Time Warners Jeff Bewkes Interview

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J.B.: Well, we're going to monetize, as we said, by linking Bebo to our community assets—which is AIM and ICQ. Bebo is undergoing some upcoming transformations itself—where we think it can become a leading, maybe the leading, social media network. When you look at Facebook and MySpace—what are they, social networks? Bebo is a thing where you can do social networking, but we think Bebo has more powerful tools for you to interact not just in social-networking terms but also with social media, so you can use copyrighted media and look at copyrighted media easily or user-generated media with your group of friends and do it all inside a very easy-to-use Bebo application. So as the ability of the performance ad networks like our Ad.com, Platform A, become better at monetizing social networks—which has been the big subject at Facebook, at MySpace, and at Bebo, how do you monetize it? Then we think that, a) social networking inventory can be more monetizable than is currently believed, and proved, but b), because if you go and look at the way Bebo users use it, they look at more media, visual media, movies, films, TV, user-generated content. They do more of it than is done on Facebook or MySpace, which means that if you're lining up ad support from advertisers, it's closer to an environment that they usually place ads on. If you're talking to users and you're trying to figure out, is an advertisement a commercial message on Bebo as welcome, as impactful, or more so than what it would be in the middle of a MySpace or Facebook interaction? We think more so, because you're more used to, as a user, seeing relevant commercial messages if they're put in the right context to what you're doing if you're looking with a friend at media. Whereas you would not be used to, or welcome, a message that's coming in when you're in the middle of just a stray conversation with someone.

L.G.: What's your timetable to see whether or not this is true?

J.B.: A year or two.

L.G.: And if you had to do it all over again—not to harp on this, but just to get your answer—would you pay $850 million for Bebo?

J.B.: Maybe. I'll tell you why I can't give you an answer. Because when you're doing an acquisition in an auction, the core purpose of the auction is to try to get as much buyer and competing interest. When you look back at it, you then have to reveal—which I can't to you—what I know about the other bidders. And you learn more of it after than before. The reason we said—when we kept being pressed by people, when they said "did you overpay or not?" we said we don't know—is if our plans work out, we did not overpay. But then somebody says it's compared to what you could've paid. If our plans work out less well than we thought, we would have overpaid by a few hundred million dollars. I'm not sitting here now—I don't know if that's the case—under a high case, we've actually made a lot of money on it. So it's really too early to say. It's kind of like saying, did Google overpay for YouTube? What was that number—$1.6 billion? They haven't monetized that yet. Actually, MySpace hasn't either. Now News Corp. paid $580 million.

L.G.: You've been in this job eight and a half months.
 
J.B.: Let's make it eight. I took a week off.
 
L.G.: You have done pretty much everything that people have been clamoring for you to do. You've spun off cable, you're splitting the dial-up access from the portal at AOL—
 
J.B.: We've consolidated the film company—they were not clamoring for that.
 
L.G.: You're putting all your corporate jets on eBay? No, you're not. But you've decreased overhead by what, $50 million so far?
 
J.B.: No, more.
 
L.G.: Why isn't Wall Street saying, "this is change we can believe in"?
 
J.B.: Well, they are, because if you look at the stock value of Time Warner in the last eight months—which, granted, here it is today, everything is down—but if you look any time in the last week, let's say, we've been somewhere between flat to down. At one point we were up 5 percent, but we've been kind of flat, give or take 5 percent. Where are we now? Minus 5 to 10? Eleven to 12 percent—something like that.

L.G.: But I notice you've said you've outperformed every media company but Disney.
 
J.B.: Right. Here are some companies down 30 to 40 percent. And Disney's up 3 percent.

L.G.: They're not being dragged down by "the worst business deal in history." [The 2000 Time Warner merger with America Online, which, by some estimates, vaporized $125 billion in shareholders' equity.]
 
J.B.: There's another point on that, but the media business has, on average, been devalued down quite a bit more than we have during this period. And the overall S&P is down probably 20 percent now. So, as with everything that's relative in that overall market of either the S&P overall industrials or the media business, we and Disney have kind of outperformed the others. But there's a further part of Time Warner that, you know, I'll just say it so you know, Time Warner is composed of two large pieces. There's the content company we've identified going forward, and there's the cable company. Now if you look at the cable company, which is part of the secular cable valuations that affect Comcast and DirecTV and all that. We think the prospects for cable are good. We didn't say we were going to separate it because it was inherently an issue. We just said it would be valued and operated better separately than this. But if you take cable being down, which it is, more than Time Warner parent—which is about half the company—it means the other half is up! So, going back to your point, if the things we've done in defining what Time Warner will be going forward, in getting cable ready for its own financial structure, and in doing the things at Time Warner we talked about, whether it's film consolidation, overhead reduction, and operating performance that's good at networks—it has caused the Time Warner content company to perform basically where Disney is. So essentially, there is some valuation recognition or realization of what's happened so far. And, of course, the question for Time Warner shareholders going forward is, well, how do you take this and move it up and create real returns over time?

L.G.: You're expected to get $9.25 billion from the cable spin-off when that's complete at the end of the year?
 
J.B.: Yes.

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