Time Warner Clinging to a Dying Business Model


Time Warner (s TWX) says it is embracing the web through its TV Everywhere initiative and through its plans to make web content from its cable channels available on Google TV, according to a Wall Street Journal article today. The story, titled “Time Warner Sees Ally in Web,” details the company’s digital efforts as it tries to deal with a world that is moving increasingly online and increasingly on demand.

But the premise is flawed.

For one thing, the headline is disingenuous: Time Warner doesn’t see the web as an ally — in fact, CEO Jeff Bewkes specifically calls out web-centric video delivery through Hulu and Netflix (s NFLX) as competition. Time Warner’s “embrace of the web” isn’t in making its content available in a web-friendly fashion; it’s about restricting access to that content through authentication that ties back to consumer’s cable bill.

Make no mistake: Time Warner is building a pay wall for its cable assets online. Its partnership with Google TV and its TV Everywhere initiatives are merely defensive measures designed to keep customers subscribed to its pay TV channels.

But if Time Warner’s plan is to hold back whatever content available on the web, it’s going to be plowed under by the increase in the number of users who simply don’t see the value of paying for TNT, TBS or HBO. It’s not that these users are “cord cutters” necessarily; it’s that this new generation of users never really had the cord to begin with. I’m talking about users who are now graduating or have recently graduated from college and have gotten by just fine by viewing their content through online services. For them, a cable subscription is not a way of life, but an unnecessary expense. If they want to pay for content, there are cheaper alternatives than a $100 cable subscription.

Time Warner will soon find this out the hard way.

The most laughable paragraph, however, is the closer:

Mr. Bewkes said that Hulu and Netflix, which offers a streaming television and movie service, have garnered attention because they have created a great experience for accessing content on smaller screens. But he said that as Google, Apple and paid-television operators improve the experience on large TVs, people will prefer to watch on demand on their TVs.

What Bewkes seems to be missing is that Netflix and Hulu already make their content available on the big screen. Netflix has been doing so for nearly two years, ever since it announced the availability of its streaming service on the Roku Player. And it’s no longer a niche activity — more than 60 percent of Netflix subscribers stream some of its online content, which is now available on close to 100 different consumer electronics devices. Meanwhile, Hulu’s Plus subscription service is just getting started, but it too will be available on a number of connected TVs, Blu-ray players, gaming consoles and mobile devices by early next year.

A lot of Time Warner’s future will depend on its strategy for dealing with distribution of video in the connected world. It can either compete with Netflix and Hulu Plus head on by going to the consumer directly. Or it try to to stem some of the losses by joining them. But putting its video programming behind a pay wall, clinging desperately to the same old cable model, isn’t going to work in tomorrow’s world.

Photo courtesy of Flickr user Alan Bruce.

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Some people think that Time Warner the media company and Time Warner Cable are the same company… in fact they are not…
as of 2009 Time Warner Cable is a separate company with it’s own CEO and shareholders.
WSJ.com – FCC Approves Time Warner Cable Spinoff http://on.wsj.com/aKooSz


As someone who cut the cord almost two years ago, I agree that Jeff Bewkes’ assessment of why people have gravitated to Hulu and Netflix streaming is completely off base. It’s about watching what I want, when I want. I’d prefer to watch it on a big screen than a computer screen and do connect my laptop to my tube tv to do exactly that sometimes. Lately, I’ve been enjoying Netflix through my blu-ray dvd and may even spring for Hulu Plus once it’s available. I will and do pay for content that I value but don’t want to pay for hundreds of channels I don’t watch. I get that TV Everywhere is Time Warner’s attempt to protect the recurring revenue stream it gets from cable but really, I’d prefer to pay them directly for HBO.

will marks

“But putting its video programming behind a pay wall, clinging desperately to the same old cable model, isn’t going to work in tomorrow’s world.”

Um, isn’t Hulu Plus EXACTLY the cable model…behind a pay wall,one price each month, many providers, plus ads?

And as so many on this site have mentioned ad infinitum, without the 100MM+ households that pay cable companies each month for video subscriptions, what is going to fund ALL the shows on TNT, TBS, USA, FX, etc. NewTeeVee journalists, in general, never answer that question.

Would you prefer a return to a world with 3 broadcast networks, and cable networks that just run re-runs of “I Love Lucy” and ESPN? Only now you would also have a sea of web video of both amazing and low quality, self-funded or ad supported.

Why wouldn’t Time Warner – which is NOT Time Warner Cable – have as many different ways as possible to monetize their content? TV Everywhere, Hulu / Hulu Plus, Netflix, iTunes…Content NEEDS distribution. But they NEED to get compensated for their product!

Ryan – you are usually an adequate journalist. But this article is really slapdash.

Ryan Lawler

Will, the problem is that Time Warner is not trying to find as many distribution points as possible. It’s tying itself very closely to its existing cable partnerships and ignoring everything else. I think that’s a huge mistake.

As for Hulu as the cable model — it’s a subscription model, sure. But at least it’s affordable.

will marks

“As for Hulu as the cable model — it’s a subscription model, sure. But at least it’s affordable.”

