Warner Bros. Squeezed by Jeff Bewkes Strategy

Promised layoffs at the studio and Turner units come as the Time Warner CEO trims to boost value. Is HBO in play?

This story first appeared in the Sept. 19 issue of The Hollywood Reporter magazine.

Welcome to the incredible shrinking Time Warner. Having shot down an $80 billion bid from Rupert Murdoch's 21st Century Fox, Time Warner CEO Jeff Bewkes could have fortified his company against other takeover attempts by making a big acquisition himself.

But after years of shedding such businesses as Time Warner Cable, AOL and Time Inc., Bewkes and his team are continuing to trim. Two of its three main divisions -- Warner Bros. Entertainment and Turner Broadcasting -- are beginning new job cuts.

On Sept. 4, Warner Bros. CEO Kevin Tsujihara acknowledged the belt-tightening in a company­wide memo that warned that "positions will be eliminated -- at every level -- across the studio." Sources say Tsujihara's vague reveal -- timed in part to shoot down a Bloomberg report saying employees would be offered buyouts -- is working with Warners division leaders to figure out how to trim the studio's 8,000-strong workforce. Some have suggested that several summer disappointments, including Blended and Edge of Tomorrow, prompted the move. But sources say the studio layoffs are more about the larger company strategy.

At the same time, Turner is bracing for similar cuts. Turner CEO John Martin promised in June -- well before the Fox bid -- that his unit would cut costs and jobs to free up money for programming. He said he wants to "start 2015 a more streamlined, nimble and efficient company" that can spend big to improve ratings at such networks as TNT and truTV. "Programming expenses will accelerate in the second half on spending for sports and originals," predicted Wells Fargo analyst Marci Ryvicker in a recent report.

It's not clear whether HBO, which has been a key earnings driver for TW, also will adopt similar cost-cutting measures. Some analysts say TW could not only trim jobs but also reduce its ownership of HBO by spinning off a portion. Ryvicker said in a recent report that TW's stock price, at $76 a share on Sept. 9 (below the $85 Fox offered), already might account for an expected HBO move. "The market anticipates some sort of eventual 'transaction' here," she said, suggesting TW could spin off a 20 percent stake in HBO.

Janney Capital analyst Tony Wible argues that HBO is worth more than $30 billion, or $35 per TW share, with Turner and Warner Bros. together worth $60 a share. He says TW could create a tracking stock to highlight its value. Concludes Wible, "These numbers easily exceed Fox's suggested takeover price."

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