Earlier this month, the trailer for “The Hobbit: The Desolation of Smaug” was released, prepping audiences for its December release. As the second film in the trilogy, “Desolation of Smaug” is expected to build upon the success of the first installment, which grossed $1.02 billion worldwide.
Before the release of the first installment, Time Warner Inc. held a conference call with analysts, discussing the costs of financing and developing strategies. The prequel will be released more than a decade after the original “Lord of the Rings” trilogy hit theaters – partially because of legal and practical complications, but primarily because of the franchise’s complex financing.
According to Chief Financial Officer John K. Martin, much if not most of the money to produce the movies has already been spent. However, with director Peter Jackson filming additional scenes this summer for the last two films, additional funds may have to be dispersed. CFO Martin explained that as far as revenue is concerned, Time Warner is looking to recoup its costs beyond the theatrical run of the films. In other words, instead of relying solely on box office figures, the studio is banking on strong performance from home video and other non-theater releases.
CFO John K. Martin said that a lot of the benefits “will come in over time,” adding that it won’t be until the latter half of 2013 (and beyond) that the financial benefits of the first installment will be realized. Part one, “The Hobbit: An Unexpected Journey,” was released in December 2012.
Time Warner’s strategy of long-term planning, and its ability to look beyond immediate success, is a reminder of the goals all CFOs are responsible for setting. Some of these goals include:
- Financial clarity and sustainability. Aside from creating long-term financial goals, CFOs must be clear about their various profit streams, and about how revenue goals can be accomplished. Martin did this by stressing the importance of the home release and products associated with the film. Clarity is the key to increased profit.
- Partner considerations. New Line Cinema and Metro Goldwyn Mayer have partnered with Time Warner to produce “The Hobbit.” Similarly, CFOs must specifically consider seasoned partners and predict how these business relationships impact resources, revenue, and other financial and legal considerations.