Ryan – it’s affordable because it’s subsidized by – you guessed it – the 100MM cable homes. Hulu doesn’t pay for the professional content that they distribute. It’s the 100MM cable homes that pay for the production of the content.

And, again, Hulu has no live sports, college football, Olympics, etc. And shows disappear at any time; or are up for 4 or 5 weeks / eps in many, many cases.

Where is Time Warners “huge mistake”? Having superb margins while creating must-have content? I would think the huge mistake would be blowing up a very, very lucrative model to chase a very, very bad one.

With all due respect – both you and Liz should really dig in and study broadcast and cable business models. Get deep into how shows are financed, produced, and distributed. You would come away with a much different perspective on the business models that keep the lights on and allows creation of so much of the great content consumed in the US and worldwide.

Ryan Lawler

Will, I get it. Cable depends on those 100 million homes and shouldn’t just blow up the business model. It’s incredibly lucrative and finances all the high-quality content we’ve come to enjoy.

The problem is that cable is not the future. If companies like Time Warner can’t find alternative business models when that time comes, they’re going to be left in the dust. TV Everywhere and authentication are not a long-term solution. Time Warner can add as many bells and whistles to its cable service as it wants — it can put it online, it can put it on the iPhone, etc. But if I have to pay $100 to access that content, I’ll just find something else to watch. I might be in the minority — for now — but I’m hardly alone.

As for the argument that destroying the cable business model will destroy all the great content that gets subsidized by it — that’s like saying that people are going to stop making music because the major music labels lost billions in their digital transition. There was a lot of pain, and a lot of people lost a lot of money, and there was tons of consolidation in the industry. But music continues to be made, in the same way that video programming will continue to be produced, even if Time Warner loses billions clinging to big cable.

The model might not be what you’re used to, but video will survive. Someone will finance it, produce it, and find a way to make money off it, even if there isn’t a cable company paying to distribute it. I mean hell, people are making money off quality programming online today. What makes you think they NEED cable as a distribution channel?

will marks

Ryan – thanks for the thoughtful response. Obviously we could keep going around and around on this. So just a couple of quick observations:

Affordability – As another poster pointed out, once you keep adding separate small subscriptions, it adds up. E.g. Hulu Plus, Netflix, some ESPN-type sports package, MLB, etc. it really adds up. Now of course, you could say that many homes won’t get all of those things. But I would bet many will. So it’s death by a thousand cuts.
Affordability 2 – …and don’t forget with all that downloading / streaming, your ISP will start to charge tiered pricing. Again, I’m not splitting hairs whether it’s cable, 4G, etc., the ISP will exact some pound of flesh here.
Music comparison – There are as many similarities as differences. No one “subscribed” to a music label or package. So their business was not in any way based on recurring subscription revenue – it was always “hit driven”, like the movie business.
Music comparison 2 – Conversely, video production is not likely to be paid for by touring or merch sales. Yes, I know, It’s Always Sunny had a great stage tour (as did Conan). But you know as well as I that’s for marketing, buzz, and fan connection and doesn’t pay for production.

Thanks for the great discussion!

Harry DeMott

I’ve been as critical of the cable operators and some of the big media companies as anyone out there – but I disagree with you on this one.

I think we can go through a few premises:
1. Consumers want to watch what they want, when they want to watch it, and on the device they want to watch it, and in the location they are in the mood to watch it.
2. Providers of professional content want to be paid for their content
3. Consumers want to pay nothing for professional content

Now the tension revolves around points 2 and 3 here.

Bewkes isn’t building a pay wall per se – he is simply extending the current distribution model to all devices. As someone with a Directv subscription, I am all for that – I would love to be able to get my Directv service everywhere I have a broadband connection – or even better – on a portable DVR service.

Now what people really want is all of that – either ala carte – or just absolutely free.

Free is just not going to happen. There’s tons of free video out there – and for the most part – it is almost completely unwatchable by the masses – the content that draws a crowd is the professional content.

Now Hulu survives as networks get their programming (which they give away for free anyway) out to the marketplace further. But HBO is not free – nor is it going to be anytime soon.

Now if you want to talk about changing the pay TV paradigm in the whole – and unbundling services that I don’t want – but have to pay for – then I am all for it – but I don’t think you are going to find too many takers among the media companies anytime soon.

So given that fact, I think TV Everywhere is not a bad start.

The average american household watches something like 5 hours of tv per day – which may be shocking – but imagine if you unbundled all of that content – and then started charging for it ala carte. Over the course of a month that’s 150 hours – for which you probably pay and average of $100 for. So would you pay $0.67 per hour for an episode of House? A Football Game? A Movie? In general – where you have alternatives – they are more expensive. Movie rentals are $4 per night – or about $2 per hour. Apple TV television show rentals are $0.99 per hour.

The issue is just how much people watch.

If you are a low consumer of media – then cable is absolutely a bad bet. The price value relationship is out of whack – but if you are a heavy user – then it might start to seem a pretty good deal.

Throw in the ability to start time shifting, place shifting and device shifting – and you really have something interesting.


The real question is, will Time Warner Cable discriminate against Netflix and Hulu with its Road Runner broadband internet service and the nearly 9 million subscribers that rely on it for internet access. This is the fastest approaching Net Neutrality battlefield.

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