Cover Story: Jeff Bewkes--Time on his Side

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 Jeff Bewkes wears a big smile these days. Named president/COO of Time Warner a year and a half ago, the 54-year-old with Hollywood good looks presides over a $110 billion empire that includes Internet, publishing, film, broadcasting and, perhaps most important, a cable operation that some would argue is the beating heart of it all. Last week, the cable company reported a whopping 61% revenue growth for the quarter, while Time Warner's AOL division reported 40% growth in ad sales after dropping its subscription model. Bewkes is heir apparent to CEO Richard D. Parsons, with speculation mounting that Parsons will step down to make a 2009 New York City mayoral run. Bewkes spoke with B&C's Mark Robichaux about The Sopranos, AOL's next move and the state of the cable-TV industry.


Are you concerned that the FCC's push against TV violence will affect creativity in Hollywood and in Time Warner companies?

I am concerned about this issue. Given the constraints of the constitution, I'm not optimistic that whatever legislation passes will be balanced. I hope that it would be balanced and cognizant of the diversity of competition in cable channels, the difference between cable and broadcast television in terms of it being voluntarily invited into the home. We take seriously their concerns, but I don't think they should legislate.

You know, one thing I always wonder: This is never said about books or printed material, and it's never said about printed text communication on the Internet.

Both of those things, if they were brought up, would excite immediate opposition from the American people, who for 200 years, have understood perfectly well how to guarantee their freedom of expression. So now, when it moves into the forum of video, pictures and film, it gets viewed differently. And restraints of expression are considered that would never be tolerated by the voters if it was applied to print.


There has been a decline in the total number of cable subscriptions and the percentage of TV households with cable estimated at 61%. Other subscribers are going to DBS and telephone companies. Even with cable's triple play, how concerned are you about this maturing business?

It's not maturing. It's one of the fastest-growing businesses in the country today. Our percentages and our absolute numbers of subscribers are going up. You should not take a “decline in penetration” as a reduction in the number.

Look at our cable system, and then let's look at our networks and all the other things. The reason our cable system is one of the fastest-growing revenue and earnings parts of our company, and probably of the entire media business, is that it's adding relationships and revenue-generating units. It's adding Internet broadband connection; it's adding telephone service. It's adding advanced services like VOD interactive television. And so that makes it a very healthy business in terms of revenue growth.

It seems to me that the telephone plant is competitively disadvantaged against cable in offering this combination of services. And it's clear to everyone, I think, that the satellite plant is disadvantaged. You're talking about a glass that's not even half empty; it's three-quarters full.

And by the way, your 61% figure is just about household penetration. You weren't talking about the relative amount of that which is sold to households. Because if you took the revenue for services coming out of cable versus satellite, it would be considerably more than 60%. Our growth in revenue and earnings off the businesses that you're asking about is far superior to theirs.


Retransmission consent is a thorny issue right now with many stations demanding cash. Will this pose a problem for you?

It's irrelevant.


Why?

Because there's always been some kind of negotiation in terms in the carriage arrangements that have been worked out to carry broadcast stations. The form that it takes is not particularly important. It's some form of consideration, and it always will be.

And there are benefits that run in both directions. It's not very complicated.


What do you think is the biggest opportunity for the cable-TV industry today?

Putting all the networks that they can on-demand, in a way similar to the way HBO is on-demand. If you're an HBO subscriber by and large, you have HBO On Demand given to you for free, and it makes the HBO subscription that the cable operator is offering you that much more valuable. It makes the disconnect rate lower; it makes your desire to have cable be your video supplier instead of satellite.

If the American viewer knew, on the other hand, that whenever they come home and they turn on their big-screen television, if every network that they like is on there on-demand, so if they missed a show from three hours ago or from last night, they can now watch it, that would make cable television click up to its next level.

The best way to do that is to keep the advertising support in the networks that are advertising-supported. It gets you the widest possible audience, it maintains all of the economic support, and it continues to strengthen the networks as platforms to introduce programming.

HBO has had a great mojo for quite a while. Now The Sopranos is ending. What lies ahead in terms of programming?

HBO is in really good shape. You shouldn't overdo any one show. I never did when I was running it. And The Sopranos is a great show. I mean it's not often that shows come along that all the reviewers call… some people have called it the best thing ever on TV, that kind of thing. So it's a big hit.

But there are other hits on HBO right now. Entourage. Curb Your Enthusiasm. Big Love. We have some real promise coming in a new show from David Milch, who created Deadwood, called John From Cincinnati. There's a show coming from Alan Ball, who did Six Feet Under, on vampires. There's a show coming from David Simon, who—Oh! I left out The Wire, which is the other show that's called best show on TV!—He's doing a show on Iraq coming out next year. Linda Bloodworth Thomason is doing a comedy, 12 Miles of Bad Road.

