, regular season and playoff games and related programming. The NCAA Men s Division I Basketball Tournament games air on the TNT, TBS and trutv networks and on the CBS network under an agreement among Turner, CBS Broadcasting, Inc. and the NCAA. Turner s networks carried the NCAA Final Four semifinal games in 2015 and, in 2016, Turner s networks will carry the NCAA Final Four semifinal games and championship game. After 2016, Turner s networks and CBS will carry the NCAA Final Four semifinal games and championship game in alternate years. Kids Cartoon Network and Boomerang offer original, acquired and classic animated and live-action entertainment targeted at kids in the U.S. and in international territories. Turner plans to significantly expand its global kids business, increase its collaboration with Warner Bros. on television programming that is based on Warner Bros. brands and characters (such as DC Entertainment and Looney Tunes) and grow its consumer products business. As part of that initiative, for the season, Boomerang will offer both classic Warner Bros. animation programming and exclusive new original content. Cartoon Network offers original and syndicated animated and live-action series and motion pictures for youth and families. For the season, Cartoon Network s original animated series include Adventure Time, The Amazing World of Gumball, Clarence, Steven Universe, Teen Titans Go! and Uncle Grandpa. Boomerang offers classic animated entertainment from the Warner Bros., Hanna-Barbera, MGM and Cartoon Network libraries, such as The Flintstones, The Jetsons, Pink Panther, Tom and Jerry and Yogi Bear, and for the season will offer exclusive new original series, such as Inspector Gadget and Mr. Bean. In 2014, Boomerang began airing advertising for the first time in the U.S. and some international territories, with plans to air advertising in its other international territories in Turner s kids business is a key part of its international operations, and Cartoon Network is the number one kids network in several territories outside the U.S. Turner s kids networks outside the U.S. include Cartoon Network, Boomerang and Tooncast in Latin America; BOING, Boomerang, Cartoon Network and Cartoonito in Europe and the Middle East; and Boomerang, Cartoon Network, POGO and Toonami in Asia. News CNN is the original cable television news service. As of December 31, 2014, CNN managed 40 news bureaus and editorial operations, 31 of which are located outside the U.S. Turner is focused on maintaining CNN s leadership in worldwide breaking-news and political coverage while broadening the scope of its programming to include compelling storytelling about important events, people and places through original programming and long-form documentaries. CNN s original programming for the season includes Anthony Bourdain: Parts Unknown; Inside Man, hosted by documentary filmmaker Morgan Spurlock; Somebody s Gotta Do It, hosted by Mike Rowe; and This is Life with Lisa Ling. CNN plans to increase the amount of original programming on CNN over time. For the season, CNN s other programs include Anderson Cooper 360 o, New Day, and The Situation Room. For the year ended December 31, 2014, CNN.com had 39 million average monthly domestic unique visitors. In September 2014, CNN expanded its multi-platform capabilities with the nationwide rollout of CNNGo, which allows subscribers to watch CNN s news and original programming live and on demand. 5

22 Internationally, CNN is the most widely distributed news network reaching almost 300 million households outside the U.S. as of December 31, CNN Worldwide is a portfolio of more than 20 news and information services across cable, satellite, radio, wireless devices and the Internet in more than 200 countries as of December 31, HLN is a CNN Worldwide network that focuses on news, information, videos and other content curated from multiple social media platforms. For the season, HLN s programs include Dr. Drew On Call, Morning Express with Robin Meade and Nancy Grace. Home Box Office Home Box Office, Inc. ( Home Box Office ) owns and operates leading multichannel premium pay television services, HBO and Cinemax. Its businesses consist principally of premium pay television services domestically and premium pay and basic tier television services internationally, a domestic and an international stand-alone streaming service, as well as home entertainment and content licensing. At December 31, 2014, Home Box Office had approximately 138 million worldwide subscribers, which consisted of approximately 46 million domestic premium pay subscribers and approximately 92 million international premium pay and basic tier television service subscribers through international unconsolidated joint ventures. Home Box Office Programming HBO s domestic original programming features award-winning and critically acclaimed dramatic and comedy series, such as Game of Thrones, Girls, Last Week Tonight with John Oliver, The Leftovers, Silicon Valley, True Detective and VEEP, as well as HBO films and mini-series, such as The Normal Heart and Olive Kitteridge, boxing matches and other sports programming, documentaries and comedy and music specials. The quality and diversity of HBO s original programming differentiates HBO from other premium pay television services, basic television networks and SVOD services and enhances the value of the HBO brand both domestically and internationally. This programming also continues to build the value of Home Box Office s content library while increasing the value of HBO across its businesses. Home Box Office continues to expand HBO s roster of original series and to work closely with Warner Bros. on original programming. Home Box Office premiered new series True Detective in January 2014, Silicon Valley in April 2014 and The Leftovers (produced by Warner Bros.) in