February 29, 2008 / 12:16 AM / in 11 years

Time Warner puts New Line Cinema under Warner Bros

NEW YORK (Reuters) - New Line Cinema, the studio behind “The Lord of the Rings” and “Hairspray,” will be folded under the wing of Warner Bros Entertainment as part of an aggressive plan by parent Time Warner Inc TWX.N to cut costs.

The highly anticipated move, announced on Thursday, ends New Line’s 40 years as an independent film studio with Co-Chairmen and Co-Chief Executives Robert Shaye and Michael Lynne electing to leave.

Time Warner said the two executives are in talks “about possible future business relationships with the company.”

“We are moving quickly to improve our business performance and financial returns,” Time Warner President and CEO Jeff Bewkes said in a statement.

It was not immediately clear how many of New Line’s approximate 600 employees would lose their jobs, Bewkes said in an internal memo to staff.

“Given the trend toward fewer movie releases, New Line and Warner Bros will now have more complementary release slates, with New Line focusing on genres that have been its strength.”

Once an indie film studio, New Line has become more mainstream in recent years, with blockbuster hits such as the “Lord of the Ring” franchise, or the “Austin Powers” trilogy. That transition has made New Line more like Warner Bros, making a merger in the cards for Time Warner.

The decision to combine the studios came after Time Warner said earlier in February it wanted to cut costs at New Line and review its structure as an independent studio.

The New York-headquartered media conglomerate, which also owns CNN, HBO and Time Inc, is under pressure to revive its stock price, which has lagged peers such as News Corp NWSa.N or Walt Disney Co (DIS.N) over the past 12 months.

Bewkes, who took over as CEO in January, has said few options to improving Time Warner’s fortunes were off the table, including possibly selling off its stake in cable and splitting up its AOL Internet division.

“With the cost pressures the studios faced, Warner Bros has been one of the less profitable of the other studios. Something dramatic had to be done,” said Tuna Amobi, an analyst at Standard & Poor’s. “It didn’t make sense to have another studio pursue big budget films.”

Time Warner said New Line will become a unit of Warner Bros and maintain separate development, production, marketing and distribution operations. But New Line will coordinate those functions with Warner Bros to cut costs and boost margins.

Bewkes said New Line could make use of Warner Bros’ global distribution network to boost overseas box office receipts and the combined entertainment unit can take better advantage of digital distribution channels.

Amobi said the potential cost savings could boost cash flow margins by at least 2 percentage points.

Time Warner shares closed down 3.09 percent, or 51 cents, at $16.02 on the New York Stock Exchange before the statement, and were unchanged in extended trading.

Writing by Tiffany Wu, editing by Phil Berlowitz, Richard Chang

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