During Time Warner’s (NYSE: TWX) third quarter earnings call, the company announced it plans to experiment with reducing the number of ads on some of the Turner Broadcasting System’s cable channels, says The Verge. The goal? To appeal to younger audiences, including cord cutters and cord nevers who prefer to watch TV over the Internet, sometimes called over-the-top (OTT) TV.
According to Variety, Time Warner will begin testing with TruTV, a reality TV/comedy channel, in the fourth quarter of 2016. Instead of the usual 18 to 19 minutes of national commercials and promos, TruTV will run them for 10 to 11 minutes. This would allow programs like “Billy on the Street” and “Adam Ruins Everything” to run as long as 25 minutes, increasing programming per hour by 21%.”We have a generation that has grown up with access to content that does not have commercials,” said Chris Linn, president and head of programming at TruTV, in an interview. “In order for us to remain relevant to them, we have to deliver the most premium experience possible.”How will Time Warner pull it off? By charging higher prices for its ads, says Variety.Insider Take:Though subscription companies like Netflix and Hulu are already offering ad-free programming, most of those services are all or nothing – ad-supported or ad-free. Time Warner may be the first to offer a hybrid – fewer ads and more programming.We are curious to see if Time Warner’s new model will extend to popular channels like TBS, which is the #1 ad-supported cable network in primetime among adults 18 to 49, and Cartoon Network which is the #1 ad-supported cable network among kids 6 to 11 as well.Based on the company’s third quarter financials, this experiment is necessary to slow declining revenues for Turner. For the quarter ended September 30, the company reported overall revenue growth of 5% to $6.6 billion, with revenue increases by HBO and Warner Bros., and a revenue decline by Turner. In its third quarter report, Time Warner said the revenue was down because of a 15% decline in content and other revenues, a 1% decline in subscription revenue, and a 1% decline in advertising revenues.This new strategy has potential for Time Warner, but we are wondering why it is waiting a year to kick off the experiment. Perhaps it needs the extra time to sell the idea to its current advertisers and to honor existing commitments. It seems like it would be better to start sooner, rather than later. Maybe another cable company or network will beat them to the punch.In the meantime, the desire for ad-free content – whether print, online or broadcast content – applies to many subscription companies, particularly as they attempt to reach younger and more mobile audiences. Customers want to enjoy content without the clutter of advertising, but advertising is sometimes necessary to support a business model. How can companies meet their own business and financial goals, while satisfying the changing needs of their target audiences? Time Warner’s experiment is just one example.~ Dana E. Neuts, Subscription Insider