Showbiz units under scrutiny at Time Warner

By Steven Zeitchik and Georg Szalai

NEW YORK (Hollywood Reporter) - The departure of Carolyn Strauss, a longtime HBO executive and its current programming chief, is the latest indicator that Time Warner's entertainment divisions are in flux.

Since Jeff Bewkes took over as CEO, the company has folded a movie studio, set about re-creating its specialty film operations and may soon examine its already arms-length relationship with the CW and broadcast television in general.

At the same time, Time Warner has made significant investments in nonentertainment entities, last week spending $850 million for a social networking site, Bebo, with little potential to complement its film and television industries.

The moves are part of a larger rethink at Time Warner that entails closer scrutiny of its entertainment assets. While Bewkes has focused on pet Wall Street topics including the potential spinoffs or sales of AOL and Time Warner Cable, he's also given strong indications of his approach to entertainment.

One of the clear signals was the recent de facto absorption of the New Line studio into Warner Bros., to avoid overlapping businesses within the conglomerate. "The New Line move was pure Bewkes," one media executive said.

Bewkes acknowledged that philosophy when he told the Bear Stearns media conference last week that "it is far more profitable to put (movies) through one theatrical distribution system."

The likely merger between niche Picturehouse and Warner Independent fits that same philosophy. It's a mind-set that also gives rise to speculation about the future of HBO Films, for years an autonomous film-production entity that already is easing out of the theatrical business. (HBO said it expects no near-term change at HBO Films.)

And then there is the CW. The network, which already is run day-to-day by CBS, has suffered in the ratings as new series have foundered and returning shows like "Beauty & the Geek" have failed to pull in viewers.

CUTTING THE BROADCAST CORD?

Time Warner has a history of selling off stakes in networks, as it did in 2005 with Comedy Central. A cost-conscious Bewkes could well consider severing the company's only relationship with a broadcast net as he examines the conglomerate's television operations. Bewkes also is known for favoring cable networks, which have over the past decade yielded higher growth rates on revenue and audience.

TW's basic cable networks, on the other hand, would seem less likely candidates for consolidation. They've been buoyed by ratings growth at CNN -- in which Bewkes has been vocally proud -- and the development of clear niches at TBS, TNT and Cartoon Network.

While insiders agree that the Strauss move was made by toppers Richard Plepler and Bill Nelson for HBO-specific reasons, it was hard to mistake the Bewkes connection. Plepler and Nelson worked closely with the CEO when he ran HBO from 1995 to 2002, and the move likely was sanctioned, if not inspired by, the new leadership in the executive suite.

The rationale for the changes at the pay net's original-series divisions goes beyond programming and buzz to the kind of hard-core business concerns that resonate with Bewkes. While HBO continues to be the $1 billion-plus moneymaking machine, a large percentage of that comes from home video, which flows directly from the popularity of on-air series.

"You have to question whether HBO can grow significantly from where they are," media analyst Harold Vogel said. "Basic subscriber growth is limited. It costs more to produce films and series. These businesses aren't in shock, but they are encountering a rough patch."

On Monday, even Liberty Media's pay cabler Starz, long an also-ran in the premium channel derby, took advantage of the Strauss news to crow about how it finished higher than HBO in household ratings in February, the first time in years that the Time Warner net hasn't finished on top.

Time Warner's focus on entertainment comes at an opportune time as entertainment has been a decreasing part of Time Warner's financial portrait. The total revenue from entertainment units has ticked down by about 1 percent each of the past four years. More notably, the percentage of operating profit from those units has dropped precipitously, from a whopping 80 percent four years ago to 44 percent in 2007.

While some of those numbers are the result of restored health in other businesses, they also signal that a company with deep entertainment roots doesn't rely on the sector as it once did. Bewkes, apparently, is trying to change that.

Reuters/Hollywood Reporter