We're doing yet another miniseries. John Adams is next year. Ten hours with Hanks and Spielberg producing, called The Pacific to match what we did in Band of Brothers in the European Theater. That'll be the biggest miniseries in terms of investment and probably impact that anybody's ever put on TV.

So there's a huge stable of original programs coming to HBO. They have the ability with those series, having been introduced on the HBO platform, to play in VOD, to therefore lift the VOD power of the cable industry. If you look at the American cable business right now, the most usage of the entire video-on-demand isn't movies, one-offs or anything; it's HBO On Demand. HBO and Cinemax drive 50% of the usage of subscriber VOD on cable systems in the United States.


Is it a struggle to keep that lineup fresh?

I wouldn't call it a struggle. It's a joy. It's their vision. They like it. We like it.


Why are you smiling?

Things are going pretty well so … put that in the article.


What's your assessment of AOL since it has changed its financial model and allowed free access?

At AOL, I have to happily say, the balance has moved from dwelling on the challenges to getting excited about the opportunities.

Essentially, the conversion to free ad-supported has worked better. We have more registered users coming back. So whereas, for four or five years, we had fewer people using AOL because it was all-subscription and people were going over to broadband, now we have an increasing base of users using AOL.

Secondly, our ad revenue is growing. Again, you see another quarter that exceeds the growth of the industry. Really, the only big company whose ad revenue is growing faster is Google. You can't win 'em all.


Why didn't Time Warner participate in the recently announced content-sharing arrangement with NBC-News Corp.?

We stand very clearly with that group in one sense: because we are one of their two main distribution outlets. It's good for AOL to be a distributor of any and all desired programming. So, if it's NBC, that's great. If it's YouTube/Google, that's great, too. AOL has 15 million unique visitors. That's a very unique thing for Google/YouTube to have distribution arrangements with.

We could've been part of the NBC-News Corp. equity play, but we didn't feel the need to be because we've already got a video-distribution platform, which is AOL. We believe that all of our content should be on all video outlets that are willing to respect copyrights and enter into orderly commercial arrangements with us.

We think that it's good for all parties—for us, Google, Universal, NBC, AOL—that everyone works in commercially arrived-at relationships.


Is there any area you're looking at in business for acquisition?

Yes, we will be absolutely investing in various areas around our online businesses, either in general as Time Warner or as Turner, or publishing, but certainly at AOL.

It's hard to say in terms of dollars because a cable acquisition, just the nature of it, would be billions of dollars. We'll see. We would probably use cable currency to do it.


How is CNN holding up against the competition in your eyes?

First of all, CNN is the fastest-growing earner in the Turner Network Co. So it's doing quite well financially. In audience terms, it's doing very well on the Internet, PC and mobile platform. It's doing fairly well but not as well as we'd like in terms of television ratings in the United States in a sense that Fox News has higher absolute ratings.

But even within that, CNN has increased its ratings and viewership in the younger demographics and increased a little bit in relation to Fox. So it's making some progress, and the younger demographics have been pretty powerful from a financial point.

On the Headline News side, which is an important second brand for CNN, the ratings gains, even in traditional TV, have been significant. One last thing about CNN viewers: Around half of them don't watch any other television. So if you're trying to reach that audience, you want to reach them there.


How is the CW partnership progressing? Is it on plan?

Yes, it's going well. Basically, the ratings are off versus what either The WB or UPN ratings were independently. The efficiency in terms of bottom line—while it's still a minor loss—is better; in other words, it's much less of a loss than what the two were before.

In terms of its ratings and audience in key demographics, particularly younger people, it's pretty promising because the audience for The CW is a little more than 10 years younger than any other broadcast audience, and that's a very attractive place to aim for new programming hits. So basically, all The CW is lacking right now is a big hit.


The recent Cartoon Network marketing stunt gone awry in Boston cost Time Warner $2 million—and resulted in the firing of a president. Too harsh?

The marketing company and the people that went off and did all this stuff exercised terrible judgment. We at Turner have to be responsible for anybody's judgment exercised on our behalf—even if we wouldn't have done it. So we wanted to make sure we bore the financial brunt of it.

Nobody in our company in higher management ever knew what [the promos placed around town] were or thought that they could be thought of as dangerous devices. I spent the first two hours that afternoon asking what are these things?

We tried to look back and say okay, well, what went wrong, at least that you could forgive?

But the other problem is, even assuming these devices hadn't been construed as explosives, there was inappropriate content in the advertising message because one of the characters was making an obscene gesture.

That gets back to your first question. You can do those things if people have notice and the right to decide whether to watch them or not. But you cannot just subject the general public to that. But that is irresponsible, and we have to be responsible.

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