Studio writedowns rise as new rules take effect

Dreamworks, Mouse predicted to have charges

The tally of major movie studio writedowns continues to balloon, said AMB AMRO analyst David Londoner, predicting $4.8 billion in charges as the industry implements new accounting changes.

Some companies have taken the writedowns and others are still working them through.

The charges are one-time, noncash items and aren’t expected to significantly impact the stock prices of the studios’ parent companies.

In April, Londoner was looking for charges of $4.4 billion — double his initial predictions for an industry that collectively makes $2 billion tops in its best year, he said. He helped draft the new rules, which took 12 years to come to fruition.

During the past year, Sony took a giant writedown of $968 million, the biggest by far. Viacom’s Paramount took a $753 million hit, Time Warner’s Warner Bros. unveiled a $738 million charge and MGM wrote down $185 million.

Predicted writedowns

Still to come, Londoner estimates that DreamWorks will take a charge of $400 million, although the company is private and therefore doesn’t have to make that number public. He sees Walt Disney taking a writedown of $375 million in its December quarter, 20th Century Fox taking a hit of $740 million in its September quarter and Seagram’s Universal reporting a charge of $600 million for the same period.

The accounting changes were approved last spring and will make quarterly film earnings as reported appear more volatile. The biggest change is that advertising will be expensed as incurred from now on, not spread over the life of a film. That means studios won’t be able to smooth out heavy advertising costs when the timing of promotions and box office receipts don’t coincide.

Ad drag flagged

During most quarters, initial B.O. revenue will still help to offset ad spending. Big Fourth of July openings could be a problem, however, since the pics’ advertising would have to be expensed in June.

The new rules also call for print costs to be expensed immediately upon theatrical release in each territory.

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