June Home Box Office premiered its new series Togetherness in January 2015 and plans to premiere three additional new series, Ballers, The Brink and Westworld (produced by Warner Bros.), later in In recent years, Cinemax has begun investing in original programming to enhance its brand. Cinemax s original primetime series in 2014 included Banshee and The Knick. In 2015 Cinemax will air new seasons of these shows and the final season of Strike Back. A significant portion of the programming on the domestic HBO and Cinemax services consists of uncut and uncensored feature films, including recently-released feature films. Due to the importance of feature films to HBO and Cinemax subscribers, Home Box Office has long-term licensing agreements of varying duration with major film studios, including Warner Bros., Twentieth Century Fox, Universal Pictures and Summit Entertainment, and independent producers and distributors. More than half of the top 25 feature films theatrically released in 2014 (as determined based on domestic box office receipts) will be exhibited exclusively on the HBO and Cinemax premium pay television services during the applicable license periods. Home Box Office also licenses older films from a number of major studios and independent distributors. Outside the U.S., a substantial portion of the programming on Home Box Office s premium pay and basic tier television services consists of feature films licensed from major studios in the U.S. Home Box Office also licenses older films from a number of major U.S. studios and other domestic and international independent distributors. In addition to films, the content offerings on these international programming services may feature licensed HBO- and Cinemax-branded television programming, local language original programming and/or U.S. television programming produced by other production studios. Home Box Office s Business and Revenues Domestic Services Home Box Office generates revenues principally from providing its programming to domestic affiliates under long-term arrangements that provide for annual service fee increases and have fees that are generally related to the number of the 6

23 affiliates subscribers who subscribe to the HBO and Cinemax services. At December 31, 2014, Home Box Office was the most widely distributed domestic multi-channel premium pay television service. Subscribers can view HBO and Cinemax programming on an HBO or Cinemax multiplex television channel and whenever they want through Home Box Office s on demand services, HBO On Demand and Cinemax On Demand. HBO and Cinemax subscribers also have unlimited access to programming through the HBO GO and MAX GO streaming video-on-demand platforms, which enable subscribers to watch programming whenever they want on a variety of digital platforms, including various mobile devices, gaming consoles and Internet streaming devices and connected televisions. The programming on HBO GO and MAX GO includes most seasons of HBO s and Cinemax s original series, as well as feature films, HBO mini-series and films, sports programming, documentaries, comedy and music specials, bonus features and behind-the-scenes extras. In April 2015, Home Box Office launched HBO NOW, a premium stand-alone streaming service, in the U.S. to target homes that do not subscribe to HBO, including those homes that do not subscribe to a multichannel video service. Customers can subscribe to HBO NOW for a monthly fee. Subscribers to HBO NOW can view Home Box Office programming, including HBO s original series, feature films, HBO mini-series and films, sports programming, documentaries, comedy and music specials, on a variety of digital platforms, including connected televisions. International Services Outside the U.S., Home Box Office generates revenues primarily from providing programming to international affiliates under agreements that vary from country to country. Home Box Office tailors the distribution of its programming for each territory using one or more of the following distribution models: (i) unique, country-specific, HBO- and Cinemax-branded premium pay and basic tier television services distributed in over 60 countries in Latin America, Asia and Europe by international affiliates to the affiliates customers who subscribe to the HBO and Cinemax services, (ii) the distribution of original programming via licenses to international television networks and SVOD services and through sales of DVDs, Blu-ray Discs and EST, and (iii) direct-to-consumer streaming services (available in the Nordic region as of December 31, 2014). HBO premium pay television subscribers in several countries also have unlimited access to programming through HBO GO, and Home Box Office plans to make HBO GO available to HBO premium pay television subscribers in additional countries and territories in Effective January 2015, Home Box Office transferred the operation and certain contracts of an HBO-branded basic tier television service in India to Turner. The service, which had approximately 15.8 million subscribers at December 31, 2014, will continue to use the HBO brand under Turner s operation. As a result, for periods after December 31, 2014, the subscribers of this service are no longer included as Home Box Office subscribers. Home Entertainment and Content Licensing Home Box Office also generates revenues from the exploitation of its original programming through multiple other distribution outlets. Home Box Office s original programming is sold via DVDs, Blu-ray Discs and EST in the U.S. and various international regions through a wide variety of digital storefronts. Significant home entertainment releases in 2014 included Game of Thrones: The Complete Third Season, True Detective: The Complete First Season and True Blood: The Complete Sixth Season, The Complete Seventh Season and The Complete Series. In 2014, Home