Turner wants to sell streaming subscriptions to its channels, including TNT, CNN and Cartoon Planet, directly to consumers.
That won’t happen soon, but Turner CEO John Martin says the network is starting to build out the technology it will need to deliver its own programming over the internet. Which means he’ll end up competing with his existing customers: Pay TV distributors like Comcast and Charter, which pay his network billions a year in fees.
"I believe it’s imperative that we put the company on a course, to be in a position, to offer an end-to-end solution, direct to consumer," he told Recode in a wide-ranging interview this month.
That kind of positioning would have been shocking to hear from a giant cable programmer a couple of years ago. But now that TV executives have acknowledged that pay TV subscriptions are shrinking, it is becoming more common.
HBO, which like Turner is owned by Time Warner, started selling internet subscriptions last year via distributors like Apple and Amazon. And Disney’s ESPN is launching a streaming service that doesn’t include the stuff it’s already showing on TV. One day it could sell digital-only access to its premium programming as well.
Martin, 49, is a relatively low-profile cable TV executive — he’s a former Wall Street analyst who became Time Warner’s CFO before taking the Turner job — but he is worth watching. For starters, he is running an $11 billion business that includes some of TV’s most popular networks. He’s also a candidate to succeed Time Warner CEO Jeff Bewkes, whose contract runs through 2020.
In the near term, Martin is trying to overhaul TBS and TNT, Turner’s biggest assets, into networks that are known for something other than repeats. He is also making plans for CNN in 2017, when it won’t have an astonishing election to attract viewers and advertisers.
And Martin is also making a series of digital investments in startups like Mashable and Refinery29, and home-grown projects like Super Deluxe, an online comedy factory.
Peter Kafka: A year ago investors were very worried about the TV industry. Now it seems that angst has receded, but all the things they were worried about a year ago haven’t changed.
John Martin: I agree with your premise. We are very realistic about the trends and what is going to happen. This is going to play out over time: The strong brands will survive and get stronger, and the marginal and the weaker brands are going to get weaker and disappear. At Turner I feel good about our position because we have the most concentrated portfolio of highly valued brands in cable television.
Right now you’re seeing a continuation, at a steady pace — the worry about the decline is less, but it’s still happening — of a linear decline in subscriptions, because more and more households are feeling less enamored about paying a really high bill for this huge bundle of channels, most of which they don’t watch.
So there has be a shakeout of that. Because for years and years and years, the best networks have been subsidizing the lesser networks.
Now they’re showing up.
Now there’s a debate about whether you’re seeing cord-cutters, cord-shavers or cord-nevers.
I think it’s a little bit of everything. It would be naive of us to think that the next generation, the early twentysomethings, they’re going to consume multichannel TV in the way that previous generations have.
We’re reinventing our company from the inside out. And we’re remodeling it when the plane is up in the air. We have to go from being a wholesale, linear cable TV company to being a consumer-focused, consumer-centric company.
What’s more important? For people to know what TBS is and what TNT is and want to get it? Or for you to sell your programming directly to consumers?
I think there’s an evolution. Over the longer term — and I don’t know whether that’s seven years or 10 years — we will be in a position where we will have the technology to control the consumer experience, end to end.
Meaning that if somebody wants to get our networks from us, they can. And we will control the UI, we will control the experience, we will have billing capabilities, and just as importantly, we will know who these people are. We will know what they do, we will know what they want, what they like.
But there’s a whole evolution that happens between where we are today and that.
Disney is buying MLBAM’s tech operation. You have iStreamPlanet. Is it practical for you guys, who are not technology companies, to be building out this stack? I know you want a direct consumer relationship, but why not use Google, Apple, Facebook, to be the delivery system?
This is the debate we’re having right now. I think iStreamPlanet was a hugely strategic acquisition. It is not an end-to-end solution today, with respect to video on demand. But it is arguably the leading provider of livestream IP-delivery video on the planet. It just did the Olympics, and delivered 4,500 hours of video, and I didn’t see one press report that said it crashed, or didn’t deliver what it was supposed to deliver.
