Why Time Warner rules the cloudAugust 8, 2011
To some, Time Warner CEO Jeff Bewkes might appear to be a foe of Web distribution.
Remember, he was the guy who last year compared Netflix with the Albanian army–the view that the popular company would remake film distribution was a little like saying the tiny country’s army would conquer the world. Time Warner has also made it clear Netflix subscribers won’t be streaming episodes of HBO hit shows, such as "True Blood" or "The Sopranos," anytime soon…
Because Time Warner, one of the world’s largest and powerful media companies, owns HBO, Bewkes is now in a position to have some say about how the cloud develops. The cloud, the term used to describe performing computing chores through third-party servers instead of on a PC, is supposed to be how we will soon enjoy home video. But for years HBO has owned exclusive electronic-distribution rights for three of the six major Hollywood studios.
For these studios to deliver movies via the cloud, they need HBO’s say so.
HBO and Time Warner say the cloud is good for the film industry. For months, HBO has held talks about allowing others to stream video within its exclusive distribution window. But the negotiations drag on.
The lack of an agreement is holding up cloud services from Apple (read today’s update on Apple negotiations here) and the launch of UltraViolet, say film industry sources. Developed with the help of five of the top studios (except Disney), UltraViolet is the cloud video platform designed to allow the viewing, storage, and playback of movies on numerous cloud services and on a multitude of devices.
To some, Bewkes is just another old-media executive standing in the way of progress, and there’s no doubt that he’s a hardliner when it comes to trying to maintain relationships with traditional distribution outlets. His record on digital distribution, however, is more nuanced.
Last week, Bewkes said following his company’s second-quarter earnings report that Time Warner’s film studio, Warner Bros., will release its first movievia UltraViolet, "Green Lantern," sometime in the fall. That’s good news because it obviously indicates Bewkes thinks a deal to relax HBO’s window will be done by then. Over at HBO, the company developed a Web-streaming service and an iPhone and Android app that have proven popular with users and critics. One of the most popular features is that HBO Go users can access every episode of "The Sopranos," "Sex in the City," "True Blood," and nearly every other show in its library.
CNN, the all-news network Time Warner acquired in 1996, began offering live streaming last month, and New York-based Time Warner is reportedly working on creating tablet editions for all its magazines, which include "Sports Illustrated," "People," and "Fortune."
Lessons from AOL Time Warner
But if Bewkes isn’t giving in to Internet services, and if he’s still requires people to pay cable subscriptions to access HBO content, and if he’s still not supplying Netflix with the latest Warner Bros. hit movies, it’s because he believes his content is valuable regardless of the medium over which it’s distributed.
Bewkes may have developed some skepticism about the idea that content is less important than the technology that moves it around because he’s heard this before. In 2000, when Bewkes was HBO’s CEO and while he was bankrolling and helping to develop hit shows, Time Warner’s then management was allowing itself to be acquired by AOL. The deal was jaw dropping in that it meant a largely untested tech firm was gobbling up a much more established and larger media company.
The combined company, which became AOL Time Warner, was led by Chairman Steve Case and CEO Gerald Levin. They believed that much of the value in the new company would be found in content distribution, specifically through AOL and Time Warner Cable.
The strategy was a miserable failure and investors took a bath. AOL Time Warner was once valued at over $270 billion and a few months after the deal closed it was down to $80 billion. A big part of that was due to the bursting of the Internet bubble, but the company struggled to realize its strategy. One of the main issues was that Time Warner owned distribution services which put it into competition with other important distribution partners. Bewkes never bought in.
In 2009, a year after becoming Time Warner’s CEO, Bewkes unloaded AOL and Time Warner Cable and put all his chips on the company’s content.
Bewkes rallied investors and tried to show them that the company was sitting atop a huge treasure trove of content: magazine, news, television and film. He did this even while Internet distributors such as Google and Netflix, appeared to be siphoning off the value of that content by bundling it up and offering for far less money than traditional outlets.
Now things appear to be working out for Bewkes. Time Warner said last week that second-quarter revenue rose 10 percent from the same quarter a year ago to $7.03 billion, outpacing analysts’ expectations of $6.82 billion. Profits climbed to $638 million, up from $562 million in the year-ago period.
The company continues to face plenty of challenges: DVD sales are still dropping and people are still seeking out Netflix. But certainly, a statement you’ll never hear around Columbus Circle is "Bring back Jerry Levin and Steve Case."