Wall Street's 5 Urgent Questions for Time Warner (Guest Column)

Amid big exec changes at Warner Bros., Turner and Time Inc., Wunderlich Securities' Matthew Harrigan breaks down Jeff Bewkes' strategy, possible succession plans and the era of Kevin Tsujihara.

This story first appeared in the Aug. 2 issue of The Hollywood Reporter magazine.

A former colleague of mine once characterized Time Warner as "competing dukedoms in medieval France," implying that all of the feudal business heads were running their own shows and ultimately wanted to storm everyone else's castles as well.

But the announcement July 17 that Time Warner CFO John Martin will replace the retiring Phil Kent as CEO of Turner Broadcasting in January is another sign of the "normalization" of Time Warner, with more shareholder-responsive management. It comes on the heels of an executive upheaval at the Warner Bros. studio, a transition to a new leader at CNN and a spinoff of lagging Time Inc. With so much going on, we break down the five most pressing questions.

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1. Has Time Warner CEO Jeff Bewkes found an heir apparent?

Martin, 46, has excellent strategic sense, having been integral in focusing the new Time Warner on cable networks and entertainment. Yes, he's had only nominal involvement in creative decisions. But in appointing Martin to run Turner, whose networks we estimate will contribute 44 percent of Time Warner's 2013 overall sales revenue, Bewkes, 61, clearly is affording him the direct operating experience that is required to run all of Time Warner some day. With the spinoff of AOL, Warner Music, Time Warner Cable and, imminently, Time Inc., the Turner Entertainment networks and HBO are now the backbone of the company. Putting Martin in charge here sends a clear message.

2. How is Jeff Zucker doing at CNN?

Eight months into Zucker's tenure as president of CNN Worldwide, the network's outlook remains uncertain. CNN and its sister network HLN scored substantially better Q2 ratings, even apart from "wars and weather" events such as the Boston bombing and the Oklahoma tornadoes, topping MSNBC for the first time since 2009. Yet there still remains tension over the more entertainment-oriented approach favored by Zucker. In short: Audiences haven't decided what to make of the new CNN.

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3. How much does Warner Bros. matter to Wall Street?

Warner Bros.' tentpole pantry is not as stocked as that of Disney with the Marvel characters, Pixar and Lucasfilm. The Harry Potter franchise is irreplaceable, the late J.R.R. Tolkien is not writing any Lord of the Rings prequels, and even the July 20 announcement at Comic-Con that Superman will join Batman onscreen in 2015 was upstaged hours later by Marvel's big reveal of the title of the next Avengers movie. Although Warners' TV production business continues to benefit from international growth, the movie studio is arguably much less important as a creative engine across the entire company. Movies still constitute nearly 24 percent of overall Time Warner sales, but given their skyrocketing costs, it's a much lower-margin business. Still, the unraveling of Warners' long-standing relationship with Legendary Pictures, coupled with new (and likely more favorable) slate production deals in the works, could provide a financial boost to the studio.

4. Can Kevin Tsujihara run a movie studio?

Tsujihara's appointment in January as Warner Bros. CEO and the predictable departures of film head Jeff Robinov and TV head Bruce Rosenblum did not come as surprises to the Street. Tsujihara's experience with digital distribution issues is becoming as important to the studio as its foreign box-office growth in Asia and Latin America. The new, flatter management hierarchy, with 17 executives supposedly reporting directly to Tsujihara, is a work in progress. Can a studio succeed with that level of collegiality and shared responsibility? Is Tsujihara actually providing autonomy across the board, or will there be fiendish hands-on control from the very top?

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5. What will become of Time Inc.?

Time, Sports Illustrated, Fortune, Entertainment Weekly and People will have to sink or swim on their own. New CEO Joe Ripp will face inevitable M&A speculation (Meredith? News Corp?) and questions about whether tablet subscriptions and video initiatives can alter the fundamentally down direction of the business.

The irony is that the new Time Warner is now basically Turner Broadcasting with a major movie studio attached. This is what Ted Turner always wanted, along with a broadcast network -- though Warner Bros.' leading TV business is arguably a happy substitute.

Wunderlich Securities' Matthew Harrigan has been a sell side analyst since 1993.