Time Warner CFO: Warner ‘Fully Behind’ UltraViolet

27 Feb, 2013 By: Erik Gruenwedel

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Executive said burgeoning SVOD market approaching $3 billion annual incremental revenue source for content holders

Warner Bros. remains bullish on UltraViolet with the studio set to rejigger windows this year by upping the number of movies released ahead of retail for digital sellthrough with cloud-based functionality, Time Warner CFO John Martin told an investor group.

Speaking Feb. 27 at Morgan Stanley Technology, Media & Telecom confab in San Francisco, Martin said Warner, which has spearheaded the UltraViolet rollout, would continue to offer select titles for electronic sellthrough weeks ahead of the packaged media and transactional VOD release dates.

He didn’t elaborate what the expanded digital release window time frame might include.

This year, Warner, along with other studios (and Lionsgate), will include free UltraViolet movies with select Blu-ray player purchases, including 10 titles with a new HDTV.

“We are fully behind UltraViolet, driving consumer awareness and, frankly, a better consumer experience,” Martin said.

Separately, the rise of the subscription video-on-demand market — spearheaded by Netflix — is generating nearly $3 billion in ancillary revenue per year via content license agreements with rights holders, according to Martin.

He said Warner would generate substantially more than the $350 million in SVOD revenue it collected in 2012, of which more than half that amount automatically flows into 2013 due to the multiyear agreements. Martin said the SVOD revenue does not include monies generated by Netflix’s agreement with The CW, which Warner co-owns with CBS Corp.

He said that in addition to Netflix and Amazon Prime, Warner is in active discussions securing SVOD agreements with Comcast’s Xfinity Streampix and Redbox Instant by Verizon, among others outside the U.S.

Martin said considerable insight is being given to determine whether SVOD cannibalizes traditional markets. Indeed, sales of physical and digital content topped $9 billion in 2012, including nearly $8.5 billion from disc, according to DEG: The Digital Entertainment Group.

“Right now, it doesn’t feel like that is happening,” Martin said, adding that notwithstanding the hype surrounding Netflix, the SVOD leader is not big enough to “alter” the ecosystem of the multichannel (cable/satellite/telco) universe.

“So, in totality, it feels like this is going to be a sustainable, very healthy business,” he said.

Meanwhile, the CFO said Time Warner is expanding HBO’s reach, which he said now has 70 million subscribers outside the United States. The premium TV service generates 25% of its total revenue abroad, which includes subscribers from international ventures, sales of programming to third-party licensors, foreign DVD sales and international sales of other HBO licensed products. HBO just launched two premium movie channels in India, in addition to the ongoing rollout of HBO Go service in Latin America.

HBO operates in 60 countries, territories Martin said the company will look to exploit HBO Go, the Internet-based app that allows authenticated users on-demand access to live and catalog content on connected devices. HBO licenses its programming in another 150 countries, according to Martin.

HBO Go represents the premium channel’s biggest weapon against Netflix and other SVOD services. With programming available in high-definition and a user-friendly interface, the app is routinely mentioned as a formidable challenge by none other than the CEO of Netflix.

“We want to be like HBO,” Reed Hastings reiterated Feb. 25 at an investor event.

With HBO Go now available in 10 Latin American and eight European countries, with plans to rollout HBO Go in Asia this year, Martin said the evolution of the brand as a standalone SVOD service is also taking shape — albeit with caution.

“HBO Nordics is a better opportunity for a direct-to-consumer HBO over-the-top service,” Martin said, adding it was too early to gauge consumer response to the platform.

He said HBO would continue to treat international territories as test markets for expanding the scope of the premium channel outside the realm of a multichannel video program distributor’s bundled offering.

“You’ll see different models on a territory by territory basis,” Martin said. “You’ll see us move into a direction we see as most lucrative to us.”

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