Financial results of some top basic cable companies
2014 estimate*
Network/Net advertising revenue/net operating revenue
TNT…$1.3 billion…$3.12 billion
TBS…$944.2 million…$1.85 billion
Cartoon Network…$536.4 million…$867.7 million
CNN….$302.4 million…..$1.1 billion
Fox News…..$803.4 million…..$1.96 billion
Nickelodeon and Nick at Nite…..$1.17 billion….$2.34 billion
Total cable industry: $24.9 billion….$61.8 billion
2009
Network/Net advertising revenue/net operating revenue
TNT…..$762 million….. $1.98 billion
TBS…..$685.6 million…..$1.27 billion
Cartoon Network…..$338.1 million…..$569.2 million
CNN…..$334.3 million…..$1 billion
Fox News…..$593 million…..$1.28 billion
Nickelodeon/Nick at Nite/$999.7 million….$1.87 billion
Total cable industry: $17.4 billion…. $41.3 billion
Source: SNL Kagan
*Full year 2014 data based on estimates by SNL Kagan
Turner Broadcasting, one of Atlanta’s biggest corporate players, is likely to announce this fall some of the most significant company-wide job cuts in years.
Turner’s new CEO has issued two memos — the latest one last week — telling the company’s nearly 13,000 employees that transformational changes are coming, including spending cuts. The memos didn’t say how many jobs might be at risk, but employees are telling friends they fear deep layoffs.
Blame it on TV. The coming hit is fallout from the evolution in what Americans watch and how they watch it, and from pressure to change what airs on some of the nation’s biggest cable networks, including Turner’s TNT and TBS.
Turner helped build the original model for successful cable channels. It used other networks’ reruns, old movies, pro wrestling, the Atlanta Braves and 24-hour news to build a loyal following. Much of that fare was relatively cheap to produce.
But cable leaders are scrambling to change. At Turner, that includes an initiative — details of which have not yet been rolled out— to streamline the company, focus on fresh ways to make money and increase original content that viewers can’t see elsewhere. The move comes as viewers increasingly turn to cable and satellite TV viewing alternatives, such as Netflix and other offerings streamed via the internet.
The impact could be acute in Atlanta, where Ted Turner launched Turner Broadcasting and where the company continues to be based, though its CEO and some other top executives now work from New York.
Turner has about 6,500 employees — roughly half of its total workforce — in downtown and Midtown Atlanta. Its holdings include CNN, TNT, TBS, Cartoon Network/Adult Swim, truTV and HLN. Turner accounts for about 40 percent of the revenue of its New-York-based parent Time Warner, which also owns HBO and the Warner Bros. film and television production empire.
Employees are bracing for what’s to come, especially after seeing company-wide memos from John Martin, who became Turner’s chief executive in January.
“We’ll start 2015 a more streamlined, nimble and efficient company,” Martin wrote in the latest memo, sent Tuesday. Later in the memo, he wrote, “… our goals are much more ambitious than a paint job.”
In the first memo, Martin announced in June an initiative called Turner 2020 (a reference to the company’s 50th anniversary year), saying every part of the business is being scrutinized to reduce spending and maximize growth and profitability.
Turner officials declined to comment on the record for this story.
More leaving Atlanta?
All parts of the business could be affected. But Martin’s left the impression that operations not directly tied to programming could get whacked hardest. That could include functions concentrated in Atlanta, including finance, human resources, public relations and technology offices. Jobs also could be added in some areas, such as mobile and other digital efforts or new product launches.
Some employees and community executives wonder whether more chunks of the company might eventually leave Atlanta, a blow to a city that saw its international image shaped in part by the global presence of CNN.
A.J. Robinson, chief executive of business coalition Central Atlanta Progress, said he is “confident that whatever changes that they may or may not be making will not alter the company’s entrepreneurial and creative importance to the city, region, and state.”
In a July discussion with employees globally, Martin said he is not considering shifting Turner’s core from Atlanta to New York. “Not only would it be almost physically impossible; it would be economically impossible,” he said. “I’m keenly aware of the company’s heritage…. There’s so much pride, so much talent and so much infrastructure here.”
At the same time, he said he is not even sure what the term “headquarters” means anymore. There is no “grand design” to locate more executives in New York, he said.
Martin wrote in his memos that he wants to free up resources to improve ratings in the short term and to “prioritize programming, monetization and innovation investment while reducing spending in less-impactful areas.” Teams have picked through Turner’s more than 700 departments, comparing operations against benchmarks of other companies.
Beyond cutting support staff, there likely will be tension over whether more of the financial pain will be borne by the entertainment side versus CNN, which has long struggled with weak ratings, and international operations.
The initiative began before news of 21st Century Fox’s short-lived attempt this summer to buy Turner’s parent.
