TW entertainment units under scrutiny


Strauss steps down at HBO

NEW YORK -- The departure of HBO Entertainment president Carolyn Strauss is the latest indicator that Time Warner's entertainment divisions are in flux.

Since Jeff Bewkes took over as CEO, the company has folded a movie studio, set about re-creating its specialty film operations and might soon examine its already arms-length relationship with the CW and broadcast television in general.

At the same time, Time Warner has made significant investments in nonentertainment entities, last week spending $850 million for a social networking site, Bebo, with little potential to complement its film and television operations.

The moves are part of a larger rethink at Time Warner that entails scrutiny of its entertainment assets. While Bewkes has focused on pet Wall Street topics such as the potential spinoffs or sales of AOL and Time Warner Cable, he's also given strong indications of how he'll approach the entertainment side of the business.

One of the clearest signals was the recent de facto absorption of New Line into Warner Bros. to avoid overlapping businesses within the conglomerate. "The New Line move was pure Bewkes," one media executive said.

Bewkes all but acknowledged that philosophy when he told the Bear Stearns media conference last week that "it is far more profitable to put (movies) through one theatrical distribution system."

The likely merger between niche Picturehouse and Warner Independent fits that same philosophy. It's a mind-set, incidentally, that also gives rise to speculation about the future of HBO Films, for years an autonomous film-production entity that already is easing out of the theatrical business.

HBO, which declined to comment on the Strauss move, says it expects no changes at HBO Films. The guessing game has already begun as to who might replace Strauss, who is expected to transition into a production deal with the network. While HBO historically has promoted from within, the company's known desire for a fresh set of eyes could lead it to bring in a programmer this time around.

Though the usual suspects from HBO's rival cable and broadcast nets have been bandied about by industry pundits, it is unlikely the network has made even preliminary inquiries.

HBO might not need to move quickly to replace Strauss because Michael Lombardo and Richard Plepler, who both oversee HBO programming, are said to already be taking a hands-on role in creative affairs. That could change with the addition of a new programming chief, raising the question of how responsibilities would be divided with a new executive on board.

Strauss' exit also shuts the door on Linda Bloodworth-Thomason's "12 Miles of Bad Road," a one-hour comedy starring Lily Tomlin that HBO had picked up for series but never scheduled. "Road" is being shopped to other networks.

And then there is the CW. The network, which already is run day-to-day by CBS, has suffered in the ratings as new series have foundered and returning shows like "Beauty & the Geek" have failed to pull in viewers.

Time Warner has a history of selling off stakes in networks, as it did in 2005 when it peddled its Comedy Central stake to Viacom. A cost-conscious Bewkes could well consider severing the company's only relationship with a broadcast net. Bewkes also is known for favoring cable networks, which have over the past decade yielded higher growth rates on revenue and audience.

TW's basic cable networks, on the other hand, would seem less likely candidates for consolidation. They've been buoyed by ratings growth at CNN -- in which Bewkes has expressed pride -- and the development of clear and independent niches at TBS, TNT and Cartoon Network.

While insiders agree that the Strauss move was made by HBO chief Bill Nelson and Pepler for HBO-specific reasons, it was hard to mistake the Bewkes connection. Plepler and Nelson worked closely with the CEO when Bewkes ran HBO from 1995-2002, and the move likely was sanctioned, if not inspired by, the new leadership in the executive suite.

The rationale for the changes at the pay net's original-series divisions goes beyond programming and buzz to the kind of hard-core business concerns that resonate with Bewkes. While HBO continues to be a $1 billion-plus moneymaking machine, a large percentage of that comes from home video, which flows directly from the popularity of on-air series.

"You have to question whether HBO can grow significantly from where they are," media analyst Harold Vogel said. "Basic subscriber growth is limited. It costs more to produce films and series. These businesses aren't in shock, but they are encountering a rough patch."

On Monday, even Liberty Media's pay cabler Starz, long an also-ran in the premium channel derby, took advantage of the Strauss news to crow about how it finished higher than HBO in household ratings in February, the first time in years that the Time Warner net hasn't finished on top among pay networks.

Time Warner's focus on entertainment comes at an opportune time. Entertainment has been a decreasing part of Time Warner's financial portrait. Total revenue from entertainment units has ticked down by about 1% in each of the past four years. More notably, the percentage of operating profit from those units has dropped precipitously, from a whopping 80% four years ago to 44% in 2007.

While some of those numbers are the result of restored health in other businesses, they also signal that a company with deep entertainment roots doesn't rely on the sector as it once did.

Bewkes continues to embrace the content business with a certain degree of fervor -- though it tends to manifest itself with interest primarily in new distribution for existing content.

At Bear Stearns, he said, "We don't think that our content businesses are mature," adding that the company just has "to figure out how to take these incredible brands -- People, HBO, CNN -- and make them growth vehicles in a new world, in a new international setting, in a new digital-empowered planet."

As much as AOL or cable, how Time Warner will distribute its entertainment content is shaping up to be the focus of the Bewkes era.