Last year, when Rupert Murdoch’s 21st Century Fox launched an $80 billion hostile takeover bid for Time Warner Inc., chairman and CEO Jeff Bewkes had a simple response: We can do better on our own.
So far, Bewkes and his team have delivered on all counts. In November, Time Warner stock surpassed Murdoch’s $85-per-share bid and, as of Dec. 15, has outperformed every other company in the programming sector, up 22% for the year.
Time Warner didn’t get to this point by making any big acquisitions, nor did Bewkes feel as if the company needed to do so. But his moves to streamline and focus the media behemoth over the past several years have literally changed the game and the landscape for Time Warner and other programmers.
Time Warner’s spinoff of AOL and Time Warner Cable in 2009 and its spin of magazine publisher Time Inc. in 2014 helped transform the parent into a pure-play content company. The move focused Time Warner on its core assets — Warner Bros., the world’s largest movie studio; Turner Broadcasting System, home of iconic channels like TNT, TBS, and CNN; and production arm Warner Bros. Television Group, which has churned out hits for cable and broadcast networks alike.
A revamp of Turner — including laying off about 1,500 workers — is expected to lead the programming juggernaut headfirst into the world of original programming, doubling its content budget to $1 billion by 2018. Bewkes also has embraced technology and new business models — HBO is slated to launch its over-the-top product early next year.
But Bewkes, Multichannel News’s 2014 Executive of the Year, is at heart a cheerleader for the industry to which he has devoted the bulk of his business life. An early proponent of the TV Everywhere concept, the Time Warner chief sees ubiquitous on-demand content available to every subscriber everywhere, on any device and at any time as essential to the future of the industry. And he is willing to put his own content and business on the line to get there.
“It’s time to invest, and we’re going to put our money where our mouth is,” Bewkes said during a recent interview with editor in chief Mark Robichaux and senior finance editor Mike Farrell in his office in the Time Warner Center in New York. An edited transcript follows.
MCN: As you look over the year, a lot of things have happened. How do you think you’ve come out on the other side?
Jeff Bewkes: It was a good year.
MCN: You sound like Frank Sinatra.
JB: It was a very good year. We’ve grown the company 25% a year in terms of earnings per share growth over the last six years. And then [there are] the future prospects of the company. That comes from two things — one is the tremendous buoyancy, health and growth of the television industry globally, essentially the explosion of video and how good it is and how much people like to watch it. And the second is, Time Warner now has the most focused company in terms of video, and we have the biggest scale and the most momentum creatively and financially.
That’s why when we look out and we say we’re [estimating] $4 per share of earnings this year; close to $6 in two years and $8 in 2018 — doubling the earnings of the company — put that together with our position in the video business and add it to our track record, and that’s why it shouldn’t be a surprise to anybody that the stock is already in the [$80 range].
We’ve publicly said [that] our growth is going to go up dramatically in the next few years even from these levels.
MCN: But do you think you need a big, game-changing transaction?
JB: No, no. Obviously we don’t. Look at what we’ve done. We’ve given very detailed projections of our business at Warner Bros., at Turner, at HBO, at CNN for the next five years. Clearly, we have gotten to a place that is very advantageous in terms of being focused on the video business that we think is such a great opportunity and having the biggest scale in the business already.
Let’s just go through Time Warner. We have the biggest film studio in the world by slate and distribution. We have the most extensive slate of franchises going out for five years, I think, than any film company has ever put forward.
The other equally large piece of Warner Bros., it’s also the world’s biggest producer of television series and it’s the biggest supplier to all broadcast networks in the United States. And we have the leading supplier relationship with Fox, CBS, NBC and ABC. We’re their No. 1 partner outside of their own production entities.
MCN: Some people might say that Jeff Bewkes hasn’t made a big, game-changing acquisition.
JB: I disagree with the premise. We’ve done numerous game-changing transactions. How about game-changing divestitures? We divested the biggest distribution company that anybody has ever divested and we got the biggest increase in value both at Time Warner Cable and at Time Warner [Inc.].
And by the way, you don’t need a merger from Time Warner Cable to Comcast to get to that value. That company on its own — before the Comcast merger, whether it goes through or not — is the highest gain in stock value of any distribution company in the last six years. Time Warner has itself the highest gain in earnings, in terms of compound growth, and the highest increase in stock value of any large media company as well. So that’s a game-changer.
We took AOL, put it out, and AOL stands very well in terms of how it’s done when it was on its own. Time Inc., the publishing company, is now the world’s biggest independent, publicly traded publishing company. We think it’s in a great position, the stock has done very well, the earnings are on track. So we think those are all game-changers.
