Time Warner chief executive Jeff Bewkes may be the smartest CEO in legacy media

Published October 25, 2016 by lagmen
Time Warner's Jeff BewkesTime Warner chief executive Jeff Bewkes has seen the writing on the wall for legacy media, and is heading for a very profitable exit.

Even with popular content from HBO, Warner Bros., and Turner, including one of the most-watched shows on TV, Bewkes has realized that Time Warner’s long term growth prospects are slim without having any control of the pipes used to deliver that content—and, more importantly, the troves of data that come along with that access.

Disney CEO Bob Iger said recently that owning big name networks and movie studios can only get you so far in today’s media landscape. “It’s one thing to be as fortunate as we are to have Disney, ABC, ESPN, Pixar, Marvel, Star Wars, and Lucasfilm,” said Iger, during an interview at the Boston CEO Club, which BTIG Research posted online (login required). “But in today’s world, it’s almost not enough to have all that stuff unless you have access to your consumer who, because of technology, is providing you with incredible data to provide the consumer with a more customized and personalized experience that can be monetized better.”

Consumers are losing interest in live, round-the-clock television. Viewers are cutting the cord and shifting toward slimmed down pay-TV bundles. And advertising is beginning to move away from TV and toward mobile.

Rather than trying to rebuild a media empire out of what’s left of Time Warner, which has divested many of its businesses over the years, Bewkes struck a $100 billion deal, including debt, with AT&T to unload the company, which still has an attractive video business, at 25% more than the $85-per-share offer Fox made in 2014, which Time Warner rejected.

AT&T CEO Randall Stephenson will head up the new company. And Bewkes, 64, will retire, after assisting with the transition for an unspecified period of time after the deal closes.

“While most media moguls are focused on running their companies until they are six feet under (HBO pun intended), we believe Bewkes will end up being remembered as the smartest CEO in sector—knowing when to sell and not overstaying his welcome to maximize value for shareholders,” Rich Greenfield at BTIG Research wrote in a recent blog post (login required).

Time Warner has split from many of its media businesses under Bewkes’ leadership. In 2008, shortly after Bewkes became CEO, Time Warner spun off its cable business Time Warner Cable. And a year later, the company completed its split from AOL, after years of unsuccessfully trying to integrate. Time Warner also shed its print arm, Time Inc., in 2014, as the print model that Time Warner had relied on as a primary source of income for years became less and less profitable because of the internet.

Now, what’s left of Time Warner—its TV and film businesses—is similarly in danger as distribution models change.

“Video has held up both because it is still expensive to compete with great content and because the huge swathes of the economy are invested in the ecosystem surrounding TV and its advertising,” wrote Ben Thompson in a recent post on Stratechery (login required). “The long-run trends, though, are not in Time Warner’s favor, and shareholders should be pleased to get out at such an attractive price.

The AT&T-Time Warner deal is expected to kick off a new wave of consolidation between media, entertainment, and communications companies in the US, CNN Money reported. Three other smaller cable networks, AMC, Discovery Communications, and Scripps Networks, all had a surge in shares on Friday (Oct. 20), after speculation of the AT&T-Time Warner deal first surfaced. And the Hollywood Reporter columnist Michael Wolff predicts that the value of content creators will get a boost on the market in the short term.

The value and volume of media, entertainment, and communications deals were down during the first half of this year, compared to the same period during 2015, according to data from PricewaterhouseCooper.

But PwC said it expects deal volume to remain strong in the film and content spaces, where interest in production companies, virtual reality, and movie studios is spurring consolidation. The firm’s third-quarter report on media, entertainment, and communications deals is due out on Thursday (Oct. 27).

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