Time Warner Inc. 'rips Band-Aid off,' lowers guidance and pulls back from Netflix

Although its stock price fell 7 percent after the release of its quarterly earnings, media analysts had mainly praise for a series of tough short-term moves announced by Time Warner Inc. to better align its programming in the digital age.

Among those moves: Company CEO Jeff Bewkes said Time Warner will seek to delay aftermarket deployment of some of its programming to SVOD platforms including Netflix and Amazon Prime Video.

"We are evaluating whether to retain our rights for a longer period of time and forego or delay certain content licensing," Bewkes told investors during Time Warner's third-quarter earnings call, according to a Seeking Alpha transcript of the event. "This would effectively push the [subscription video] window for content on our networks to a multiyear period more consistent with traditional syndication."

This strategy is in line with moves rival program suppliers have been hinting at for months. 

"It's just not rational that all of us in the content business sold our content to a distributor and have allowed that distributor to gain so much share and offer it without our brands," Discovery Networks CEO David Zaslav told investors in September. 

Forgoing licensing in the lucrative SVOD market could have a short-term impact. Jefferies analyst John Janedis told investors in the impact to Time Warner's operating income could be $50 million to $100 million in fiscal 2016.

Nomura analyst Anthony DiClemente believes money from SVOD services could decline to 2 percent of total revenue for major media conglomerates next year after peaking at 2.2 percent in 2015.

However, with binge-watching of reruns on SVOD platforms directly impacting linear ratings and advertising for programmers, analysts see the move as largely necessary.

Meanwhile, Bewkes lowered Time Warner's 2016 investor guidance and promised to invest more in the company's own digital platforms, including HBO Now. Bewkes drew praise from MoffettNathanson analyst Michael Nathanson for "doing the right thing" and "ripping the Band-Aid off."

The combination of worsening foreign currency trends, declining linear ratings and fast-falling pay-TV subscriber bases has to be addressed head-on, Nathanson said, even at the expense of short-term profitability. 

Bewkes, RBC Capital Markets analyst David Bank told the New York Times, "is getting up and saying what I think takes real guts to say: You really need to reinvest in the consumer experience and in technology and in content. In my view, that is the absolute right thing to say, but it will cost you some profitability in the near term, and it is coming at a time when foreign currency headwinds are extreme."

For more:
- read this Seeking Alpha transcript
- read this Re/code story

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