Time Warner's Daring Plan to Stop Cord Cutters

Source: Time Warner.

When all of your favorite shows are available on streaming video just a few months after they've aired on cable, through on-demand services such as Netflix and 's Prime, there's little incentive to keep subscribing to cable. Netflix and Amazon Prime are commercial free and provide a much better viewing experience than sitting down in front of your TV at a specified time every week.

That's why CEO Jeff Bewkes is rethinking Time Warner 's strategy when it comes to dealing with cord cutters. He told analysts on the company's third-quarterearnings callthat the company is considering lengthening the exclusivity window on its content and reducing the number of commercials it shows during primetime broadcasts. With cord cutting accelerating, the move carries a lot of risk.

When did syndication become accelerated?

When Netflix first started streaming content, networks and studios treated it like a home-video distribution service. So when a series came out on DVD it was released on Netflix, too. That's typically still how Netflix licenses shows.

However, somewhere along the line Netflix started acting much more like a competing network than a home-video distribution service. But it's still treated like the former. This has given it a huge advantage in that it effectively accelerates the syndication window. Networks usually have to wait several years before they can buy the rights to syndicate content from another network; Netflix has to wait only a few months for the DVDs to come out.

Bewkes is thinking about treating Netflix just like any other network. "We're evaluating whether to retain our rights for a longer period of time and forgo or delay certain content licensing," Bewkes told analysts on Time Warner'searnings call "This would effectively push the SVOD window for content on our networks to a multiyear period more consistent with traditional syndication."

Time Warner already does this with its HBO content, which it licenses to Amazon. Amazon Prime users only have access to content more than three years old. That's still more aggressive than traditional syndication, however, which HBO usually doesn't engage in until a series is completed.

The goal is to increase the number of viewers who tune in to live broadcasts or access the content via Time Warner's own set of apps and websites for cable subscribers. Bewkes said the company will continue to invest in its online experiences, including industry-leading HBO Go and HBO Now. If the company decides to go this route, Time Warner will forgo some licensing revenue in exchange for potential increases in viewership and customer retention.

Going against the grain

As cord cutting has accelerated, many networks have taken to ad stuffing. Broadcasters can either speed up episodes (as Time Warner's TBS is guilty of with Seinfeld reruns), or extend broadcast times to show more ads (e.g., 35 minutes to show a 30-minute sitcom).

Time Warner has been one of the more modest offenders, increasing ad load just 4% year over year during the second quarter, according to a survey from Sanford C. Bernstein. Some networks increased commercial time as much as 10% to counteract the impact of lower ratings.

But there's only so much ad stuffing networks can do before they hit the caps on commercial time and viewer patience. As a result, Bewkes has decided to shift course. "In our efforts to improve the consumer experience on our networks, we're also looking for opportunities to reduce our ad loads," he told analysts. Time Warner has already taken its first steps toward reducing commercials. It announced that it will cut TruTV's commercial time in half during primetime broadcasts starting late next year.

Reducing commercials (especially as ad prices are declining) is a big bet that extending content licensing windows and reducing ads will have a significant impact on its broadcast audience. Watch for Time Warner to do so gradually by cutting back on commercials at its smaller properties, such as TruTV. Investors can hope the company will provide results from its experiments and can scale them quickly and easily if the experiment proves viable. At the very least, it will differentiate Time Warner networks from other cable networks.

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