Time Warners Jeff Bewkes Interview

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Nearly nine months into his gestational period as chief executive of Time Warner, company loyalist Jeffrey Bewkes is hoping to deliver a media behemoth reborn. The 56-year-old Bewkes—a three-decade veteran who started out at the fledgling HBO (which he eventually steered to critical raves and record profits) and next year will add chairman to his title—has the task of fixing a company that still suffers from its legendarily disastrous merger with AOL.
  
This week he's on a public campaign to accentuate the positive. Bewkes is trying to convince skeptics on Wall Street—who have kept Time Warner's battered stock price flattened at around $14, even worse than the already-anemic valuation that greeted Bewkes when he took the top job—that he's taking the bold steps necessary to turn things around at the world's biggest media conglomerate.
  
On Monday afternoon, as the Dow Jones plunged more than 500 points, Bewkes gave an exclusive interview to Portfolio.com, explaining his moves of the last eight months—splitting off Time Warner Cable into a separate distribution company, acquiring the social network Bebo for a whopping $850 million, shutting down New Line Cinema, and reducing corporate overhead, among other things—and outlining his vision of Time Warner's bright future as the world's leading media and entertainment supplier.

Lloyd Grove: So, you having fun yet?
 
Jeffrey Bewkes: Yeah. Are you going to write descriptive stuff so I have to convey—"Yes!"—extreme exuberance? I want to be respectful of the financial community today.
 
L.G.: [Laughs] Actually, one of my questions was, Lehman Brothers downgraded you [Time Warner stock] in July—is this a warning?
 
J.B.: They downgraded everybody, I think.
 
L.G.: I do want to ask you, given that the important financial institutions seem to be in meltdown, with all kinds of implications on the rest of the economy, how much exposure does Time Warner have in all of this?
 
J.B.: I think it's a good place to start. You know, I don't want to say that the media business isn't connected to what happens in the economy, because everything is connected in the economy. But in relative terms, the media business, and maybe our company particularly in the media business, is less subject to the cyclical downturns than many consumer businesses. And the reason is, if you look at Time Warner, the ongoing core content company, which I think we'll talk about—networks, film production, publishing titles, internet ad-supported services at AOL, and subscription at AOL—basically Time Warner without the cable distribution, and we could talk about that too—the cable business happens to be going into a separate place. But even the cable business is historically, relatively, not affected by economic downturns. So that's true for them too. But in Time Warner, the remaining company, the core company, we have about 40 percent of the business in content and sales of movies, TV shows, we have about 30 percent in subscriptions, and about 25 percent in advertising. And, the first two, the content sales and the subscription levels, are not adversely affected by the downturn—so the first two are not sensitive. Many years of normal economic slowdowns have actually been countercyclical, where going to the movies, keeping your cable subscription, and so forth has seemed like a relatively more efficient and more important purchase for consumers. They've actually benefited.

L.G.: Well, not to make any invidious comparisons to 1929, but wasn't that the case with Hollywood during the Great Depression?
 
J.B.: In the '30s, yes. And so it's true for movie tickets; it's certainly true for cable subscriptions, magazine subscriptions. So essentially the content sales and the subscription part don't see much harm from economic slowdowns. The third part, advertising, does see pressure on it, but not in all of our businesses. And the strong part of our advertising business is the Turner Cable Networks—which have had, and right now still have, very strong ad growth, double-digit ad revenue growth, and they've also got a fair component at Turner of what they do that isn't advertising—subscription fees for cable operators and satellite operators—that's pretty strong and steady at HBO and Turner. So the part of our company—Time Warner as a media company, 25 percent of it being ads—a good chunk of that being Turner's cable ads, which are very strong. We have a fairly small part of our business at essentially Time Inc., a publishing company, where the ads are actually down.

L.G.: Revenue is actually down.
 
J.B.: Yes, and at AOL it's a mixed bag. There are some parts of AOL ads that are growing quite strong. Search is in the midrange, third-party ad growth, display ads—which is in the main portal—are flat basically, flat to slightly down.

L.G.: After several quarters of 40 percent growth, you're now at 2 percent growth at AOL.
 
J.B.: So there's been disappointing growth in ads at AOL this year, and we're saying that the ad growth for the second half at AOL, which we thought would improve—we don't have this ability now to say that it will. Now the good news underneath that is the traffic, the users of AOL, the number of people, the amount of time they spend, the kind of ratings, if you look at it in television terms, are good signs of health. Because the reprogramming of all the program categories at AOL had very strong growth in usage, growth in page views, so the traffic is up.

L.G.: I suppose this would be as good a time as any to ask you about Bebo. You suggested in the recent past that you may have overpaid for it: $850 million. How are you going to monetize that?

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