Warner Bros. Confirms Cuts in 2nd Stage of Time Warner Slimdown

Updated from 10:19 a.m. EDT to include further details in sixth paragraph. 

NEW YORK (TheStreet) -- Warner Brothers, Time Warner's  (TWX)  movies and home entertainment branch, confirmed it was cutting jobs, a little over a week since voluntary buyouts began to be rolled out at the parent company's Turner Broadcasting arm.

In a memo to employees Thursday evening, Warner Brothers CEO Kevin Tsujihara conceded that, as rumored, job cuts were to be executed across the studio.

"We are constantly reviewing our global businesses to make sure we're operating as efficiently and effectively as possible," Tsujihara wrote in the memo obtained by TheStreet. "We are doing our best to minimize staff reductions. However, and it pains me to say this, positions will be eliminated -- at every level -- across the Studio."

Tsujihara, head of the unit since March 2013, did not share how many employees would be affected nor whether layoffs would be concentrated at any of its three arms (home entertainment, motion pictures and television). The Burbank, Calif.-based unit employs around 8,000 people.

Time Warner CEO Jeff Bewkes has been under pressure to prove the company is financially robust in its independence after rejecting an $80 billion bid from Rupert Murdoch's 21st Century Fox (FOXA) in mid-July (an offer Fox then withdrew).

Plans to implement layoffs have been in the works for over a year though Fox's bid expedited the process, a source familiar with the matter who spoke under request of anonymity told TheStreet. 

Time Warner's Turner Broadcasting announced plans to offer buyouts to 500 to 600 employees, or around 6% of its unit, last week. The unit, which houses networks CNN and TNT, said if buyouts were not taken voluntarily, layoffs would follow. The CNN property was recently valued at $5 billion after Fox assessed its sale to avoid antitrust issues in the bid for Time Warner (given Fox owns cable news network Fox News).

Both Time Warner's Turner and Warner Brothers branches have faced a profit squeeze, symptomatic of broader pressures affecting the respective industries. The former has suffered lower ratings and higher programming costs, while Warner Brothers scavenged for box office dollars over a weaker-than-expected summer.

The studio's releases experienced mixed reception -- while Godzilla ranked as the seventh-highest-grossing domestic film of the season, Edge of Tomorrow bombed in North America with nearly $100 million in ticket sales and was unable to cover the $178 million in production costs.

Even without these latest efforts, profitability has been improving overall. Over the six months to June 30, Warner Brothers' operating income jumped 35.8% from the same period a year earlier, while gross margins improved 210 basis points to 10%. The increase was due to growth in home entertainment, particularly the success of The LEGO Movie and The Hobbit: The Desolation of Smaug.

In its Turner Broadcasting segments, profits rose 9.8%, while gross margins increased to 34% from 32.7%. TNT and TBS ranked as ad-supported cable's No.1 and No. 3 network, respectively, among adults aged 18 to 49.

--Written by Keris Alison Lahiff in New York.

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