We are building the capabilities to move to becoming capable of offering VOD — not only domestically, but globally — and then building out the things that you need to be able to do to be an end-to-end provider, including customer relationships, billing and so on.
I think that is strategic and not a commodity. Because if that becomes a critically important part of your business and you’re just renting that capability, you’re always going to be subject to whatever that company is …
Let’s take MLBAM for instance. HBO Now is using MLBAM. Disney buys MLBAM. Is it the best idea for HBO to think that their best long-term technology solution is MLBAM?
So you’re suggesting HBO eventually moves that business to you guys and keeps it in the Time Warner family. But that means you have to recruit and retain the best engineers, and —
It is not lost on us that this is new for us. These are new capabilities and new skill sets.
And then strategically, you’re a wholesale business today, and you’re saying your future is going to be retail business.
Or a mix.
It’s a three-legged stool. Our existing distributors pay us about $5.5 billion a year. They’re our favorites. We’re going to do everything we can to be great partners with them. If they want to go direct to consumer or move out of their geographic region, we’d be happy to work with them as partners to help them do that.
Because what we want is for them to provide the best consumer experience possible. Our frustration with them has been that their ability to innovate quickly enough, to provide consumers with great experiences, has been disappointing.
So that’s the first leg of the stool. The second leg of the stool is the virtual guys. We have a deal with Sling. We have a deal with Sony. We’re in discussions with five to six other global, well-capitalized companies who have ambitions of being virtual MVPDs. We signed a deal with Hulu. They have plans sometime next year to launch a virtual MVPD.
Our goal is to have as many of our networks on as many of those packages as possible. That really is no different than Comcast or Charter.
The third leg of the stool is what we were talking about before. I believe it’s imperative that we put the company on a course, to be in a position to offer an end-to-end solution, direct to consumer.
How do you deal with channel conflict? You have an existing business today that’s almost entirely with the Comcasts and Charters of the world. They can see what you’re doing, and they’re not super psyched about it — they have yet to embrace HBO Now. But you still want them to help sell your stuff, help promote your stuff. How do you get them to do that, when you’re saying you’re going to be working with their competitors and that you eventually want to compete with them directly?
To compete with them directly is not a viable roadmap right now. It’s more of an ambition.
But you’re saying, you’re going there.
I think we’re going to have to go there. It could be as much defensive as it offensive, eventually. And they know that.
But the conversations about OTT have been less contentious than you think. When HBO made its original announcement, Comcast was not particularly happy. But they understand it now.
They understand it, but they’re still not supporting it.
The cable industry — I worked at a cable company — they’re not the fastest to move on innovation. They’ve got a huge incumbent, strong position. They’re going to be very thoughtful about when to make investments and move into other businesses.
But there’s nothing legally that stops us from moving in this direction. And intellectually, when you have conversations with these companies, they can’t really argue why we shouldn’t be supporting these virtual MVPDS.
There have been two conversations: MVPDS and SVOD [subscription video on demand services like Netflix]. With SVOD, originally — and when I say originally, this was like two years ago, it seems like ancient times — the message was, "Don’t do that. We pay you guys a lot of money. Don’t do any of that."
Don’t sell to Netflix, don’t support these new digital pay TV companies.
Don’t sell to Netflix, because that’s going to hurt us, and don’t support these over-the-top guys, because they’re free riders. But now there’s an established market. If a platform like any of the cable, satellite companies, wants to compete and buy out the SVOD window, they can do that. There’s an established marketplace for that.
And on the virtual MVPD front, and I know there are certain [traditional pay TV companies] that have plans to launch a virtual MVPD, but they may or may not ever execute on those. We have been very supportive partners with them. Sling (owned by Dish Network) is a great example of that.
For Turner to succeed, we have to be thinking about the consumer first. We can’t hold back innovation, and we can’t get stuck to an ecosystem.