Box Office licensed for the first time some of its programming to the Amazon Prime SVOD service. Home Box Office also licenses programs to television networks and SVOD services in over 150 countries, including arrangements under which it licenses programming to television networks that are branded as the Home of HBO in countries such as the U.K., Australia, France, Germany and Israel and as HBO Canada in Canada. In January 2015, Home Box Office also began licensing some of its current original series and library content to an SVOD service in China. Warner Bros. Warner Bros. Entertainment Inc. ( Warner Bros. ) is the largest television and film studio in the world based on total studio revenues as of December 31, Its businesses consist principally of the production, distribution and licensing of television programming and feature films and the distribution of digital and physical home entertainment products, as well as the production and distribution of videogames and consumer product and brand licensing. 7

24 In television, Warner Bros. has been the leading producer of primetime series for U.S. broadcast networks for 11 of the last 12 television seasons. For the 2014/2015 television season, Warner Bros. is producing over 60 television series in the U.S., including over 30 series for U.S. broadcast networks. In addition, Warner Bros. licenses its U.S. programming in other countries around the world and is also focused on expanding its international television production business through its global network of wholly-owned local production companies in 16 international territories. In film, Warner Bros. has been the #1 or #2 film studio in domestic box office receipts for 9 of the past 11 years and the #1 or #2 film studio in global box office receipts for 10 of the last 11 years. In 2014, Warner Bros. films generated over $4 billion at the global box office for the sixth year in a row. In October 2014, Warner Bros. announced an expansion of its film slate built around Warner Bros. strongest global franchises. Warner Bros. is focusing on increasing the digital sales and rentals of its film and television content and is a leader in a variety of digital initiatives designed to make digital ownership more compelling for consumers, including UltraViolet. In addition, Warner Bros. has led the home entertainment industry in sales of DVDs and Blu-ray Discs for 18 years. At December 31, 2014, Warner Bros. vast content library consists of more than 75,000 hours of programming, including over 7,000 feature films and 5,000 television programs comprised of tens of thousands of individual episodes. Warner Bros. is focused on maximizing across all of its businesses the value of its portfolio of leading brands and characters. These brands include DC Entertainment s brands (DC Comics, Vertigo and MAD Magazine) as well as the Looney Tunes and Hanna-Barbera brands. DC Comics characters include such iconic characters as Batman, the Flash, Green Arrow, Superman and Wonder Woman. Warner Bros. other characters include Harry Potter, Bugs Bunny, Scooby-Doo and Tom and Jerry, among many others. Warner Bros. television and film businesses also benefit from a shared infrastructure, including shared production, distribution, marketing and administrative functions and resources. Warner Bros. has developed strong global franchise properties from its portfolio of brands and characters, including film franchises such as the Batman and Harry Potter series and The Hobbit and The Lord of the Rings trilogies, and it is focused on extending its existing global film franchises and expanding the brands and characters from its film franchises and its leading portfolio of brands and characters across all its businesses. For example, during the television season, five series based on DC Entertainment characters (including Arrow, The Flash and Gotham) are airing on broadcast television, and in 2014 Warner Bros. announced the release of at least 10 films from 2016 through 2020 that are based on the DC Entertainment universe of characters, including Aquaman, Batman v Superman: Dawn of Justice, The Flash, Green Lantern, Justice League Part One, Shazam, Suicide Squad and Wonder Woman. In addition, in 2014, Warner Bros. extended its successful LEGO relationship to feature films with the release of The LEGO Movie, the first of several planned LEGO-branded films, and it released the third LEGO Batman videogame, LEGO Batman 3: Beyond Gotham. Also in 2014, Warner Bros. announced the release of three films from 2016 through 2020 in partnership with J.K. Rowling and inspired by Harry Potter s Hogwart s textbook, Fantastic Beasts and Where to Find Them, that build on Warner Bros. successful Harry Potter film franchise. Warner Bros. is also focused on creating new global film franchises. Television Warner Bros. is a leader in the television production and distribution business. Warner Bros. is focused on maintaining its leadership position in producing primetime series for the U.S. broadcast networks (including The CW broadcast network ( The CW )) while expanding and diversifying its production slate across new buyers and genres. This includes increasing production for basic cable networks (including expanding its collaboration with Turner), premium pay television services (including HBO), and SVOD services. Warner Bros. also plans to expand its international local television production business. Warner Bros. is actively collaborating with Turner as Turner and Warner Bros. move to significantly expand their global kids businesses and maximize the related consumer product opportunities. Warner Bros. is providing Turner with more animation programming based on Warner Bros. intellectual property (such as DC Entertainment and Looney Tunes) to obtain broader global exposure for existing franchises and develop a platform to launch new franchises. 8