Left unresolved after the conclusion of the Microsoft-Yahoo saga this summer: What’s going to become of AOL, which has been talking to both Microsoft and Yahoo about a deal. We’ve heard that AOL employees are betting on a Microsoft combination. Time Warner CEO Jeff Bewkes certainly wouldn’t tip his hat on that today at Goldman’s media conference. But he did at least acknowledge that everyone is still talking to everyone — he didn’t use the word “sale”, by the way, preferring to talk about combinations, partnerships, etc. — and that something could be resolved “soon”.
Jeff is the lunchtime interviewee at day 1 of Goldman’s annual media marathon. He tends to be good at not answering questions, but we’re hoping for the best.
Softball question: Tell us the most important things about your business…
Attractive trends in media business, advantageous for us. If you think of change in the world going to digital, all the excitement about that, long tail, etc. Attention of users, people and of money is going to the big, branded, popular stuff. The old 80/20 rule is going to the 90/10. Giant brands and hits are more important than ever. What’s suffering or flattening out are the things in the middle. You can personalise stuff to your tastes, or you can see the big mass-market hits. The things you used to watch because it was there, because it was something to see, are not doing as well. Money moving to big hits on TV, cable, and even in magazines.
Economics of transition to digital are supposed to be bad for big media, though, right? No. It’s an advantage. VOD, for example. Electronic sell through clears us $13, or $14 compared to $10 with conventional DVD. Electronic rental at least 3x, 4x more profitable for us than via Blockbuster. In that world it’s a pretty good trade.
Advertising is a different story: Trading tight, control, limited inventory vs. the Web? Ad market getting more efficient, and that can’t be bad. The old joke, I waste 50% of my ad budget… that could not continue and that’s a good thing for advertisers and that’s good for us.
What about piracy, though? That can’t be good. Piracy is flattening out. File-sharing is flattening out. But this piracy question has been around for quite a while. And it’s different for film and TV than it for music. Napster started killing music right away. But there’s been P2P movies for a long time, and market still doing well. Real piracy problems are bootleggers selling discs, specifically in Asia. But even that’s flattening out. Countries across the world want protected IP, so they can particpate in sale of that IP. And people want good versions of TV shows and movies, not lousy camcorder versions.
Economic slowdown? Bad for our valuations. But not for our underlying growth. Content sales and subscription sales have not been particularly sensitive to slowdown. In fact maybe countercyclical. We’re about 25% advertising, though. A big slug of that is from Turner cable, and ad growth at those networks has been very very strong. Upfront sales were good. Ratings, pricing up. We ended up at high end of all television sales. The part that isn’t so good: The online sales at AOL, which is a mixed bag, and print sales, which has been down. I think 9% in last quarter. Clearly print ads are weaker. There are some good parts of AOL ad sales. Good part is search. Weaker part is display and third-party.
A little joke about Rupert Murdoch bragging about success of Fox show “Fringe” which is a Warner-produced show.
Back to AOL: What’s working, what isn’t. What is working: Opened up, free AOL. Traffic at AOL programming sites – a lot of those sites and uniques are up 5%, page views are up100%. A lot of the programming is working. What’s not firing – yet – are the ads on the display side. Third-party also not performing yet. Platform A is a good property, but, because it has new, because of the economic slow-down, you’re finding pressure on pricing and demand, which has made it disappointment. Search, though, is doing quite well. Working with Google, and taking advantage of the traffic growth I just mentioned.
How’s print mag biz doing? Some doing OK: Sports Illustrated, People, other. But general new, finance, men’s areas, things like tech, autos where the weakness started.
Back to AOL: What did you learn when you separated access from content? We learned that it was hard. AOL is big. Getting all those capabilities separated was a lot of work. And we also had to take a lot of costs out of AOL, which we’ve been doing. We’ve taken $1.5B of run-rate costs out of the business in last 18 months. That’s a lot to do… Let’s say AOL went into some “structural different configuration” – how would that change your digital strategy at Time Warner? It wouldn’t. Because there’s some cooperation between TWX digital and AOL, but not tightly tied.
What about AOL sale? Let me speak carefully: It’s pretty clear from the ruminations ath Microsoft and Yahoo and Google, that everybody is looking hard at what scale… everyone’s involved in discussions to see if there’s an advantage to combinations. If such a thing could benefit the performance of AOL, we would consider it. [TRANSLATION: Yes we’re talking to everyone, and no I’m not going to talk about it.]
I believe interviewer just asked him about investing in XM-Sirius. Another non-answer, but essentially saying: We’ll bulk up some existing businesses, if it makes sense (maybe print, etc). But doesn’t make sense to get bigger for getting bigger’s sake.
What would we buy if we bought? Networks, internationally and domestically; TV production, maybe even publishing. There is growth in publshing titles if you don’t think about them solely as print pages but if you think about them as things that work on digital screens. Would also rule out acquisition of newspaper, sub prime debt. Chuckles from audience.
Bewkes, who famously declared that synergy was “bullshit”, now talking about benefits of owning TMZ, Sex In The City, using them on different TWX platforms. “We’re going to try to continue to optimise that… but no one should think that we only sell to ourselves.” Obviously we have to sell CBS, ABC, NBC, Fox, etc.
Jeff making us sleepy, and we’re not even locked in a ballroom with a rubbery chicken in front of us… We like franchise films but we won’t only do franchise films…etc…
Audience has lots of questions about AOL (us too!): What’s your timeline for selling off? WHat’s upside to splitting access from content business? Once we do it, it’ll make it easier to figure out what to do with access – run it and keep the cash flow, or sell. On possible sale: Everyone’s talking to everyone. “That probably will get decided fairly soon.” Note that Jeff to cagey to talk about “sale” – he talks about combinations, etc. This is vague but it’s something.
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