"DIGITAL MEDIA IS more than the Internet,”
Time makes time for digital media
Former CFO seeks to transform new media unit
msnbc.com
By Jane Weaver MSNBC
Aug. 16 — What does it take to transform a nearly $30 billion media conglomerate into a quick-moving, profitable digital empire? Richard Bressler, Time Warner Inc.'s former financial chief turned new media czar, is betting that an Internet strategy based on a cable TV model, a lot of promotion in TV and magazines, e-commerce and, yes, maybe even going public can do it.
“DIGITAL MEDIA IS more than the Internet,” says Bressler.
Indeed, one indication of the scope of the company's focus is that on Tuesday, Time Warner, Walt Disney Co. and about seven other media companies are expected to announce they are jointly investing $50 million in Replay Networks, a digital video recorder company. Considered the next big thing in interactive TV, these so-called “smart VCRs” produced by Replay Networks Inc. are personal video recorders that store programs and allow viewers to customize lineups of their favorite shows.
As chairman and CEO of Time Warner Digital, Bressler will be overseeing the investment in Replay, a deal that industry watchers say will give Time Warner a way to test and explore the emerging smart VCR technology.
Bressler won't give an exact dollar figure on how much Time Warner is ready to commit to its digital properties — he would only acknowledge the possibility of “one or two other small deals in the near future.” However, insiders say as much as $500 million could be spent on investments in new technologies as well as in Internet media properties and its Web ventures such as CNNfn.com and Warner Bros. Online. The company could also take stakes in other new media companies, exchanging promotion in Time Warner properties for equity stakes.
When contemplating the media giant's Internet ventures going forward, Bressler wants the investment community to think of a $30 billion revenue stream backing up a cross-divisional digital conglomerate made up of some of the most recognizable brand names in media — Time Magazine, CNN, Warner Bros., Sports Illustrated, to name a few.
Then there's the exploding digital music market the media giant is tapping into with its merger of CD Now with the Time Warner and Sony Corp. record club Columbia House. And, of course, the high-speed cable modem service Road Runner, 300,000 subscribers strong and growing by 6,000 homes a week.
“Heretofore, our brands have been exploited pretty much within their divisional lines,” says Bressler, often credited for his hand in the impressive turnaround in Time Warner's finances in recent years. “We'll be bringing those brands to the consumer in a way we've never done before.”
TIME FOR NEW SYNERGIES
What is clear, analysts say, is that Bressler's comments reflect the attitude of chairman and chief executive Gerald Levin toward Time Warner overall. Levin's restructuring of the new media business under CFO Bressler in June was followed by the appointments of company insiders Barry Meyer and Alan Horn to head up Warner Bros. Studios (replacing Bob Daly and Terry Semel) in July, indicates a new goal for all of Time Warner: making the organization work better across operating units.
It's the classic Time Warner synergy song set to a digital beat, and it's what Bressler has been touting since moving into his new role as chairman and CEO of Time Warner Digital barely a month ago.
So far, at least, some Wall Street types are responding.
“Digital is going to be a very important extension of their business,” says Jill Kutrick, analyst with Salomon Smith Barney. “It's giving them an exciting new platform to sell products,” adding that the company is “well-positioned” to increase the percentage of cash flow from the Web to its traditional businesses to double digits over the next few years.
“It's the first step: you consolidate all the subject matter and various sources in one area, the theory being that it's better off making it available in one easy-to-use place,” says Tom Wolzein, analyst with Sanford C. Bernstein.
HYPING THE ‘HUBS'
The theory is that with five heavily cross-promoted “hubs” — entertainment, news, business/finance, sports, lifestyle — Time Warner Digital will aggregate content from the Turner empire (CNN, for example), from Time Inc. publications or from the Warner Bros. studios into some kind of cohesive structure based around selling products and advertising.
It will work, Bressler reasons, because as the Web moves closer to a mainstream medium like TV, the online business model will also follow TV.
“There's a model there and its called the ‘cable versus broadcast network' model,” says Bressler. “Cable has been the beneficiary of enhanced distribution systems where people have more choice and [online] is just another version of it.”
He argues that the amount of time spent on “horizontal” plays like Web portals is declining. “People are doing more bookmarking, they're going straight to sites and they're not going through or browsing through the horizontal players,” says Bressler. “The trends that we're seeing, where the minutes per site on horizontal plays have gone down, but the minutes per site on a lot of the more targeted focus sites have gone up.”
A quick glance at Media Metrix figures seem to back up Bressler's assertion. In June visitors spent a total of 107 minutes across all sites in the news, information and entertainment category, compared to 81.2 minutes spent at search engine sites. But it's important to note that in June visitors to the decidedly ‘horizontal' Yahoo spent an average of 66.5 minutes for the month, compared to Time Warner's targeted CNNfn.com, where they lingered only 19.2 minutes during the month.
After pushing through the long-simmering merger between online music seller CD Now and Columbia House in July, Bressler is now turning his attention to launching the first two of the five hubs to go live, “Entertaindom” and the as-yet unnamed Business and Finance hub.
“Entertainment may be the next big explosion,” says Bressler.
He's also contemplating the launch of a sixth music hub built around its Columbia House and CD Now properties.
TIME FOR A DIGITAL SPINOFF?
Then there's the ongoing and heated internal debate over whether to spin off Time Warner Digital and take it public.
“As Internet stocks tank, the whole proposition of having Net currency has somewhat lost its luster,” says David Simons of Digital Video Investments. “If whatever is going on now becomes protracted, and at some point it will, the appeal becomes muted.”
Bressler avers, “I haven't ruled out taking any of our digital media aspects public, but I haven't rushed to take them public either.”
One scenario under discussion is the spinoff of its “Entertaindom” hub, scheduled to launch sometime after the start of the fall TV season, according to a source familiar with the negotiations.
Time Warner insiders say the inability to compete with new media companies in terms of stock options continues to cause strife within Time Warner's Internet ventures.
“It is a must, and it must happen,” one senior level insider says about a Time Digital offering.
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