Wednesday, December 15, 2010

Attention Jeff Bewkes: It's coming, whether you like it or not

Jeff Bewkes, the CEO of Time Warner, has been getting some cheap shots off recently at Netflix's expense. Last week, at an entertainment conference run by UBS, Bewkes was asked about Netflix's offer to acquire rights to in-season television shows for $70,000 to $100,000 an episode, and he said that it "... is a measly little offer...that is not attractive or incremental". So, what's Mr. Bewkes' attractive and incremental opportunity? According to him, it's syndication revenues and DVD sales.

Let's examine that argument. In the U.S., television broadcasters are struggling to recover from the recession. That's a big reason why there's been so much emphasis on payment for retransmission rights by cable, satellite and IPTV service providers; broadcasters are trying to tap into whatever revenue sources they can find. There's not a lot of money in broadcasters' pockets to pay more for syndication rights. But what about DVD sales? According to research firm In-Stat, they're forecasting physical video media sales to decline by $4.6 billion from 2009 to 2014. That's not just a decline in DVD sales--that's a total decline in both DVD and Blu-Ray sales. In other words, Blu-Ray, the technology that was going to save the movie studios, won't. On the other hand, In-Stat is forecasting that video downloads and streaming are going to increase $4 billion, from $2.3 to $6.3 billion, over the same period. Essentially, Bewkes' company has no choice but to sell to Netflix and its competitors, simply to compensate for the decline in DVD and Blu-Ray sales.

In a separate interview with the New York Times last week, Bewkes referred to Netflix this way: "“It’s a little bit like, is the Albanian army going to take over the world? I don’t think so.” The problem is that in many ways, Netflix's army is bigger and has more weapons than Bewkes' own. As The Wrap pointed out, Netflix now has the rights to stream movies comprising 49% of the 2010 U.S. theatrical box office. By comparison, Bewkes' HBO only has access to 43% of the 2010 box office, and HBO is bleeding subscribers, while Netflix continues to grow.

Perhaps by bad-mouthing Netflix, Bewkes believes that he's improving his negotiating position or demonstrating what a tough manager he is. The overall impression, however, is that he's out of touch with reality. Given Time Warner's history of mismanagement over the years, that's not reassuring, either to Time Warner's shareholders or employees. It might be a good time for him to decline additional interview requests and get a better handle on what's really going on in his businesses.
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