Increased pressures
Time Warner rebuffed Fox’s bid, insisting the company has a brighter financial future on its own. Those assurances increase the pressure on Time Warner, and Turner, to pump up profits — something cuts could do, at least temporarily — and boost share prices. The company isn’t on the ropes, however. Both Time Warner and its Turner unit remain profitable and their revenue and profits grew in the second quarter of the year.
While Martin cites a need for Turner to put more money into programming, particularly in original productions rather than acquiring reruns, that isn’t a fast way to build profits. It can take two years to develop a new non-reality entertainment series and get it on air. Add to that the time it takes for a show to then build audience and goose up profits.
“They’re under the gun to perform sooner than later,” said Robin Diedrich, a media equity analyst with Edward Jones in St. Louis. “I think they have one to two years to start making some progress.”
Cost pressures are growing, particularly for rights to show live sports. Turner is spending $1.2 billion a year on sports programming and that figure is expected to grow if it extends rights to NBA games beyond the 2015-2016 season. Sports is among the most reliable types of programming, drawing huge live TV audiences.
The company has refashioned its networks and operations before. Last year, the company cut 500 jobs, including nearly a third of the staff for its operations in both Asia and Europe/Middle East/Africa. In 2001, Turner cut about 500 jobs, most of them at CNN.
TNT delved into scripted dramas and action series and TBS geared toward comedy with some original sitcoms, comedy reality shows, Conan O’Brien for late night, plus national baseball games and Major League Baseball playoffs.
But reruns that first ran on other networks, such as Castle (now on TNT) and The Big Bang Theory (on TBS), still fill the bulk of the schedules for Turner entertainment networks.
In an age of people binge watching old and new shows on Netflix or Hulu Plus and cutting cable, Turner’s brands can’t afford being labeled as the channels that show other networks’ re-runs, industry analysts said.
“Watching the same episode of Friends for the millionth time … it’s not driving people to the networks,” Diedrich of Edward Jones said, because folks can watch many of their favorite old shows on demand.
More hits needed
Turner networks have had their own hits – new series The Last Ship and Legends have performed well so far on TNT – but neither TNT nor TBS has created “water-cooler” buzz for their programs, Diedrich said. The Last Ship is the only Turner original that’s broken into cable’s top 20 this year in the network’s key audience. It’s ranked 17th.
AMC has had major hits with Breaking Bad, Mad Men and the Georgia-filmed The Walking Dead, while HBO over the years has remained a destination for younger viewers with The Sopranos, True Blood and Game of Thrones, Diedrich said. Even Netflix originals such as House of Cards or Orange is the New Black have more buzz, industry insiders said. Streaming channels such as Hulu Plus and Crackle tout numerous original programs as well.
“TNT in particular needs to have that big hit and have a definition of why a viewer would want to turn to them first,” Diedrich said.
As viewer options multiply, ratings have slid for some of Turner’s most important networks. But the issue is most concerning at TNT, Turner’s most profitable network but the one with the slowest growth.
TNT’s ratings among 18- to 49-year-olds fell 16 percent in prime time for the first seven months of the year vs. the same period in 2013. TBS was down 10 percent in that category. And CNN fell about 20 percent for its older target audience.
Time Warner CEO Jeff Bewkes, who previously led HBO, suggested earlier this year that TNT needs to take more creative risks with its programming and to focus more on attracting younger viewers sought by advertisers.
Leaders throughout the TV industry are confronted by how they will make their businesses thrive as consumers turn to new outlets, shifting technology challenges business models and competition intensifies inside and outside the maturing industry.
Network owners will likely need big treasure chests — or new deep-pocketed partners — to tackle those challenges.
Change ‘probably needed’
“The transformation Turner is going to go through, unfortunately, is probably needed for their long-term health,” said one senior executive in the cable industry.
Investors are pressing Time Warner executives for more details on how they plan to address long-term threats. One looming question is whether the entertainment networks can create significant online businesses through programming and other brand initiatives. While putting programs online can generate dollars, online ad rates tend to be lower than those for TV. And, online, networks don’t get the significant carriage fees paid by cable systems.
Time Warner officials have talked about other ways to make money. For example, they plan to further expand Turner’s entertainment brands internationally and expand product licensing tied to Cartoon Network to tap into the lucrative market for kids and teens games, apparel and toys.
Time Warner has improved its performance by retaining its most profitable businesses and spinning off the rest, but the company has to prove to shareholders it is better off remaining independent, said Marci Ryvicker, a media analyst at Wells Fargo Securities.
Time Warner’s planned Investor Day next month could be a watershed moment, she said. The company hasn’t held such a confab of top executives and shareholders in years.
The top question for Time Warner, according to Ryvicker: “I want to know how they plan to monetize Turner.”
“Cost cutting only works its magic for so long,” Ryvicker said, “you need top line revenue growth.”
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