Time Warner CEO Eyes Premium VOD Film Launch By Q2, May Consider Longer Netflix, Redbox Window

Jeff Bewkes and his CFO also discuss cord cutting, HBO/Cinemax subscriber issues, planned UltraViolet service

NEW YORK - Time Warner chairman and CEO Jeff Bewkes said Wednesday that the company will launch premium VOD films in HD, and eventually in 3D, by the second quarter and said that it may make sense to lengthen the 28-day delay, with which its studio currently makes DVD releases available to Netflix and DVD rental kiosk operator Redbox.

He made the comments on Time Warner's third-quarter earnings conference call, which put the spotlight on new and emerging ways to distribute content digitally.

TW executives also said that the conglomerate's HBO business will end the year with about 1.5 million fewer subscribers than it had at the end of 2009 driven mostly by a decline in Cinemax non-revenue-generating, or promotional, subscribers. Last year, Dish Network had a Cinemax promotion, which has ended, the company said. As many as 15%-20% of total subscribers at any time are promotional, non-revenue generating users. TW also mentioned that its HBO contract with a distributor, identified by a source familiar with the situation as DirecTV, has ended, meaning that while its premium TV services are still available on the satellite TV provider, they aren't being actively promoted until a new agreement is reached. The company hopes to sign a new deal soon.

However, management also acknowledged that the weak U.S. economy and housing market have weighed on HBO subscriber trends, with international markets, where the pay TV firm has about half of its 80 million subscribers, seeing positive momentum.

One analyst on Wednesday asked Bewkes if TW could one day allow consumers to buy access to HBO content directly via the Web or so - without a cable or satellite TV subscription. The CEO said maybe, but didn't give any specific guidance when and under what circumstances this could happen. He did, however, predict more deals to bring the HBO Go digital service to more distributors in the new future.

"We have not seen any evidence of cord cutting," CFO John Martin emphasized in picking up on a current industry debate, in which some have suggested consumers are starting to cancel pay TV subscription in favor of free or cheaper TV content online. And Bewkes later added: "We doubt that we are going to see it."

But Janney Montgomery Scott analyst Tony Wible said the HBO trends could keep concerns about cord cutting or shaving, meaning a consumer's decision to reduce the amount of services paid for, front and center. "The drop will have a negligible effect on revenue since these subs received steep discounts," he wrote in a note Wednesday afternoon. "However, the decline will likely trigger cord cutting/shaving concerns and will need to be closely monitored."

Meanwhile, asked about the current 28-day Netflix and Redbox film release delay and whether it could be lengthened, Bewkes said it is very much "under scrutiny" and a longer delay may be a good idea. He emphasized his team doesn't want to be "religious" about windows.

Bewkes on Wednesday also signalled that announcements related to UltraViolet, an initiative by studios, cable firms, retailers and tech companies that would allow consumers to buy movies and TV shows from a wide range of providers, store them in a cloud-based locker and access them for no extra charge across various applications and devices. He predicted "a lot more" updates on that front in the coming months.

Overall, the TW CEO reiterated his previous stance that while new digital distribution methods pose challenges, their opportunities "significantly outweigh" the risks. He highlighted that consumers benefit from digital offers by having improved access to content and more convenience, while, if done right, the economics for entertainment companies also improve.

Also on the call, management struck bullish tones on the TV advertising market, saying scatter market prices are up 15%-20% over the upfront. Bewkes expressed delight about truTV and other networks boosting their viewership, while acknowledging that CNN continues to see ratings challenges "that we are addressing."

The company also touted the success of Inception, which with more than $800 million in worldwide revenue has become a blockbuster, and of key fall season shows, such as Mike & Molly on CBS. And they sounded bullish notes on Warner's upcoming film slate, including the latest Harry Potter release and Due Date, which Bewkes said could be a sleeper hit.
 

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