Time Warner CFO Takes Kid Gloves to Netflix

13 Aug, 2015 By: Erik Gruenwedel

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In a media world going over-the-top, Netflix reigns supreme. Creator of the subscription video-on-demand business model, Netflix has created benchmarks across the spectrum, including racking up more than $10 billion in content obligations through June 30.

That fiscal largess on original and third-party content has made Netflix a top player (and payer) for exclusive license rights to episodic programming and movies. It has also made the SVOD pioneer a destabilizing force within a pay-TV market that lost more than 600,000 video subs in the most-recent quarter, according to analysts. Much of that is to cord-cutters seeking less-expensive video entertainment options such as Netflix.

Against that backdrop, Time Warner CFO Howard Averill was asked if Netflix has become too big, wielding excessive influence across the content licensing landscape.

Speaking Aug. 13 at in New York, Averill — without citing Netflix by name — agreed the syndication market isn’t helped by the overbearing presence of one major buyer (i.e. Netflix).

“The best situation is to have multiple bidders. That’s best for the consumer. That’s best for the content producers,” he said.

That’s as tough as he got on Netflix. The kid-glove approach to Netflix is a far cry from the days when Averill’s boss, CEO Jeff Bewkes, downplayed the SVOD service as a middling substitute to traditional TV syndication — even jokingly comparing Netflix to the Albanian Army.

Instead, Averill said SVOD (Netflix) has introduced new distribution windows and underscored the real value of top serialized dramas and cable originals.

“It is basically expanding the market for our content and increasing competition with our existing buyers,” he said.

The CFO may take the high road because market conditions demand it. Time Warner generates more than $400 million annually in revenue licensing content to SVOD. 

TW subsidiaries Warner Bros. and Turner Network Television separately inked content license deals with Netflix rivals Amazon Prime Instant Video and Hulu Plus. Amazon became the only SVOD service streaming HBO catalog (at least three seasons in arrears), while Turner’s Adult Swim and Cartoon Swim networks are exclusive to Hulu.

Averill said partnerships between cable networks and SVOD, and going direct-to-consumer via OTT video are not mutually exclusive as evidenced by the launch of HBO Now. He said additional distribution models for TW brands include short-form video for digital and video games.

“What we see is the fact that if you own your own programming, you have multiple ways to monetize that,” he said. “And we felt Hulu was the right place [for Turner],” Averill said.

The CFO said OTT video services such as Dish Network’s Sling TV offering smaller channel bundles for $20 month represent new ways to combat shrinking pay-TV subs.

“The No. 1 driver of cord-cutting is price. We think that some of these lower-priced packages can attract new consumers. And [Time Warner] is perfectly positioned for that," he said.

Specifically, Averill said that incorporating OTT video platforms with broadcasters will better position them in a changing market while also enabling higher affiliate fees. Time Warner currently has its top networks in Sling and Sony’s PlayStation Vue. It also generates 85% of affiliate revenue from the top four TV networks.

“We feel like we are really well positioned as the distribution landscape evolves,” Averill said.

The CFO said in addition to HBO Now, Time Warner is launching SVOD services in Asia — specifically China — in an attempt to get ahead of a probable Netflix launch there.

“We are going to use technology in an intelligent way to expand our business,” he said. “The priorities really haven’t changed. [It’s] the pace of change [that] has accelerated.”
 

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