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Time Warner CEO Jeffrey Bewkes Scans the Horizon of the Digital Evolution of Media Jeffrey L. Bewkes Chair and CEO Time Warner Inc. March 14, 2012 Excerpts from Mr. Bewkes’s Remarks Audience of HBO: We have about a third of the citizens in the United States subscribing to HBO. They’re paying us every month. We use that money to make what we hope is breakthrough programming. State of the TV Industry: The health of the TV business across the world— it is one of the strongest businesses in the world. I’ll start in America. Viewership’s up. Number of people subscribing is up. Budgets for programming and the quality of programming are up dramatically. The earnings of all TV companies, producers, or networks, are up. And that same thing is true in every continent in the world. And most of them at higher levels even. So TV is a bursting industry. The big thing about it, which is even more positive than that, is that television, certainly here, is going on the Internet.…the things that you choose to watch are now available — whatever you want, whenever you want, on whatever device you want. And it’s getting cheaper all the time. So the quality of it, the effectiveness of it, the ease of use are all going up. The price is going down. That’s a fantastic business. It’s basically — the Internet and television are the same thing. Useful Changes in Federal Policy: What we think strongly is that — not just our government but the developed countries’ government — we should support protection of intellectual property and try to do it in a way that is equal to how we support physical property. We should try to figure out how to do that, because intellectual property is increasingly important to maintaining the most important human activities on the planet…. And then the second thing that goes with that is, we ought to try to keep putting forth a free trade regime in the world. I know that means different things to different people and there’s a lot to be worked out. But it’s very much in the interest of freedom generally — political freedom, freedom of expression, prosperity and the ability to develop things that cure the material needs of the people on the planet to have property protected and not stolen and to have free trade rather than, you know, arbitrary political units distorting what people want to do. AOL Merger: the AOL merger was such a big merger. It was, I think, the biggest merger in dollar terms, $265 billion when it went through in 2000. And the AOL side, which was $165 billion, ended up valued at less than $10 billion which caused $200 billion of write-offs the next year. A hundred billion, which is more than what Time Warner was worth before the merger, and then in the next couple of years after that, another $30 billion. So, you know, that is not a success, I’d think you have to say. [Laughter.] What happens when you’re in a company where that happens — if you think of all the pressures and strains, good and bad behavior in a political organization like the company — you 1 throw that into it and it really tests everybody’s personality and relationships and confidence. So from the management wondering, well, who the hell is responsible for this, up to the board, which came from both original companies — it puts a strain on everybody. So it’s been interesting. DAVID RUBENSTEIN: Welcome to members and guests of The Economic Club of Washington, here at the JW Marriott Washington, DC. I’m David Rubenstein, President of the Club. Welcome to everyone this evening. Tonight we’re very privileged to have the Chairman and CEO of Time Warner, Jeff Bewkes, with us. I want to thank Jeff for making time to see us. Jeff became the Chairman in 2009 and CEO in 2008, previously had been President and Chief Operating Officer of Time Warner, and rose up through the ranks there at Home Box Office, HBO. He joined HBO in 1979 and ultimately became the head of HBO during one of its most profitable periods under his leadership. Prior to that, Jeff had worked at Citibank, and prior to that he was a graduate of Stanford Business School and Yale and Deerfield Academy. Jeff is involved in a number of philanthropic activities and is very involved in his school affairs. He’s on the Advisory Board at Stanford Business School and he’s a member of the Yale Corporation Board. And we’re very pleased to have you here today. JEFF BEWKES: Thank you. MR. RUBENSTEIN: So the company that you run now is one of the largest media companies in the world. As I understand it, it’s about 34,000 employees, $35 billion market cap, and about $29 billion in revenue. MR. BEWKES: $30 billion. MR. RUBENSTEIN: OK. Sorry — [laughter] — $30 billion. So running one of the largest media companies in the world, there’s a lot of pressure on you. You’re obviously a major figure in the entertainment world. It’s reported that when you were a boy, you said to your parents: I want to be in the entertainment world. And your parents said: Well, that’s not possible, because you’re not Jewish. [Laughter.] Is that apocryphal, and why did you want to be in the entertainment world? MR. BEWKES: You know, it is apocryphal. That was a joke intro to a dinner at the AJC. They never actually said that. [Laughter.] To break up stereotypes. MR. RUBENSTEIN: OK. So why did you want to be in the entertainment business? MR. BEWKES: Originally because HBO in those days just stood out as something different. It was a company that had a mission, and the mission was: Let’s totally change television. Let’s create a kind of television that has no advertising. 2 Now, since we all know — at least up until then — that TV gets paid for by advertising, you have a question, how are you going to get money for this? And basically it was that you, the viewers, paid for it. That really changed everything, because you’re now trying to make TV that is worth paying for. That led to changes in the business model, the kind of programming that it had — a tremendous adventure. The mission of that kind of TV has now infected every channel. And it’s still going strong at HBO. MR. RUBENSTEIN: So what is it that HBO does that makes some of its shows pretty popular? Do you pay artists more than other shows? Do you have better producers? What is it that makes your shows so popular? MR. BEWKES: You’re on a key question. We’re not trying to actually make the shows popular, because we’re not getting paid based on how many people watch the show. That would be the other television, ratings-based television. There’s a lot of virtue to that, because of what popularity does, with you as viewers expressing your desire to shape the TV — and it should. But in the case of HBO, we’re trying to make programming, or buy it — because we have both movies we buy and then series that we make — we’re trying to make things that in your mind are worth paying for, where you don’t care how many ratings points, how many million people are watching. If you think about the variety of HBO shows from, in today’s world, “Game of Thrones,” — which is very popular and is coming back shortly, so stay tuned — or “Luck,” the new series David Milch wrote, Michael Mann directed it, and Dustin Hoffman is playing the lead in that TV series — these are not all made to draw the maximum audience. They’re made to make an interesting show that really stands out and is different. MR. RUBENSTEIN: But you must know which shows have the highest ratings after they’re over. Which is the highest-rated show that’s ever been on HBO? MR. BEWKES: It’s a draw, roughly the same: “Sopranos” in its fifth year, “True Blood,” which is on there now, “Game of Thrones,” coming back. So those have been the highest-rated, but we don’t get paid based on whether you watch those shows. We get paid if you sign up for HBO. And there are plenty of smaller shows — think of “Entourage,” think of “Eastbound & Down,” think of some of the documentaries; think of “Game Change” that we just put on this week — the movie about the last election. Those don’t necessarily have the highest ratings, but because you know that those are on the network, hopefully you will subscribe to the network. We have about a third of the citizens in the United States subscribing to HBO. They’re paying us every month. We use that money to make what we hope is breakthrough programming. MR. RUBENSTEIN: But you were the head of HBO when the AOL deal was announced. What was your reaction to that deal? [Laughter.] MR. BEWKES: We’re here in Washington, which is the home of AOL. AOL had done a fantastic thing. I think as we all know, that deal was in 2000. AOL was the biggest Internet portal. Everybody was signed up to it. And the concern that some of us had when that was announced, because we didn’t know if it was going to work out well or badly — but a few were 3 concerned because AOL was basically valued equal to Time Warner.