Time Warner CFO talks digital

New tech can improve economics, John Martin says

NEW YORK -- Digital distribution holds the potential of improved rather than weaker economics for film studios, Time Warner CFO John Martin said Wednesday.

Speaking at the Merrill Lynch Media Fall Preview conference in Marina Del Rey, Calif., he said TW has seen no signs that digital business is cannibalizing DVD sales or that analog dollars are turning into digital pennies as NBC Universal CEO Jeff Zucker has famously warned could happen.

For example, in TW's day and date cable VOD trials, VOD buy rates are up more than 50% while DVD sell-through is up 10%, he said, adding though that the company will closely monitor for any signs of negative effects.

The VOD dollar unit contribution is 3.5 times better for the studios than in physical rentals, according to Martin. And digital sales, mainly on iTunes, see a 40% lift compared with the physical business, he added.

Martin also rejected the notion that new technologies train consumers not to buy but to rent content. "The wholesale percentage of rental versus sell-through remains constant" at about one-third versus two-thirds, he explained.

Martin also reaffirmed TW's increased content focus, saying content is "the lifeblood of Time Warner" and predicting it will make up a bigger part of its business over the coming years.

Asked about a much-rumored potential acquisition play by TW for NBC Universal, Martin said he has "not heard anything" about G.E. being willing to sell its entertainment arm. He would only add: "We'd be interested in taking a look" as the conglomerate always is, but TW will only make disciplined deals.

Asked about ad trends, Martin said the weak U.S. economy has not hurt TW's cable TV networks, where third-quarter momentum remains strong.

However, AOL has in recent weeks seen "some softening" in third-party network ad momentum and the auto and financials categories, he warned. "It gives us pause in terms of our confidence to ramp advertising in the back half of the year," Martin said.