Time Warner going day-and-date for VOD

Reports lower quarterly profits

NEW YORK -- Time Warner will this year make available all its DVD film titles on VOD on a day-and-date basis, CEO Jeff Bewkes said Wednesday.

With the first mover advantage among studios, TW expects to "capture a disproportionate VOD share," he said on the conglomerate's first-quarter earnings call.

The day-and-date VOD decision comes after extensive trials with Comcast and TW Cable last year, which Bewkes -- who has been the industry's biggest champion of the day-and-date model -- said proved the high margins and positive business effects of this release strategy. For one, DVD sell-through was up a bit in the trials. Also, margins from day-and-date VOD run at 60%-70%, compared with 20%-30% for physical DVD rentals, Bewkes said. "It's very good for the film companies," the TW CEO said.

It is now up to TW and cable operators to work out specific day-and-date deal arrangements before consumers will get to enjoy the benefits. The timing of the first full launches is unclear for now.

Since he took over the CEO role at the start of the year, Bewkes and his team have moved aggressively to change the way certain parts of the way key businesses work.

Another change is the scheduling of the upfront presentation for the firm's Turner cable networks during the week of the broadcast networks upfront.

"This is not a coincidence," Bewkes told analysts. "Turner is better positioned than ever to challenge the broacast networks." He argued ad buyers and others are increasingly realizing this, and he expects this to be reflected in this year's upfront. The Turner networks saw advertising revenue rise 13% in the first quarter, with scatter market prices in that quarter and the current one up by double-digit percentages over last year's upfront.

TW said Wednesday it is also moving ahead with expected restructurings of key units.

Bewkes said the conglomerate has formally decided that a complete separation of TW Cable is in the best interest for both companies, even though TWC's business remains strong. TW and TWC did not provide specifics on the likely structure of a separation Wednesday, disappointing some on Wall Street.

Bewkes said the two parties are "close" to agreeing on final terms, making a detailed announcement likely to happen "very soon." Analysts expect there could be a one-time dividend payout tied to the separation of TWC.

Meanwhile, TW is also continuing to work on separating the access and ad businesses of AOL, which is expected to happen this quarter.

Bewkes recently restructured the New Line Cinema film studio, moving it under the Warner Bros. umbrella. Related layoffs and changes led to a $116 million charge in the first quarter, with $20 million to $30 million still to come. Bewkes said the lowered costs and increased revenue from retaining international film rights will ensure that annual financial benefits outweigh the charges.

As far as the impact of a weak U.S. economy, Bewkes said TW has seen its effect in its magazine division. Auto and phramaceutical advertising in particular have been weak, management said.

TW reported a first quarter profit of $771 million, down 36% from the year-ago period. Revenue rose 2% to $11.42 billion on growth at TWC and the film and TV networks units.

The figures were roughly in line with Wall Street expectations, but Street reactions were mixed.

"With continued anemic operating results and a lack of a definitive plan for cable, we believe investors will be somewhat disappointed," said Goldman Sach analyst Ingrid Chung.

One key concern for analysts was a decline in sales of display advertising at AOL, which will continue in the current quarter. Bewkes said he was "not satisfied" with this.

The problem stemmed from integration problems for AOL's Platform A, which the unit formed last year to allow marketers to make purchases across its ad network. AOL is addressing the problems by letting marketers buy ads across the online network through a single sales contact, Bewkes said.
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