Time Warner (TWX) Parsons at Goldman Conf: Notes

Fireside chat: Goldman analyst Anthony Noto and Time Warner CEO Dick Parsons:

AOL: How does shift from portals to ad networks affect margins?  Anyone’s guess.  Right now, a lot of inventory from email.  Lowest of low.  But now, with behavioural, prices can rise [in theory–this has been the hope since spring 1996.  Email just awful inventory.].  We think we have right tools, etc. 

AOL:  IPO?  Spinoff?  No, we’re focused on building third-party network AND building own inventory, not doing something structural with AOL [stresses importance of own inventory after network drum-banging sold AOL properties down river last few days].  Network strategy: Have all pieces we need.  Ad.com and $500 million on acquisitions (Third Screen, Tacoda, etc.).  We have the LEAD in the network space.  It is ours to lose.  If we are successful building out third-party network, lots of inventory in Time Warner properties.  Whole is greater than sum of parts.  [And has to be if Time Warner holding co structure to continue to justify existence]. Spin out and create magical currency?  Look what happened to Time Warner Cable (stock tanked).  You don’t put company on that path unless going to go all the way down that path.

AOL: Transitioning from subscriber based business to focus on advertising in new age. Still in the midst of that process. Doing better than I had hoped, but still have a long way to go. Cable is not so much in transition — big bite with Adelphia, still have to incorporate. Those are two primary focuses. Only other one I’d single out in transition mode: publishing.  Migrating brands and presence onto Web and taking advantage of higher growth ad trends behind those brands.

AOL Access Business: Still contributes majority of pageviews and majority of profits.  [THIS IS NOT GOOD NEWS.  ACCESS REVENUE DROPPING 50%+ Y/Y] Believe that in next 18 months, attrition will stabilise.  At that point makes sense to consider disconnecting the two businesses (subscription and portal).  So you will divest that portion of AOL? Just a matter of when?  Tempted to say “yes,” but with two caveats: 1) world changes fast, 2) focused on keeping that product strong/vibrant.

TW Growth Ex Cable?:  If do it right, double-digit earnings growth, even without cable.  More costs still to be taken out of AOL [read: layoffs] Digital delivery of product.  VOD.  Currently hard DVDs out to rental store.  20 cents on dollar.  This increases 4x with digital [really?]

Cable Most Challenged From Internet?  All the businesses have challenges from Internet [oh, great]. Working with Turner to introduce original programming, sports, news–resist the anytime/anywhere of Internet.  This programming has immediacy.  Idea that can get all online so no one which watch TV not going to happen [agreed]. 

NOTO: But Internet has bigger audience than cable and it’s cheaper. 

PARSONS: Could have said same thing 20 years ago about broadcast/cable.  Until you can aggregate those audiences, that reach is un-monetizable.  With 1/2 viewers, broadcast still had 2/3 ad dollars.  Maybe 15 years, fine.

NOTO:  But pages on AOL with millions of viewers–your property, AOL.

PARSONS:  Yes, we’re trying to create third-party network to maximise…  Cable networks have a lot more vitality and life in front of them. We think growth of low double- high single digits.

NOTO: Oh, of course, of course, you’re on the right strategy (Sorry, Mr. Parsons!).

$5B Buyback: Want 3-to-1 leverage ratio. Decided to get there now.  If at end of that still generating excess cash, we will continue on that path.

Top priorities for rest of year?  Cites Buffett: You can only do two things: you can mange your business and you can manage your balance sheet. Priorities: keep businesses up and running strong, continue to outperform competition, hitting marks in transition.

International growth:
Adjusted for AOL access business, 15%-17%.  Mostly driven by Warner Brothers exported product (TV, movies).  AOL int’l:  Got out of access, but doubled-down on audience. 30 countries, where the money is.  Just moved AOL Int’l HQ to India. Turner: Small deals, small steps.  Right now, money still in US, Western Europe, Japan. In 15 years, Mexico, Eastern Europe.Blu-Ray v. Hi-Def:  We don’t care.

Parsons role in company 2008 and beyond?  Least well-kept secret in media: In a transitional mode. Athletic metaphor: I used to run track relays. From time I become CEO, I’m running a leg of this race. “My job was to, in my case, pick the baton up off the dirt… and run as good a lap as I could and then pass it on to somebody else as effectively as I could.” (Laughter) In the “passing lane,” Jeff and I. Exact timing up to board. Still running hard, Mr. Bewkes is still running hard. Structural changes before passing of baton? Given where cable company is likely to go in fullness of time — multifunctional, full-form telco platform — time comes when they need to be on own balance sheet. Whole space is continuing to evolve. Wanted to put cable company on path there. Continuing industry consolidation. Still synergies between cable side and content side.