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This story first appeared in the Aug. 29 issue of The Hollywood Reporter magazine.
The most strategic way for Time Warner CEO Jeff Bewkes — who has just fended off Rupert Murdoch‘s efforts to buy his company — to keep Time Warner independent is to show he’s not a seller by becoming a buyer.
At the end of the day in the media business, you’re one or the other.
But that’s a problem for Bewkes because temperamentally, rationally and, in a sense, brilliantly, he’s a dedicated streamliner and off-loader. He’s never pretended otherwise. Over the years, Bewkes — previously the longtime head of HBO, the jewel in the Time Warner crown — has been openly derisive about the ungainly beast that Time Warner became when it piled on acquisitions, depressing its shares and its employees’ options. Where moguls amass assets, Bewkes’ very unmogul-like credo as CEO has been to build shareholder value. That has meant jettisoning hard-to-manage or low-performing properties like print (Time Inc.), cable systems (Time Warner Cable), music (Warner Music) and digital (AOL) and, having learned from his HBO experience, focusing on the high and reliable returns of cable programming.
Even now, he’s not saying he wants to not sell Time Warner, just not yet. Maybe three years more, when he’ll be 65 and ready to retire. (Bewkes is going through a divorce — not the best time for the big payout he’ll receive in a sale.) The problem here is that sellers can’t always pick their moment. It’s not the easiest case to make: a willingness to sell the company for, say, a speculative $100 billion in a few years time — when all sorts of dire things can happen to undermine expectations — versus a reluctance to sell now for Murdoch’s $80 billion to $90 billion in the hand.
To stay independent and not end up looking — as so many previous Time Warner leaders have — like a self-serving chump, Bewkes has to put in place a plan that will raise the share price fast enough to satisfy shareholders who know Murdoch’s offer is out there; that’s aggressive enough to discourage another bidder (or Rupert’s return); and, if he wants to be a hero, a plan that results in a $100 billion-plus sale in the short window before his retirement.
Such a tightrope position with all eyes on him is an uncomfortable place for Bewkes. In his anti-mogul guise, he has preferred to keep his head down. He’s neither egomaniac nor showman. He’s Yale-educated, diffident, often acerbic, almost intellectual (except for his tendency toward business buzzwords). He’s part of the technocrat generation of media executives who worked in the shadows and saw all the flaws of their mogul or would-be-mogul predecessors.
The megalomania and grandiosity of media executives is what he’s against. He’s said to be a fan of Jonathan Knee‘s book The Curse of the Mogul, which argues that the aggrandizing accumulation of media assets may have benefited executives personally, but, in almost every instance, it created companies that over the long run offered investors anemic returns.
Now Bewkes has to prove that he himself is not turning the company he manages for his shareholders into his personal fiefdom and ego trip — as a cranky Murdoch, with unintended irony, has been privately accusing him of doing.
The Murdoch offer challenges Bewkes’ sense of what kind of media leader he is.
The quickest way to move his share price and to keep investors happy is, of course, deep and immediate cost cuts — not Bewkes’ usual style. He generally finds it better to spin off his problems than to deal with them directly. (Time Inc., which became its own company in June, is now making deep cuts, as did AOL and Time Warner Cable after their spinoffs in 2009.) It would be an about-face for Bewkes to suddenly start chopping away at the Time Warner corporate bureaucracy, the encrusted layers of the Turner division or the vast reaches of CNN. Bewkes is a well-liked, fair-minded, rational CEO. Not a ruthless and brutal one.
Or, he could radically transform his character, and emerge, at 62, as an avaricious mogul seeking to create the dominant cross-platform video everywhere company. Bewkes, perhaps as a result of his long tenure at HBO, has defined as much as any other media manager the new video ethos. Video brands, targeted at a discerning audience, are the real leverage. Comcast can monopolize all it wants and yet it will still likely find itself dependent on branded channels and paying premium prices for them. Audience loyalty and quality programming define today’s video experience. Indeed, Bewkes, at HBO, was one of the inventors of television’s new golden age.
So, in mogul logic, he ought to want to own more of the gold. Murdoch’s pursuit of Time Warner has already so roiled the content industry that now, more than ever, you will need to define yourself as a buyer or a seller. Discovery Communications’ recent panicky-sounding announcement that it is an acquirer probably indicates it can be acquired. The disposition of two of the biggest plums, Viacom and CBS, awaits only the demise of Sumner Redstone, 91, and the decisions of his family. Surely, anyone in Bewkes’ position would want to go after Viacom and CBS — except, perhaps, Bewkes himself.
The building of conglomerates demands enormous tolerance for unintended consequences; little goes as planned. But Bewkes, again perhaps from his HBO experience, is more of a perfectionist. He is about order and symmetry rather than aggregation and synergy, preferring a rational enterprise rather than a hodgepodge one. Murdoch’s art is acquisition. Bewkes’ is disposition. Hence, rather than adding to the possibilities of frustration and breakdown with a buying spree, it might make more sense for him and for shareholder value just to keep shedding. It’s a counterintuitive but perhaps cunning takeover defense — be your own best seller.
In fact, every time Bewkes sheds something, Time Warner’s share price goes up. It’s the new spinoff math. You sell your problems so your value increases, and then, as though for free, shareholders get an ongoing stake in the spun-off entity. Magic.
CNN, for one, has been a consistent problem for Bewkes and an annoyingly public one. It’s probably unfixable — these days, news in the political middle reaches nobody’s target audience. Although its earnings are still strong, eventually its low ratings are bound to catch up with it. So why not spin it out now? (Bewkes is rumored to be discussing the spin-off of HLN to Vice, the fast-growing video network.) Or, even better, realize CNN’s value as the major global news brand, one with an ego and influence premium, by selling to a “non-economic” buyer. While CNN might be worth $10 billion to $15 billion to other U.S. media companies, it might be worth double that to … Al Jazeera.
Warner Bros., Time Warner’s film and TV studio, is one of the company’s name assets — just like Time Inc. was. But the low-growth, high-investment, movie business is now largely vestigial to the greater TV and video industry. And yet a major studio has always reliably commanded an ego premium. The $25 billion value that Murdoch is said to have placed on the Warners studio and film library, together with its current development slate, in calculating his bid might go much beyond that for a foreign buyer, or a glamour-inclined investment firm, or for Amazon, desperately trying to unlock the secrets of show business for its own programming ambitions.
And the Turner stations? TBS, TNT, Cartoon Network, Turner Classic Movies, among them, while highly profitable, have never had the top-of-the-class appeal that Bewkes prefers. But on their own, they might form the nucleus of a new, high value, cable programming network. Or, perhaps, they would be a consolation prize for Murdoch — said to have put a $30 billion value on Turner.
Parsed out like this, Time Warner shareholders might realize the $80 billion to $90 billion Murdoch seemed ready to pay for the company. And, to boot, it would leave Bewkes and his shareholders with HBO, the most valuable piece of the pie, and the only company Bewkes has ever seemed to be happy with anyway.
Michael Wolff is an author and columnist who writes frequently about the media business. His most recent book is The Man Who Owns the News, a biography of Rupert Murdoch.
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