Crunch Time for Time Warner

Evan Agostini / AP Photo His publishing unit is trouble. The spinoff of AOL is at hand. CEO Jeffrey Bewkes talks exclusively with The Daily Beast's Lloyd Grove about the future of the media business.

Jeffrey Bewkes seemed eager to unveil a brand-new business strategy for Time Warner Inc., the careworn media giant he’s been running for the past 22 months.

“Actually we’ve been hiding this, and you should be the one to break the news,” Bewkes told me in an exclusive interview with The Daily Beast. “We are going to buy and roll up all the railroads in the United States. Then we’re going to put flat screens in all of the freight boxcars, because we think that anybody in a recession like this, who’s actually hitching a ride on a boxcar, could become a very loyal viewer of some of our programming. And later, we might be able to sell them something. That’s our theory.”

“When you look at the media business, not only is it healthy and has a good future, but it’s not even recovering from a problem,” Bewkes said, a few hours after Time Warner posted slightly better-than-expected third-quarter earnings.

Time Warner’s 57-year-old chairman and chief executive was joking, of course—giving his facetious take on the supposed synergy that results from marrying content to distribution. Comcast’s quest to buy NBC Universal is only the latest example. In a wide-ranging conversation, Bewkes also:

• declared himself bullish on Big Media—especially (no surprise here) Time Warner’s prospects and the “branded multichannel cable networks” with distinct programming personalities, such as Fox News, MTV, and HBO.
• suggested that mass-audience broadcast networks such as ABC, CBS, and NBC have a business model that’s “increasingly becoming not viable.”
• reiterated his defense of Time Inc., the company’s troubled publishing unit, and stoutly denied rumors of plans to turn the magazines (with the exception of People and Sports Illustrated) into purely digital enterprises. “Absolutely not,” he said.
• predicted widespread paid content for news Web sites within the next two years. “I think what is not viable—literally not viable—is advertising-support-only free content in journalism.”

Bewkes predicted that people will soon become accustomed to using a variety of technologies, both paid and free, to view movies, read magazines and newspapers, watch television and otherwise consume their favorite media. “Now everyone has figured out this translation to the Internet, where you’re going take these highly demanded and successful brands like The Wall Street Journal, People magazine, HBO and MTV, using television, video on demand screens, Internet screens, across all methods of distribution, and the business model is paying for content and having advertisers,” Bewkes said. “Where the mistake has been is that everybody had thought that the Internet distribution platform somehow meant that the content had to be different, new and disconnected from the content everybody’s already using. That’s not true. And if you look at the most successful Internet company—which is Google—are they making new content? No. What are they doing? They are organizing and taking you to the content you want.”

Bewkes’ comments come at a time when media behemoths such as Time Warner, Viacom, and News Corp.—all of which were hammered during the recession and have been slashing expenses and personnel—appear poised to take advantage of next year’s hoped-for economic recovery. Each company has its particular problems and challenges. Rupert Murdoch’s News Corp., for instance, is hampered by a massive newspaper division suffering from plummeting ad revenue, to say nothing of the weight of a $5.8 billion acquisition of Dow Jones and The Wall Street Journal. Viacom’s Paramount Pictures is still recovering from a disappointing box office last year; and Time Warner made a bad bet two years ago in its $800 million purchase of the European online social network Bebo. The company is only now preparing to spin off the last vestige of its famously catastrophic merger with AOL, whose declining advertising and subscription revenues have been a drag on overall corporate earnings.