One of the big issues in pay TV is sports rights and how much they cost and whether consumers really want to pay for them. That focus has been on ESPN, but you guys have invested significantly in sports. Don’t you have the same problem they have — sports rights are going up and subscriber numbers are going down?
To a much lesser degree. Our sports rights are $1.5 billion a year. Theirs are probably quadruple that. And their subscriber losses have been significantly higher than ours.
Turner historically was early to build into its distribution agreements, penetration protections. So as I look ahead, regardless of what the subscriber trends are going to be, we’re in a position to be protected. And when you look at our sports rights, we have all the sports we need, and we’ve got them for a long time.
How does a penetration protection deal work?
Generally speaking, we have penetration protections for our big networks. They have to be carried in the highest-carried tier, and they have to be carried to certain penetration levels, and it gives us a safety net, with regard to being tiered, or packaged, or skinnied.
So your distributors are required to give you the most distribution they can.
Let me show you something. This is from our research team. (Takes out chart.) We did a scatter plot graph. The y axis is reach. The x axis is time spent viewing. If you have high reach, high time spent viewing, you’re valuable. If you have low reach, low time spent viewing, you’re not valuable.
Then I asked them, how much affiliate fees are being spent on the shitty networks?
It’s $6 billion a year! Which is a shockingly high number. $6.3 billion a year is being spent on low-reach, low-time-spent viewing.
And then if you look at where we are, 93 percent of Turner’s affiliates fees are in high-time-spent viewing, high-reach networks.
So when I look at this and I look at our portfolio, we have the brands that are going to make it in those skinny bundles.
The conventional wisdom is that TBS and TNT are channels that you get when you get cable, but you don’t seek them out. You flip through your channels, and maybe you stop on them because they’re showing a "Friends" repeat. So if you ask people to name their favorite channels, they’re not going to name one of them.
That’s why we announced last year, we brought in [Fox and NBC veteran] Kevin Reilly, and we said his job was to really refine the brand promise of TNT and TBS. He started with TBS this year. TBS is going to finish this year as the No. 1 cable network. The originals that have premiered this year have been largely successful. We haven’t had a breakaway hit, but every single one has been solid.
TBS hopefully, it’s getting younger — I don’t like the word "edgier," but it’s getting more relevant. My 19-year-old now says, "Hey, I watch TBS."
You have Samantha Bee.
Yeah. A point of view. Distinctive voice. At TNT, you’re going to start seeing more distinctive voice dramas.
But the reason you guys haven’t done this for years is that original programming is risky, it’s cyclical. You can have a hot hand, and hot shows, for a couple years, and then it goes away.
But we have no chance without it.
Here’s what’s different since I came in. We’ve gone from focusing on the [advertising] agencies and the marketers, to focusing on consumers. And [former Turner CEO] Phil Kent even told me this — and Phil had a remarkably successful run — he said, "We held on to the broadcast substitute model probably three years longer than we should have." What happened was a number of networks that didn’t occupy a very high position in terms of buzz, kind of supplanted TNT and TBS, because we were trying to become a flanker to broadcast networks. We don’t want to do that anymore.
Let’s talk about digital. Turner bought Bleacher Report for about $200 million when you were Time Warner’s CFO; since then you’ve made a bunch of modest investments in things like Mashable and Refinery29. Why?
Bleacher was easy to see the strategy. We had digital inventory, and a digital outlet to support the billion and a half dollars in licensing fees that we have.
Whether its launching [comedy studio] Super Deluxe or investing in Mashable, it’s really about trying to extend our reach and gain scale with these audiences. And to make targeted bets to work more closely with these companies that have really big audiences that are having problems monetizing.
But if you want their audience, you don’t need to invest in them. You can do a distribution deal. And if you think there’s something really good there, why not buy them outright?
Each deal is different. There are certain of those relationships where we’ve made those investments with the possibility to acquire over time. And we’d like to explore what those commercial relationships evolve into, and then decide whether it’s worth tucking it in or not.
