While the downturn in the economy has played havoc with the stock market and media valuations recently, Time Warner Inc. CEO Jeffrey Bewkes told an audience at an investor conference last Wednesday that the turmoil has had little effect on the media giant’s businesses.
“Right now, I think the economy is the biggest strategic question on everybody’s minds, and it’s certainly been a big question for media valuations,” Bewkes said at the Goldman Sachs Communacopia conference here last Wednesday. “It hasn’t had much effect yet on Time Warner’s earnings, revenue and growth.”
Bewkes said what has insulated the media giant so far is that only about 25% of its business is tied to the advertising market, which has borne the brunt of blows from the sluggish economy. Bewkes estimated that about 40% of Time Warner’s revenue is from content sales to distributors and another 33% from subscription sales at units like Home Box Office, Turner Entertainment and its publishing division.
“Content sales and subscription sales have for decades not been particularly sensitive to economic slowdowns,” Bewkes said. “There have been cases and arguments that they have been counter-cyclical.”
And Bewkes added that even though the overall advertising market has swooned during the past several months, Time Warner’s cable networks have been showing growth.
At Turner Entertainment, Bewkes said that ad-revenue growth has been strong — in the second quarter, it rose 11% — fueled by a robust upfront and an even healthier scatter market.
“We ended up basically at the high end of all television sales,” Bewkes said.
Earlier in the conference, Comcast chief financial officer Michael Angelakis said that the economy has had no material effect on the cable operator but he worries about the “ripple effect” the downturn could have on consumer spending.
Angelakis also said that Comcast is well-positioned against telco competition, adding that Verizon Communications’ FiOS product affects only about 10% of its footprint.
Despite that limited exposure, Comcast expects to be one of the more aggressive MSOs regarding converting its systems to all-digital technology and rolling out DOCSIS 3.0 super-high-speed data service — it plans to do both in about 20% of its footprint by the end of the year and already launched a 50-Megabit-per-second DOCSIS 3.0 service in Minneapolis earlier this year.
Comcast plans to reclaim a significant amount of bandwidth in the markets where it goes all-digital — up to 300 Megahertz, or about 50 channels. That capacity could be used for additional HDTV channels, ethnic channels and DOCSIS 3.0.
Angelakis added that Comcast will be cautious regarding any additional HDTV channels — he said that the MSO would only launch those channels its customers want. And once a system gets to a certain number of HD offerings, he added, additional channels can become overkill.
“I wonder if anyone in the audience knows exactly how many HD channels they have on their system and whether they feel like they don’t have enough. I think that, once you hit 50 [HD] channels, there is sort of a diminishing return in terms of how people look at it,” Angelakis said. “With all due respect to C-SPAN 2, I don’t think people care about watching C-SPAN 2 in high-definition.”
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