Crunch Time for Time Warner

But Bewkes is buoyant about the future. “When you look at the media business, not only is it healthy and has a good future, but it’s not even recovering from a problem,” Bewkes said, a few hours after Time Warner posted slightly better-than-expected third-quarter earnings. “There’s been a huge success in the United States over the last 20 years that’s been copied all over the world. And it is multichannel—used to be called cable—TV. Think of all those great inventions of special interest programming networks—MTV, Fox News, CNN, HBO—the overall pile of what used to be called cable networks which now we would call ‘branded multichannel.’ They’re on cable, they’re on satellite, they’re on telephone, they’re on WiFi, they’re on broadband. And whatever they’re on, they are growing in viewership, they are growing in the length of time during the day that people watch them, they’re growing in carriage fees, affiliate fees, and consumer subscriber fees, and they’re growing in advertising revenue and cost per thousand pricing.”

One reason for Bewkes’ rosy scenario is that viewers are looking for “branded networks with a point of view,” he argued. “So TNT is drama, TBS is comedy, MTV is young lifestyle and music, Discovery is nonfiction, CNN is broad journalistic fact-based news, and Fox and MSNBC have their own points of view. Those channels not only have a way to attract audiences who know what they’re looking for, they’re also launching original shows where the success rate and therefore the economics of the shows are better. Because the network has a personality, it increases the likelihood that the show matches the network’s audience—as compared to broadcast networks which show multi-genre, broad mass-reach programs which more often than not don’t work.”

A second reason that “branded networks” are on the rise is “the dual revenue stream that comes from affiliate fees plus advertising,” Bewkes said.

He’s far less sanguine about free TV—a dinosaur awaiting a meteor strike.

“The broadcast networks have fewer people watching, for shorter times of day, lower and declining ratings; they have reducing revenue from advertising, they have declining programming budgets and lower earnings, so they have fewer of the scripted shows than they used to have. So therefore their business model is becoming increasingly not viable. If you look at broadcast networks, which are the only ones in TV that have ‘free’ aspect, if they don’t get some form of carriage fee, they may not survive.”

Bewkes has been toiling to transform Time Warner into a pure content company—spinning off its capital-intensive distribution arm, Time Warner Cable, to focus on strengthening a core business that includes Warner Bros. movie and television production studios, an array of profitable cable networks, especially HBO, and a troubled magazine publishing division. It’s not surprising that Bewkes casts a jaundiced eye at the efforts of Comcast (the nation’s largest cable system) to buy NBC Universal (a broadcast network, a couple of cable networks, a movie studio and a theme park). “We love to see our competitors taking risks,” Bewkes quipped at a media conference recently. In the last year he’s been at pains to dismiss press speculation that Time Warner would seriously consider taking NBC Universal off General Electric’s hands.

“There’s not a lot of synergy,” Bewkes said when I asked about a hypothetical merger between a major cable distributor and a collection of broadcast and cable outlets. (He wouldn't comment directly on Comcast/NBC Universal.) “Would the economics of either the cable distributor or of the networks—whether they’re broadcast networks or cable networks—be improved by the ownership of one together with the other? The answer is no.”