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Bewkes: No Data to Support Consumers Favor SVOD vs. Premium TV

1 Aug, 2012 By: Erik Gruenwedel

Jeff Bewkes

Time Warner CEO Jeff Bewkes Aug. 1 ratcheted up his longstanding criticism of over-the-top subscription video-on-demand platforms as a substitute to premium TV channels offered by cable, satellite and telco operators.

In an Aug. 1 call with analysts to discuss Time Warner’s fiscal results, Bewkes said the media company is paying “very close” attention to Web-based alternative distribution platforms, including YouTube. Bewkes said Time Warner heretofore has used YouTube more as a promotional vehicle than outlet for content distribution, adding that original content on TNT and HBO already is available on-demand on broadband.

“We think it’s great, the extent to which those channels can have a presence on YouTube to drive viewership on our networks,” Bewkes said. “That’s basically how we look at it at this point.”

He reiterated past statements about the value of SVOD, adding that the company that invented SVOD is HBO, not Netflix. He said HBO was the first to offer on-demand programming.

Bewkes admitted that Netflix CEO Reed Hastings has been very complimentary of HBO, adding that Time Warner, in turn, has been complimentary of Netflix in regard to its development of a user-interface and the fact the SVOD service proves people want to consume on-demand programming. The CEO reiterated that there currently are no discussions occurring between HBO and Netflix.

“Just like all SVOD services, HBO, Showtime, Netflix, Amazon Prime, they all compete,” he said. “And that’s probably the primary way they have a relationship — as competitors. Sometimes there are other relationships to emerge over time. Not now, but we’ll see in the future.”

When asked if TV Everywhere platform HBO Go would be launched as a standalone platform, Bewkes the time was not right to do so, considering the network of affiliates currently carrying HBO. He said the issue is not that people don’t want multichannel TV bundles in the home. Rather, it is the reality that there exist millions of broadband homes in the country that do not subscribe to HBO.

“That’s the opportunity,” he said. “The whole idea that there are a lot of people out there that want to drop multichannel TV and just have a Netflix or HBO. … That’s not right. … Look for the data; you won’t find it.”

Meanwhile, Warner Bros. reported second-quarter (ended June 30) operating income of $134 million, down 13% from operating income of $154 million during the previous-year period.

The studio, which includes Warner Bros. Home Entertainment Group and Warner Home Video, attributed the drop in part to year-over-year unfavorable comparisons with the home entertainment release of Harry Potter and the Deathly Hallows: Part 1; the videogame releases of Mortal Kombat 9 and LEGO Pirates of the Caribbean: The Video Game; and the box office release of The Hangover Part II.

Indeed, revenue for the quarter dropped 8% ($233 million) to $2.6 billion and didn’t include The Dark Knight Rises, which wasn’t released until July 20.

Since the final Christopher Nolan-directed "Batman" film’s opening, it has grossed over $535 million worldwide. In addition, Magic Mike has grossed more than $100 million at the domestic box office from its initial release in June through July 29.

Rock of Ages and Dark Shadows performed well below our expectations,” said CFO John Martin.

Martin said Warner has SVOD deals that will bring in about $250 million in revenue in this year. Warner has $100 million in SVOD revenue booked this year compared to $225 during the previous-year period. The figure does not include $85 million in SVOD revenue generated from The CW, which Warner owns a 50% stake in.

“We remain in active discussions with all SVOD services about additional content packages,” Martin said. “All of that helped our backlog reach $5.9 billion in the quarter.”

Backlog represents the unrecognized cash licensing revenue for TV and theatrical product that will be recognized in the future.

Finally, Bewkes said Time Warner was in “pretty good” discussions with Google and optimistic it could reach a deal with the tech giant’s nascent fiber-optic network that would help both companies. The CEO said it was important to differentiate between third-party attempts to improve content distribution and user experience with those seeking to undercut industry margins.

To date, Google is experimenting with tests of the broadband infrastructure using fiber-optic communications in Kansas City.

“We’re very supportive of companies trying to make the infrastructure more robust,” he said. “That is not over-the-top. Those things don’t provide quality. [They] don’t provide infrastructure. They don’t improve the consumer experience. We applaud Google [Fiber]. Probably, we’re going to be able to help them. And they will be able to help us.”

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