What are you thinking about M&A broadly? Do you want to build up linear TV? Digital?
Our M&A strategy is pretty clear. Number one, it’s a phrase I got from [Bleacher Report CEO] Dave Finocchio: He said, "We need more inelastic content." Inelastic is an economic term that’s usually related to pricing. What he meant was, we need more intellectual property that we own and control, that is not easily replicated. And ideally you’d like to control it globally.
So we’re going to be on the lookout for bespoke or differentiated IP that we can own the rights to, and have the ability to exploit it globally.
And number two, we would like to — we have to, honestly — we have to grow our business outside of the traditional TV ecosystem. We need new revenue streams. You’re going to see us doing some organic things, like launching OTT services. And I’d like to see us in the position where we’re buying either technology capabilities, or IP outside of the ecosystem.
And the third thing is what it’s been for years: Looking at the chance to opportunistically gain scale internationally.
A couple of years ago, it looked like you were going to be in business with Vice. Now you’re not. And [CNN head] Jeff Zucker has been going out of his way to beat on both Vice and BuzzFeed. You could discourage that if you wanted. So what’s the point of him doing that?
Look, Jeff is his own person. And I have a massive amount of respect for him. And I respect what Vice has done. Shane [Smith] is a talented person and they’ve got a really good team there.
It’s taken them years, but they have developed a distinctive voice, and a distinctive editorial approach, that really engages a particular audience. And more and more, all of our businesses are going to be about engaging fans and not just casual viewers.
But having said that, we have to understand and put it a little bit in perspective. The size and scale of CNN — they’re just not in the same business as Vice.
You’re saying it’s legitimizing them.
It probably is. Because I don’t think we need to do that. The digital stats, for CNN, we deliver more than double the millennials in any given month than Vice, with five times the engagement. And I would submit that CNN is in a very, very different business that I don’t think Vice is ever going to get into.
CNN is having a great year this year, courtesy of Donald Trump.
Best year in history.
What happens next year?
It’s going to have a better year. Financially.
We’re going to have a big affiliate fee step-up. We are going to probably attribute more of our prime-time lineup to originals. And we’re going to spend a lot less money on election coverage.
There’s been a lot of soul-searching in the press about what responsibility they’ve had for Trump’s rise. Everyone likes having Trump on TV. CNN in particular seems friendly to him. Are you comfortable with the way you’ve treated Trump?
I am. I don’t agree that we’ve been particularly friendly to him. He’s been everywhere. And I think we’ve had some of the most honest conversations with him, of any news organization. It’s always a judgment call, it’s always a balance that we’re trying to achieve every day. But I’m really really proud of the journalistic integrity that CNN has been able to maintain throughout the election.
If you just look at the stats, the fact that CNN has hosted more debates and town halls than every other network, broadcast and cable, combined, I think should tell you something about how the DNC, the RNC and others view the ability of CNN.
Did Jeff Zucker tell you, "I’m going to hire (former Trump campaign manager) Corey Lewandowski" before he did that?
It’s within his approval to do that. I knew about it.
And you’re comfortable with that?
Yeah. Do you want to explore on that?
It seems pretty straightforward, but you tell me.
The idea there was consistent with everything else that CNN has done — to make sure that we have people on both sides of the argument. And Corey obviously was a very meaningful player. And if viewers wanted to gain a particular insight, we thought he would be a valuable asset and contributor to the network.
And you’re not the first person to have someone who was working for a political campaign on your payroll. But there was a particular issue with him, because he was still getting money from Trump — there was a debate about whether it was severance or not.
I’m not even aware of that.
I was calling around before I came here, and asking people what I should ask you, and they said I should ask about your cool tattoos. But you don’t seem like a cool tattoo guy.
I’ve got some tattoos. I’m not going to show them to you. But I’ve got a sleeve and my whole back. (He shows off his left arm, which is indeed covered in tattoos.)
My friends high school and college are like, "We can’t believe you’re the CEO of any company."
This article originally appeared on Recode.net.