Why Time Warner rules the cloud

Because Time Warner, one of the world's largest and powerful media companies, owns HBO, Bewkes is now in a position to have some say about how the cloud develops. The cloud, the term used to describe performing computing chores through third-party servers instead of on a PC, is supposed to be how we will shortly enjoy home video. Nevertheless for years HBO has owned exclusive electronic-distribution rights for three of the six major Hollywood studios.

The lack of an agreement is holding up cloud services from Apple and the launch of UltraViolet, say film industry sources. Developed with the help of five of the top studios, UltraViolet is the cloud video platform designed to allow the viewing, storage, and playback of movies on numerous cloud services and on a multitude of devices.

Last week, Bewkes said following his company's second-quarter revenues report that Time Warner's film studio, Warner Bros., will release its first movievia UltraViolet, "Green Lantern," sometime in the fall. That's good news because it clearly indicates Bewkes thinks a deal to relax HBO's window will be done by at the time. Over at HBO, the company developed a Web-streaming service and aniPhone andAndroid app that have proven popular with users and critics. One of the most popular features is that HBO Go users can access every episode of "The Sopranos," "Sex in the City," "True Blood," and near every other show in its library.

CNN, the all-news network Time Warner acquired in 1996, began offering live streaming last month, and New York-based Time Warner is reportedly working on creatingtablet editions for all its magazines, which include "Sports Illustrated," "People," and "Fortune."

Lessons from AOL Time Warner Nevertheless if Bewkes isn't giving in to Internet services, and if he's nevertheless requires people to pay cable subscriptions to access HBO content, and if he's nevertheless not supplying Netflix with the latest Warner Bros. hit movies, it's because he believes his content is valuable regardless of the medium over which it's distributed.

Bewkes may have developed some skepticism about the idea that content is less important than the research that moves it around because he's heard this earlier. In 2000, when Bewkes was HBO's CEO and during he was bankrolling and helping to develop hit shows, Time Warner's at the time management was allowing itself to be acquired by AOL. The deal was jaw dropping in that it meant a largely untested tech firm was gobbling up a much more established and larger media company.

The strategy

The strategy was a miserable failure and investors took a bath. AOL Time Warner was once valued at over $270 billion and a few months afterwards the deal closed it was down to $80 billion. A big part of that was due to the bursting of the Internet bubble, nevertheless the company struggled to realize its strategy. One of the main issues was that Time Warner owned distribution services which put it into competition with other important distribution partners. Bewkes never bought in.

Bewkes rallied investors and tried to show them that the company was sitting atop a huge treasure trove of content: magazine, news, television and film. He did this even during Internet distributors just as Google and Netflix, appeared to be siphoning off the value of that content by bundling it up and offering for far less money than traditional outlets.

Now things appear to be working out for Bewkes. Time Warner said last week that second-quarter revenue rose 10 percent from the same quarter a year ago to $7.03 billion, outpacing analysts' expectations of $6.82 billion. Profits climbed to $638 million, up from $562 million in the year-ago period.

In covering digital media for CNET News, Greg Sandoval has broken stories on Apple, Microsoft, YouTube, The Pirate Bay, and the digital efforts of the major music labels and Hollywood studios. Previously that, in his first tour with CNET News, he covered e-commerce while the dot-com boom and bust. A dogged investigative reporter, he began his journalism career at the Los Angeles Times and followed that with a short TV stint at The E! True Hollywood Story. Later, he spent three years as a staff writer for The Washington Post. Greg is an alumnus of USC and was raised in Chatsworth, California, which is distinguishable only for being the porn capital of the world.

In part three of a behind-the-scenes look at the development of Microsoft's new phone software, Ina Fried takes a look at Redmond's massive testing operation.