Time Warner Just Gets It

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by: SA Editor Rocco Pendola

I have a well-documented admiration for Time Warner Cable (TWC) Chief Programming Officer Melinda Witmer. Every article ever written about content creation and delivery should lead off with her landmark quote:

I don't know what a TV is anymore. It's kind of an anachronistic term.

-Melinda Witmer, Wall Street Journal, 3/25/2011

Now comes further word that she's in-sync with sister company Time Warner (NYSE:TWX) CEO Jeff Bewkes, who made the following comment at Tuesday's NCTA Cable Show. Here's a paraphrase from MarketWatch's relay from the event:

Chief Executive Jeff Bewkes said cable operators must make sure that they become primary sources of on-demand content to their customers, on any device a consumer may want to use. Bewkes has consistently expressed concern that Netflix could cannibalize DVD sales, syndicated television and other revenues at the expense of studios and networks [emphasis added].

Bewkes' comment came after Viacom (VIA.B) CEO Philippe Dauman said he's "comfortable" with the glorified bootlegger's existence.

What each gentleman said only reinforces my premise that there's no room left for Netflix (NASDAQ:NFLX).

Consider Dauman's sentiment first. He said he's comfortable because Netflix provides a home for dormant content that otherwise might not make much money for studios. Of course, given Netflix's darling status, Wall Street reacts positively to this part of the story.

Despite Netflix CEO Reed Hastings' apparent comfort with being a purveyor of re-runs, I'm not quite as confident. Presently, people like Dauman openly tout how they are effectively padding their bottom lines by taking Netflix to the cleaners. Bewkes, on the other hand, takes a view that sees the future.

He echoes what I have been saying (or maybe I should say I echo what he's been saying?) all along. Take the key portions of his thinking piece-by-piece. When he notes that 'cable operators must become the primary sources of on-demand content to their customers,' he effectively boxes out Netflix. While protecting the interests of the cable companies, he paints a picture of a world where content creators and deliverers bypass Netflix to bring consumers programming 'on any device they may want to use.'

If you take a close look at the many direct offerings that have already bypassed Netflix -- whether for old or new programming -- the writing is on the wall, in deep black Sharpie. Similar offerings are on the way. This bodes well for Amazon.com (NASDAQ:AMZN), Akamai (NASDAQ:AKAM), Level 3 (NYSE:LVLT), Google (NASDAQ:GOOG), and companies like them.

Content deliverers will look to Amazon Web Services to run part of the show (e-commerce portions of the offering, etc.), companies such as Akamai and Level 3 to provide the technical delivery infrastructure, and Google to help get advertising efforts off of the ground. That's a rough sketch, but you get the picture. As content delivery systems proliferate around Netflix, as Bewkes predicts they will, companies that go it on their own, without Netflix as the middleman, will bring these systems along. As they mature, they become money makers that easily offset any revenue lost from the decision to no longer take Netflix's money. And, maybe more so, the decision takes away the risk that Netlfix's accounting department may one day stops taking calls from content creators' billing offices.

Disclosure: I have no positions in any stocks mentioned. I may initiate a long or short position in any of the stocks mentioned at any time.