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Bewkes: Home Video Hit Inflection Point in 2012

4 Mar, 2013 By: Erik Gruenwedel

Time Warner CEO says sales and rentals of digital movies ‘finally’ offsetting declines of packaged media sellthrough

Steady upturns in electronic sellthrough and transactional video-on-demand of new release movies is undercutting declines in packaged media sellthrough, Time Warner CEO Jeff Bewkes told an investor group.

Speaking March 4 at the Deutsche Bank Media, Internet & Telecom Conference in Palm Beach, Fla., Bewkes agreed the home video market hit an inflection point in 2012 whereby ongoing drops in physical sellthrough had been countered by digital distribution resulting in flat revenue for the year.

He said that digital distribution is the rationale behind launching UltraViolet, the cloud-based content storage platform. 

“The challenge is to move the business to the higher-margin sales of electronic movies rather the low-margin rentals like kiosks,” Bewkes said. “That remains to be seen.”

He reiterated that the promotion of Kevin Tsujihara from president of Warner Bros. Home Entertainment Group to CEO of Warner Bros. Studios reflected, in part, the studio’s goal to maximize digital distribution channels for its ambitious film slate (six tentpole titles releasing this year) and TV production.

“Kevin has been a part of that,” Bewkes said. “He’s going to stay on that course and he knows all of that very well.”

Asked whether the embrace of digital distribution includes subscription video-on-demand (i.e. Netflix) and transitioning Time Warner’s coveted premium TV channel, HBO, into a SVOD platform, Bewkes put the subscription services in perspective. As former CEO of HBO, he knows better than most the channel’s appeal and impact on the bottom line.

Time Warner in 2012 generated $350 million licensing catalog serialized programming to Netflix and Amazon Prime Instant Video. Bewkes says the sum was more than any other media company, yet represented a fraction what HBO can generate on its own through affiliate deals domestically and abroad. Warner has 6,000 movies and 75,000 TV episodes in its vault, which does not include original programming from HBO or Turner Networks.

The executive said existing SVOD license deals are short-term and can be “recalibrated” should the business model explode exponentially, threatening the multichannel video programming distribution model. Bewkes said he doesn’t see a new SVOD service or Netflix and Amazon running away with the business.

“They can’t go that far,” he said.

While Bewkes said he is not opposed offering HBO and Turner networks on SVOD provided they prove to be incremental — not substitutive — of current business models.

“No one has come along with that yet,” he said. “We would look at it. It would have to economically accretive to us. Everybody has theorized about it, but nobody has done it.”

Bewkes said the reality is that HBO is a SVOD service, especially with its HBO Go app. He said putting HBO programming on a competing SVOD service wouldn’t generate the incremental revenue required to offset existing distribution channels.

Indeed, network revenue from HBO and Turner increased 5% ($166 million) to $3.7 billion during the fourth quarter, including increases of 7% ($144 million) in subscription revenues and 3% ($38 million) in advertising. Operating income rose 21% ($240 million) to $1.4 billion.

By comparison, Netflix reported operating income of $109 million on domestic streaming revenue of $589 million during the same period.

“It doesn’t seem like a great idea,” Bewkes said. “I guess we’ll keep thinking about it. We do meet with them all the time about it. [SVOD license fees are] not a lot of money. We think there’s more money in having [original programming] on HBO furthering the penetration of HBO.”

Bewkes characterized Netflix as being where HBO was in 1997, offering movies and serialized programs with no ads and on demand access.

He said Netflix offering original series, “House of Cards,” in its entirety for binge viewing on launch date was not the best way to introduce new programming. He said the popularity of HBO’s “Game of Thrones,” has been cultivated through weekly episodes. He said word of mouth and media attention allow new viewers to be introduced to the show over time, while having the ability to watch past episodes online to catch up.

“We don’t want to put it up all at once,” Bewkes said. “We want to have the water cooler effect -- introduce, bring people to it. We don’t think the new stuff needs to go that way. But we can do that if people want to do that.”


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