How Time Warner Could Turn HBO and Turner Into Virtual MVPD

DonohueJeff Bewkes stopped short of telling investors this week that he’ll challenge Comcast and AT&T with the launch of a virtual pay TV service anchored by HBO, Turner Broadcasting and networks licensed from other major programmers.

But when asked if he saw potential to “go big, global, more direct to consumer” by doubling HBO original programming spending to more than $4 billion annually, the Time Warner Inc. chief noted that HBO already has more content than any other subscription video-on-demand service worldwide. And in his opening remarks on Time Warner’s second-quarter earnings call on Wednesday, Bewkes emphasized that Time Warner would invest “aggressively to stay ahead of the changes in our industry and capitalize on an environment where the biggest hits, networks, and brands are taking share.”

Home Box Office CEO Richard Plepler was more direct on the potential for the media giant to sell much more than HBO programming over the top of broadband providers. While new direct-to-consumer network HBO Now only distributes HBO programming in the United States, over-the-top service HBO Nordic offers subscribers in Northern Europe programming from not just HBO, but licensed TV series and movies from NBCUniversal, Starz and other programmers.

“Remember, some of our content for our international business, like in Nordic, is joined with other people’s content. That helps enhance the brand,” Plepler added.

Bewkes, one of the industry’s biggest TV Everywhere proponents, also appeared to be suggesting to incumbent pay TV distributors that improvements need to be made in the way multiscreen content is sold to consumers.

“If you start looking at sub growth at HBO, you have the fact that some of the distributors have twice the penetration of other distributors. That has nothing to do with content. That has to do with marketing, selling, packaging, making things available to consumers both here and around the world in a way that’s affordable to them, that has a good VOD interface for them. That is equally true of basic cable, which has a tremendous content advantage. If you look at the original shows or the hit acquired shows on channels like TBS, TNT, FX, USA, AMC, it’s a fantastic array of programming, and all it needs is to be on demand.”

So maybe Bewkes thinks cable VOD and apps like Xfinity TV Go and TWC TV could be improved. But would he bet Time Warner’s future on the launch of a new pay TV service that would challenge its longtime distribution partners?

Time Warner’s recent moves in international markets, and its U.S. investments in advertising technology, could be signs that Bewkes is positioning the media giant to evolve into a virtual MVPD.

In addition to licensing content from other programmers for HBO Nordic, Time Warner has streamlined management in India, where Turner manages both Turner and HBO networks. Turner also recently challenged Discovery and National Geographic Channel in India with the launch of documentary channel World Heritage TV.

Turner Data Cloud, the data management product that Turner unveiled in May, could be another key to Turner’s digital future. While Turner Data Cloud is initially being used to sell digital and linear advertising for Turner-owned networks, the investment is something that Turner could use to monetize multiscreen ads for any programming partner.

Time Warner may not launch a virtual multichannel video subscription service within the next three to five years. But if it succeeds in demonstrating that it can use dynamic ad insertion to boost revenue from original content, it could attract other programmers to its platform.

“We have a lot to learn as we move forward. We’re working with some of our biggest partners, and we’re roughly using 20% of our inventory for targeting, but that’s going to dramatically ramp in the future,” Turner Broadcasting CEO John Martin told an analyst Wednesday while discussing Turner’s targeted advertising initiatives. “We’re investing in technology. We’re investing in data. We’ve come a long way over the last year. And I think a lot of the capabilities that so-called digital companies have had an advantage of over TV are going to be eliminated, as TV can not only provide targeting and increased reach and relevance, but also in a very, very immersive experience with long-form video that’s professionally produced. So I think we’re in the very, very early stages of seeing TV make a dramatic comeback on the attractiveness of advertising.”

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