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Time Warner CEO: Electronic More Profitable Than DVD

17 Sep, 2008 By: Erik Gruenwedel

Time Warner Time Warner president and CEO Jeff Bewkes Sept. 17 said the media company would continue to pursue digital distribution, which he said offered more “opportunities than challenges.”

Speaking at a Goldman Sachs investor conference in New York, Bewkes — a longtime proponent of digital video-on-demand (VOD) on cable and the Internet — for the first time said electronic sellthrough was 30% to 40% more profitable than DVD sales.

Warner Bros. has aggressively marketed new releases on DVD day-and-date with cable VOD, including Time Warner Cable. The studio and others are conducting ongoing tests with cable operators to determine VOD’s effect on DVD sellthrough.

Peter Chernin, president and COO of News Corp., parent of 20th Century Fox, has heretofore expressed reluctance to commit titles to electronic sellthrough the same day as DVD.

Bewkes said an electronic sellthrough title generates $13 to $14 in studio contribution compared to about $10 for DVD. He said the return was even better with rental, where studio contribution ranged from $2.80 to $3 for electronic compared to 75 cents to 80 cents for DVD rental.

“That is a pretty good trade,” Bewkes said.

Edward Woo, media analyst with Wedbush Morgan Securities in Los Angeles, said Time Warner’s apparent willingness to discount packaged media underscored confusion about margin percentage and margin dollars.

Woo cited music sales where digital distribution and margins significantly eclipsed CD sales but not margin dollars because consumers now only buy select songs instead of an entire album.

“[Bewkes] is right about margin percentage being higher on digital, but margin dollars are higher on a DVD purchase,” Woo said.

Bewkes said additional benefits of making product available across multiple formats and distribution channels (ad-supported streams, VOD, DVD, theatrical, etc.) involved circumventing piracy and file sharing, which he said had “essentially flattened out” in the past 18 months.

The executive said despite the emergence of video file sharing in 2001, DVD sales have continued to rise in the U.S. Increased consumer appetite for high-definition content has also rendered camcorder versions of movies non-competitive, according to Bewkes.

“Legitimate companies throughout the distribution channel make the product available on time, at a good price, in a good format [and] in a different way: rent, buy or watch with ads,” he said. “That is going to be the answer and it is pretty well on the way.”



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