Time Warners Jeff Bewkes Interview

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L.G.: By the way, earlier you mentioned acquisitions which have so far not worked out well for you, as with other acquisitions at other companies. I wonder if you'd care to tell me which acquisitions you have in mind.

J.B.: I wouldn't. I mean, some of them are obvious, and I don't want to start throwing feints. Never mind.

L.G.: You don't want people jumping out of windows just yet?

J.B.: No. I'd rather you can point them out.

L.G.: If you don't want to say it, that's fair, but I was just curious. Now, when John Malone says publicly he'd like to think about acquiring the dial-up business, how do you react to that? When he says maybe we'll exchange our [Liberty Media's] shares in Time Warner for that, either way, $1.6 billion dollars' worth?
 
J.B.: I don't think it's a good idea to give specific answers to people's overtures through press interviews because I talk to John directly.
 
L.G.: Well, John obviously thinks it's a great idea.
 
J.B.: Well, let's just say that what we want to say to John about it I say to him directly. But I think as a general matter, the same thing is true of divestitures as of acquisitions, which is, if there's something that we can divest, and by doing it, we can increase our return, we can invest it for more than what it's worth to us, then we would do that. It's pretty simple. This is like saying we like to do things that make money, which if you really strip it down, that's all we're saying. We like to do things that make money. Whether it's acquiring or not, or divesting. Of course, the trick is knowing whether they do make money.
 
L.G.: I don't think you've said that you're committed to selling the dial-up business.
 
J.B.: We actually haven't said we're committed to buying or selling everything. We're committed to doing either of those things that would make us money. It's basically what we're saying.
 
L.G.: When do you think this will all sort itself out?
 
J.B.: AOL is a bigger question. There's two major pieces of it, advertising-audience business and then the access-subscription business—if you stay on the access-subscription business, that's been a very profitable business, it still is. It's making a lot of money, but it's a declining amount of money because the subscribers are moving to broadband as everybody knows, and that's why we separated it from the main area, because the subscription dial-up business is reducing in volume and revenue and earnings, even though highly profitable, and the AOL advertising and audience business is growing in terms of users and revenue. We've had a flat few quarters, but we think because the traffic is growing, and we should get there in the right time. There's an addition in the new AOL portal growth. There's the new, new AOL, which is the advertising platform, which is related, and which benefits a lot from the AOL traffic growth, but within itself, has the highest rate of any ad platform on the internet.

L.G.: You've suggested that perhaps the scale might not be right.
 
J.B.: Yes, because if you look at the decisions and aims taken at Google, at Yahoo, at Microsoft, at AOL, at IAC, you see all of these competitors looking very hard to get scale. One reason is, if you go to the search part of the internet-advertising business, which everyone knows, Google has built a very strong dominant position in, that has resulted in not only revenue growth but a fairly attractive kind of long-term strategic outlook for Google. So that's in search—because they have such a high scale, and that works because they get an efficient auction in place for advertisers to come. They get a lot of consumer data that they can use to put efficiency into their search results and their ad placements, so it all feeds on itself. If you then go to the other parts of the internet that are not as consolidated as that, the internet advertising that is not as consolidated, which would be, let's say, display advertising, AOL is a leader in display advertising. But the other participants that are of similar scale are Microsoft and Yahoo, which means that they've got the potential for the same kind of scale in display that Google has in search. But Google's in one operating system and those are in three. So that is what's raised the question of whether the display ad business might be more competitive if operated at a larger scale, which is where that question comes from.

L.G.: Are you committed to keeping the magazines?
 
J.B.: We're committed to making the magazines profitable in the long-term for shareholders, for the owners.
 
L.G.: And everybody's going through the same troubles. No one's figured it out. You haven't figured it out.
 
J.B.: Well, no. There are a couple of things that are clear. There are certain parts of our magazine portfolio that are growing in revenue and earning quite handsomely. And the parts that are the hardest, particularly in a recession, are the straight news and worldwide journalism, news-gathering costs and so forth. The advertising support for those have come out of industries like autos and tech, pharmaceuticals, that are constrained a little bit in their ad purchases. So I don't think we should view the future of the publishing industry, or create what that is, in the middle of an economic contraction. Our readership is fine, our circulation is fine.

L.G.: For the dead-tree part of those businesses?
 
J.B.: We don't call it the "dead tree." If you think of the intellectual property that's inside Time magazine or People or In Style, the effectiveness of the journalism and the magazine publishing content is fine. I mean, readers like it, readership is up, and—
 
L.G.: That's across print and internet?
 

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