I think the idea that the bold things you can do in media come from mergers is wrong. I think the bold thing to do in media is build companies. We have done it by inventing CNN, inventing HBO, inventing TBS, TNT. In the last 10 years, we invented the most successful network [for] 18-34 [year-olds] in the United States, Adult Swim. It’s a huge creative breakthrough network. It’s got the leading numbers among the group. It’s a lot more important that we invented Adult Swim than had we bought The Weather Channel or some other acquisition. I think to focus on acquisitions as though it takes boldness; it doesn’t take boldness to do acquisitions. That’s ridiculous to say that.
MCN: Right now in the industry, there is a debate as to whether we are in a cyclical downturn in ratings because of various factors like technology and measurement, or if are we on the precipice of a big, long decline in TV ratings.
JB: Well, in general, the answer to what will happen in ratings for all of the cable networks depends on what they do. And that’s two things — one is, how good and engaging is the programming, and two, is the programming offered on-demand in a way where the audience, including the younger audience, gets to see what they want and have the control over it so they can see their favorite show on their favorite device, in the time and in the place they want to see it?
It’s not that they [audiences] don’t like the programming that’s on USA and TNT and all the cable channels, it’s that they want it delivered on-demand on a device and method and interface that they can use easily.
We’ve been saying this for a long time, and you can see it in the numbers right now. If you take [TNT’s] The Last Ship, a show that premiered this summer and was a pretty good hit at Turner, and you look at the ratings in subsequent video-on-demand plays, [the ratings are] like two to three times the audience of the first play.
If you look at Game of Thrones or some of the big shows on HBO, you have three-quarters of the audience on VOD. If you look at all the shows and the viewing on subscription VOD broadband-delivered platforms like Amazon and Netflix, most of that viewing is for shows that were on some cable network or broadcast network.
MCN: The networks can’t monetize that as well as TV ratings.
JB: But the point here is … is there some secular increase or decline in the viewing of this television program? And the answer is, it’s going up, not down. If the viewing is going to VOD on broadband it’s still that programming. There is still the interest in that programming. The question is, where is the VOD programming — is it on Hulu Plus, is it on Netflix, where is it?
The answer for every entity out there, whether it’s Netflix or TNT, is it has to be on-demand and it has to have an interface where you can find it and you can use it on whichever device you choose to use it on.
So this is Multichannel News. It couldn’t be the better place for people whose lives have been devoted to this. The important thing is that the programming, all the shows that all of our multichannel companies are making, have never been more popular; they have never had a bigger opportunity in front of them, not just in America but all over the world.
And the thing that has to get done is, it all has to go on-demand. And it has to go on-demand with an interface that can help you, as a viewer, understand and stay attached to the network that brings you your favorite show.
MCN: You were forced to make some painful cuts at Turner. Are you happy with what’s going on there now?
JB: I am happy with all of it. I’m glad you asked that. We put in new management at every one of our companies, whether it’s Richard [Plepler] at HBO or Kevin [Tsujihara] at Warner’s or John [Martin] at Turner. They’ve all known each other for many years. They have all liked each other for many years, they’ve worked together cooperatively for a long, long time. I’ve known all of them for 20 years, and I know how they work, how they work with each other. We have a company now that likes working together, that knows which things they ought to do together and which things they should not.
MCN: HBO made some headlines a few months ago with the announcement of their over-the-top-product, which will be launched with the help of your distribution partners. Does that dilute your control?
JB: What we’re going to do is try to help our distribution partners, but we don’t view that as putting a constraint on us.
We’ve got to find ways to offer HBO — which has always been an a la carte, individual choice — and we want to make it available to all the households. Let’s start with the United States. We don’t want to undermine our current distribution arrangement. We don’t think that is necessary; we don’t think it’s in the interest of consumers to undermine that.
But if we go for a more vigorous offering of HBO, which essentially tries to make HBO video-on-demand, the most powerful version of HBO, available with the best interface to every household in the United States, that doesn’t have to undermine distributors. It’s actually the most powerful marketing bid they can have to further make their video plant and their broadband plant more sustainable and more profitable.
We’re just trying to get everyone to be more robust in doing it and we said very clearly when we announced this change, the real attention should go to the 70 million basic-only subs. They are very strong supporters of the 100-plus channel package.
And from what we can see, looking at all kinds of research, there’s about 15 million at least of the 70 million who are exactly the same in terms of their interest, their geographic location, everything about what they do, they ought to have HBO; they’re natural subscribers for it. They either haven’t been offered it in a way that they’ve found reasonable or they were offered it in a way that was hard to understand, they couldn’t sign up, it had all those things attached to it. And we’re saying look, you ought to offer it to these people because there is a profit in doing that. That’s where the biggest opportunity is.
Now the idea that because they also can get HBO, that maybe they’re going to disconnect the hundreds of channels that they have obviously decided to buy? I don’t think so.
MCN: It makes you wonder if there’s not a natural ceiling on these over-the-top services.
