Time Warner’s Turner Networks Are Adapting to the New Reality of Digital Media

Suicide Squad is tracking toward a $140 million opening this weekend, but the reviews are bad enough that fans are trying to shut down Rotten Tomatoes and director David Ayer is pre-defending the film on Twitter. You’d think Time Warner’s earnings call with financial analysts on Wednesday would have devolved into a therapy session.

Instead, the questions were almost entirely about the company’s purchase of a 10 percent stake in Hulu and the announcement that Time Warner’s Turner networks are on board for the premium streaming service launching in early 2017. If Hulu’s current streaming service is like a well-stocked DVR, the new one will be a full-blown cable-killer with live feeds of all the major broadcast and cable channels.

Year-old Sling TV and months-old Playstation Vue are the first two entrants in an emerging category of streaming apps that are taking on cable and satellite service by putting the entire experience — a ubiquitous channel lineup, live TV and full seasons on demand — on an app. DirecTV is launching a similar service later this year, and Hulu plans to debut its service out early next year.

Time Warner, which generates 40 percent of its revenue and 60 percent of its profits from a lineup of cable and media properties like TBS, TNT, CNN, Adult Swim, Bleacher Report and NBA.com, is heavily reliant on a U.S. cable and satellite ecosystem. That’s working well for Time Warner for reasons I’ll get into below, but the base of subscribers is shrinking at a rate of 1 percent — about a million subscribers — a year.

Media companies are getting onto streaming services like Sling TV and Playstation Vue to try and maintain relationships with cord-cutters and build new ones with cord-nevers. Time Warner would like for you to watch live election coverage on CNN and Rick and Morty episodes on Adult Swim, and they don’t mind if you do it on a streaming service.

Time Warner’s cable networks are adjusting well to a fractured media environment with a combination of must-watch-live and distinctive scripted programming — and doing so in the same world where Nickelodeon, MTV and others are in a serious slump — so CEO Jeff Bewkes took a victory lap during Wednesday’s call with analysts:

• “TNT and TBS finished the second quarter as the two highest-rated cable networks in prime time — with TNT airing cable’s most-viewed NBA telecast of all time. We’ve launched five marque originals across TBS and TNT this year, and we’ve already renewed all of them. Wrecked, Angie Tribeca, The Detour, Full Frontal with Samantha Bee and Animal Kingdom are great examples of where we’re taking the TBS and TNT brands.”
• “Adult Swim continues far and away to be the most watched [cable network] by millennials. It attracts 60 percent more 18- to 34-year-olds than its nearest competitor.”
• “CNN has undergone nothing short of a renaissance over the past few years. To date, 2016 is the most watched year in CNN’s history. CNN was the No. 1 news network among adults 18 to 49 for the third consecutive quarter, and CNN Digital became the No. 1 news service in multi-platform and mobile uniques.”

Programming a cable network in 2016 is no joke. There are more networks than ever, there is more programming than ever, and there are more devices and platforms for watching them than ever. Good scripted programming is expensive to make and expensive to market, and sometimes it fails anyway. Live programming like the Rio Olympics and NFL games that can attract a large audience cost billions to license, and there aren’t very many of those properties.

According to Nielsen data, TBS’s primetime ratings were down 6 percent in April, May and June from a year ago. A 6 percent decline is actually a decent number when you consider: (1) a million subscribers left pay TV during that time, (2) the ones who are left are watching more Netflix, and (3) TBS viewers are migrating to TBS.com, authenticated TBS apps for connected-TV devices, and cable-killer streaming services like Sling TV and Playstation Vue — none of which shows up in the primetime ratings.

Although Time Warner doesn’t break down its revenue numbers by network, it’s likely that TBS improved its earnings on a 6 percent year-over-year ratings decline. The amount that satellite and local cable providers pay Turner, the cable ad rates, the ad revenue from TBS.com and TBS apps, and the licensing revenue from cable-killer apps all increase annually.

Turner still makes a lot of its money from syndicated programming like The Big Bang Theory on TBS and Family Guy on Adult Swim — four of the six most-watched episodes on cable Tuesday night were those two shows, in fact — but syndication is increasingly an outlier in a cable environment spilling over with original programming. To stand out in that crowd, TBS has made a combination of shows that are topical and viral (Full Frontal with Samantha Bee), single-camera comedies that don’t look like anything else on TV (Wrecked, The Detour), and programming like sports (NBA, NCAA basketball) that is best experienced live.

Maybe that won’t work and five years from now we’ll all be watching live-streams of the Penguin Cam at the San Diego Zoo with Jon Stewart and Stephen Colbert doing improv voiceovers about the day’s news — actually, I think that could work — but TBS and Turner’s other networks are banking right now on the best thing going, which is unique scripted programming, live-oriented programming like news and sports, and being on every major platform where viewers are watching TV.

Scott Porch writes about the streaming-media industry for Decider. He is also a contributing writer for Signature and The Daily Beast. You can follow him on Twitter @ScottPorch.