A New Era for Time Warner?

By Tim Arango

For someone with a reputation for being unsentimental about his company, it was perhaps surprising that Jeffrey Bewkes looked to the past when he spoke at a Time Warner management retreat in Miami in late November, his first since being tapped as the company’s next chief executive.

Before the top 200 executives at a ballroom in Mandarin Oriental Hotel in Miami, Bewkes invoked the legacies of Henry Luce and Ted Turner in ticking off the accomplishments of the assembly’s predecessors: inventing the newsmagazine (Time), and spearheading cable news (CNN) and pay television (HBO), according to three executives in attendance who spoke on the condition of anonymity because it was a private meeting.

But Bewkes’s task is very different. Those pioneers built the modern Time Warner. Bewkes, who will take over from Richard Parsons on Jan. 2, may be the person who tears it apart. The question, therefore, is how Time Warner will look after a Bewkes administration and what he will do first.

There is no end to the theories of why Time Warner has stalled. The stock price has been moribund for years, following the disastrous merger with AOL in early 2001. On May 20, 2002, the day Parsons took over as chief executive from Gerald Levin, Time Warner stock closed at $18.81. Lately, shares have traded close to $16 a share.

Wall Street analysts have complained about confusion during the executive transition, and there is a widespread view that there is no logical reason for the company’s disparate assets – CNN, HBO, the publishing empire Time Inc., the Warner Brothers movie studio, Time Warner Cable and AOL – to be part of the same corporation. The various divisions mostly operate independently, and Bewkes has publicly voiced skepticism over the idea of wringing much synergy between them.

“If you have been an investor in Time Warner for a one-, two-, three-, five- or seven-year time frame you have not made money,” said Michael Nathanson, an analyst at Sanford C. Bernstein. “Therefore you have to look at the construction of the company and ask, ‘Why is the company built like this?’ “

Bewkes has outlined his so-called three pillars of growth for the company: increasing revenue from digitizing content; expanding internationally; and broadening the appeal of Time Warner content to attract a more diverse audience. All worthy ideas, but they do not exactly tip his hand as to his overall corporate strategy.

But ask a sampling of Time Warner observers, everyone from investors to analysts to other media executives, what Bewkes’s strategy should be, and you are likely to get as many different answers as there are people in your sample. Sell the slow-growth Time Inc.; spin off the cable unit; beef up on cable networks by acquiring Discovery or Scripps; merge AOL with Yahoo or MSN to better compete with Google. Or, something even more radical – merge with NBC Universal, an idea that has been publicly floated.

For the past year, Time Warner’s board of directors has received a briefing on possible strategic alternatives at each meeting – including a radical breakup.

In other words, Bewkes has heard it all and there is nothing that he will do that has not already been considered by the board behind closed doors.

“It’s been analyzed to death,” said a high-level Time Warner executive.

Bewkes, who earned his executive bona fides at the company with a successful run at the helm of HBO in the 1990s, is skiing this week and declined to comment. But during his speech in Miami, Bewkes made it clear that in a year or two Time Warner might look like an entirely different company with a different mix of assets.

“His message was that he would take a hard look at the structure of the company and see if it’s right for the individual companies to move forward together, with the upshot being some companies may work better apart,” is how one Time Warner executive in attendance paraphrased Bewkes’s remarks.

While Bewkes will take Time Warner into the future, his pedigree links him to the company’s past. The company’s founding fathers, Henry Luce and Britton Hadden, germinated the idea for Time magazine in the early 1900s while undergraduates at Yale, where Bewkes graduated in 1974. And, like Luce and Hadden, who attended Hotchkiss together, Bewkes is also the product of an elite prep school – in his case, Deerfield Academy of Massachusetts.

Last week, the CNN anchor Soledad O’Brien interviewed Bewkes and Parsons on a closed-circuit broadcast for employees and posed this question to Parsons: “What is the biggest difference between you and Jeff?”

Parsons responded, “I’m a defensive guy. It’s hard to get the ball from me if I have it. But Jeff is an offensive guy, and he’s going to find a way to take the company in new directions.”

The pair’s differences do not end there. While the adjective most associated with Parsons is “diplomatic” – an attribute that helped him glide through the 2005 crisis when the activist investor Carl Icahn bought up Time Warner stock and pushed for a breakup – Bewkes, while polished and charming, is not afraid of confrontation. He was dispatched by Parsons in 2002 to confront Steve Case, the AOL founder, in a meeting about the poor performance of the online unit.

Investors have already jotted down three important dates for Time Warner in their Blackberries: Feb. 6, April 1 and July 1.

On Feb. 6, Bewkes will preside over his first quarterly earnings call as chief executive. Analysts and investors are expecting him to reveal some details of his vision for the company and a possible breakup. April 1 will mark the fifth anniversary of the restructuring of Time Warner Entertainment, a complicated partnership with Comcast whose unraveling resulted in Time Warner taking control of Time Warner Cable. After April 1, Time Warner can spin off more of Time Warner Cable – earlier this year it spun off a 16 percent stake to investors – without incurring a large capital gains tax.

Whether or not to completely separate cable from Time Warner’s content businesses is seen as Bewkes’s most important decision.

Slicing cable, which accounted for 36 percent of Time Warner’s revenue last quarter, would leave a more pure-play content company that includes the Turner cable networks, Warner Brothers, publishing and AOL.

If cable is spun off, the speculation – which is not dismissed by insiders – is that Time Warner could seek to either acquire or enter a joint venture with NBC Universal. General Electric has publicly said it has no plans to sell NBC Universal, but speculation in media circles is that the company would consider it following the 2008 Beijing Olympics, which NBC will broadcast.

The final important date is July 1 when Google, which bought a 5 percent stake in AOL in 2005, can force Time Warner to either take AOL public or buy back Google’s stake at “fair market value” – probably something less than the price Google paid, which put a $20 billion valuation on AOL at the time.

“I think that will force the board to consider alternatives for AOL” like partnerships with MSN or Yahoo, two potential deals the company has discussed in the past, said Spencer Wang, an analyst at Bear Stearns.

Originally published by The New York Times Media Group.

(c) 2007 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.