JB: There is not that much indication that there’s a dissatisfaction out in the population with the basic-cable bundle. In fact, it’s a very successful thing. And if you go around the world, not just the United States, you see the same thing. You see ever-higher trends of penetration of multichannel packages.
Everybody wonders, is that somehow going to get impinged on by some over-the-top or broadband thing? That’s not the question. Is it going to be impinged on by video-on-demand if they don’t offer it? And the answer is, what people want is VOD. And they want VOD on the device that they choose.
MCN: And yet a lot of them don’t know that they’ve got that right. How would you rate the industry’s efforts on that front?
JB: It takes no boldness to go merge some company with another company and when the merger is done, nothing has changed. What would take a little boldness is for networks to go out, get the rights and offer their channels on-demand. That would take a little vision and foresight for distributors to take those VOD products that have been offered and make them available to and market them reasonably and put some effort behind it.
MCN: Is TV Everywhere happening fast enough in the industry?
JB: No, obviously, it’s not happening fast enough. It’s really necessary that it happens faster and that the interfaces get better. Every distributor ought to be harnessing multiple sources of consumer interfaces. And I know that the legitimate concern is that somehow the providers, let’s say they’re tech companies that give assistance on these interfaces, might somehow find a way to get into some unholy position with regard to the distributor’s rightful relationship with the customer. But come on, there ought to be a way to do this.
MCN: Do you have an official line on the Comcast-Time Warner Cable merger?
JB: If the theory is that more and more video viewers and video content are going to go over broadband, and its currently 10%, as soon as it goes to 20%, it just fully puts traffic on every road and now you’ve got to tack down the broadband system.
How is that broadband plant going to continue to have capital investment for the capacity and the interface that needs to deliver what the consumers are going to demand? It’s got to continue to have competition, returns, capital investment, in order to do that job. And that’s the context in which you have to look at the regulatory review of not just that merger, but everything else, whether it’s net-neutrality policy or all these things.
Consumers ought to have a choice that’s a realistic choice of broadband and video providers. It ought to be a robust set of choices. And that competition ought to be in a way where that industry has enough returns to get the capital to build the 21st century infrastructure that the United States needs to have.
MCN: Some see recent over-the-top offerings as a way for operators to finally break the programming bundle …
JB: From a consumer point of view, consumers don’t want to be offered a set of video channels that is designed by virtue of what channels are owned by [this] company versus [that] company. They want to be offered channels that make sense to them.
When you are offered a bundle of channels that have fewer channels than the larger bundle, are you saving money somehow by doing that? Usually the answer is no.
When you go to us, our channels — TNT, TBS, CNN, Turner Classic Movies, HBO, Cinemax, truTV, Adult Swim — they are all must-carry channels. They are all channels of great interest in very important genres that consumers like. We don’t have any marginal channels. Nor are we planning to put a sub bundle of channels we happen to own into distribution, broadband-only. We don’t see how that’s necessary.
The bundle is a great deal and consumers like it because your wife and your kid and you all like different channels that are in the bundle. And the economics of having all of them there are better than what the economics will be for you as a viewer if you had a subset.
The possible question that might be an exception to that is the sports part, because it’s quite expensive for a highly concentrated part of the bundle that we all know some of the viewers don’t watch.
MCN: What’s the likelihood of that happening?
JB: I don’t know. We’ve got some great and powerful sports, [the] NCAA [men’s college basketball tournament], NBA and MLB, on our Turner channels. We think they perform well on our channels — the ratings are better when they’re on our channels than some of the other channels that they appear on. We have not made any of our channels full sports channels. You wouldn’t say CBS or NBC are sports channels, although you had a decent component of sports on [those] channels.
The takeaway is, consumer demand for video is going up all over the world, not just in the United States. And the reason that’s important is there’s a fair amount of the consumer demand for that video finds its way to the U.S. and English-language production. We have a lot of not-U.S.-produced and not-English language production too. That’s a growth area for us.
But it’s just a very good thing to see a demand for TV and video. It then leads to more resources — money, talent, producers, directors, writers, actors — into that field of TV production to make ever better stuff. We’ve all seen it. You can see it every night on TV. And then third, which is great and somehow we’ve all turned it into a problem, having that ever-better programming be available on video-on-demand makes it that much more powerful and it gives you that much more opportunity to make even more distinctive programming.
MCN: I think there’s a recognition that this is the golden age of television.
JB: It really is. The quality is there. Think of the profitability of all the TV network companies. They are all great, they’re all healthy. That means investment continues, the talent coming in continues, the technological developments are making it much more powerful with VOD and mobile access. That’s all good.
And the economics, once we create the VOD platform for the industry, the economics are fantastic because it’s all fixed cost and with an industry that’s got 90% penetration of its basic product.
This is all good and everybody ought to just remember that. It’s time to invest and we’re going to put our money where our mouth is.
