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Time Warner COO: Industry Should Adopt Same-Day VOD, DVD

1 Aug, 2007 By: Erik Gruenwedel

Jeff Bewkes, president and COO of Time Warner Inc., said studios should embrace same-day DVD and VOD releases, calling it a good trade for the industry and easier for consumers.

Time Warner Cable and Comcast Corp. have been aggressively testing in Denver and Pittsburgh releasing major studio fare on video-on-demand (VOD) rental the same day as DVD.

“The buy rates on VOD rental over the electronic system are up roughly 50% and sellthrough, which is the point of the test, did not go down,” Bewkes said, in a call with investors. “Actually, it went up 5% to 10%.”

Glenn Britt, president and CEO of Time Warner Cable, said the company delivered 118 million VOD streams in June — its highest number ever.

“We are continuing to increase our high-definition content and expanding the number of library movies for sale through our virtual video store,” Britt said.

With DVD sales in 2007 relatively flat compared to last year, Time Warner is eying cable VOD as means to generate greater margins compared to DVD rentals.

Bewkes said studios get three times the margins in electronic VOD compared to DVD rentals.

He said test results, which mirrored those of Comcast, found same-day VOD and DVD releases did not erode customer demand for either format.

In the markets not taking up the DVD and VOD tests, Bewkes said physical DVDs were running through the sellthrough process and then showing up at Blockbuster as used inventory for sale.

“This was cutting into sellthrough traffic,” he said.

The COO admitted the same-day VOD, DVD releases have hurt physical DVD rentals. But he argued that, economically, it was a good thing for most of the major DVD retailers, studios and network-based VOD programs.

“We think the test is pretty auspicious and leads to what we have said publicly, that the whole industry should move and adopt it,” Bewkes said. “It could be a very good source of growth in revenue and customer satisfaction and increased margins.”

Separately, Time Warner Cable, the country's second largest cable operator, said it would begin rolling out Enhanced TV, an upgraded VOD service designed to allow viewers to time shift programming without a digital video recorder (DVR).

Enhanced TV options include start-over, book back, quick clips, catch up and coming soon, all operated through the remote control. Enhanced TV does not allow the user to fast forward through content and advertising.

“We hope that Enhanced TV will help Time Warner drive digital penetration,” Britt said. “We expect deployment over the next two years.”

The cable unit reported a 7% decline in earnings to $272 million, compared to $293 million last year. It saw a 59% increase in revenues to $4 billion, despite a net loss of 57,000 basic cable subscribers in the quarter.

A dearth of high profile DVD releases and lower television revenues combined to decrease Time Warner Inc. second quarter (ended June 30) filmed entertainment revenues 5% ($110 million), to $2.3 billion.

Filmed entertainment, which includes Warner Home Video and New Line Cinema, reported revenues of $2.36 billion last year, when factoring in DVD sales from Harry Potter and the Goblet of Fire.

Notable home video releases this year included Letters from Iwo Jima and Pan's Labyrinth.

Segment revenue declines were partially offset by strong theatrical sales of Ocean's 13 and 300.

Time Warner chairman and CEO Dick Parsons said the decline was anticipated due to the timing of releases and difficult comparisons to prior year results. He said expects segment results to dramatically improve in the second half of the year based on box office returns from Harry Potter and the Order of the Phoenix and New Line's Hairspray.

“A lot of the bigger titles are still to come out,” he said.

Overall, Time Warner posted $1.1 billion in income on revenues of nearly $11 billion, compared to profit of $1 billion and revenue of $10.3 billion last year.

In a show of support, Time Warner's board said it had authorized a new $5 billion stock repurchase program on top of a recently announced quarterly cash dividend.

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