Time Warner: It’s All About Content

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Just a few days after the announcement that Sony Corp. agreed to buy all of Sony BMG Music Entertainment — a move which evidences Sony’s appreciation of the value of media content — the New York Times features an article on Time Warner with a similar “content is king” message. But beneath the similarities over the value of content, Time Warner and Sony appear to have distinctly different views on how to extract the most value from media content and the distribution chain around its delivery.

In discussing the Sony deal (“Sony’s New Content Play“) I argued that this move  demonstrates Sony’s faith in the value of recorded music, particularly in the hands of a vertically-integrated company like Sony that controls both content and the hardware and software to potentially create an integrated distribution channel.

As characterized in the New York Times piece, Time Warner’s approach is different, seeing value in the content but not in the distribution channels which, according to Warner Brothers chairman Barry M. Meyer, are becoming “commoditized”:

“The last number of years, all you have heard about is new and better ways to distribute content,” says Mr. Meyer, sitting in his office on Warner’s lot in Burbank, Calif. “At some point, I think distribution gets commoditized,” leaving, he says, content as the more valuable component.

He points at a television screen in his office. “At the end of it all,” he says, “it’s just a blank screen.”

And, to prove the point, Time Warner is shedding its distribution channels, having recently exited the cable business and now looking to unload some or all of AOL.

Cable and Internet access services are, indeed, commodity products. They add little value to the content that travels over their infrastructure. But the integrated experience that Apple provides with its iTunes store, Mac computers, and iPod and iPhone devices is quite different.

As Times reporter Tim Arango observes in the article, “[L]ook at the music industry and ask yourself who has made more money from the digital revolution: Apple from selling iPods, or the record labels from digital song sales?”

Sony’s Howard Stringer is, I suspect, well aware of this and — as I discussed previously — would like Sony to deliver similar end-to-end solutions that connect media content to our PCs and televisions.

One distribution channel in which Time Warner may be interested is television. According to the Times article, Time Warner has aspirations of acquiring NBC Universal from its current owner, General Electric. In the article Sanford C. Bernstein analyst Michael Nathanson observes, “Nonaligned third-party TV studios like Warner Brothers and Sony appear to have an increasingly harder time finding homes for their programs.”

Much of the current enthusiasm for content at Warners may be due to the warm afterglow from the huge success of The Dark Knight, which is rapidly on its way to becoming one of the most profitable movies of all time. This may, regrettably, drive Warners to focus on attempting to continually deliver similar blockbuster hits at the expense of more modest projects — an approach which always leads large losses on the inevitable misses along with the attendant attribution of blame followed by the eventual executive reshuffling.

Scott Kirsner also points out that Time Warner seems to put little stock in the Internet as a medium, seeing it not as a platform for new types of content but, rather, as merely a distribution channel for traditional content or, worse yet, a vehicle for content piracy.

This is hardly surprising given the challenges of monetizing Web-based content compared with theatrical films or broadcast and cable television. As the Times article states:

Although no one denies the shifting media landscape and the enormous degree to which new technologies and the Internet are disrupting it, the revenue that Warner draws from distributing shows or movies on the Web is minuscule and is likely to remain tiny for some time.

It will, no doubt, take smaller players to establish the value of these new channels before the major media companies will jump in with both feet. While the large media companies see the Web merely as a distribution medium — not unlike cable TV — a few creative artists (hello, Joss Whedon) recognize that it can also serve as a platform for new forms of content.

As the business models evolve, the media companies will take an increasing interest in online content, particularly given the margins possible with electronic distribution. As the Times article points out, Warners views video on demand (V.O.D.) as an attractive alternative to DVD rentals, since “studios get about 20 cents on the dollar per DVD rental” while reaping “60 cents to 70 cents on the dollar” for V.O.D. content.

Regardless of the distribution channel, however, the renewed belief in the value of content by media companies is a positive trend for all producers of creative content.

The image of the Warner Brothers logo is a copyrighted image, the copyright for which is most likely owned by Warner Brothers or its parent company, Time Warner. It is believed that the use of a web-resolution image for identification and critical commentary qualifies as fair use under United States copyright law.

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