Despite its random efforts to date, Time Warner is just another media conglomerate digital wannabe dabbler. Movie and TV program trailers, sponsor Web site tie-ins and routine fan activities are all well and good. But these are interactive add-ons that thrive vicariously off its cyclically successful films, television programs and live events. Its content, distribution and marketing continue to be filtered through traditional, mass audience lenses rather than originating and existing in fragmented digital environments.

One of Time Warner's most intriguing brushes with genuine digital adoption to date has been through the viral fan chatter and creativity (from scavenger hunts to costume contests) created around the $7.5 million "Dark Knight" Batman movie more than a year before its premiere--clearly contributing to its anticipated $500 million box-office success. Intricately weaving content into the devices, platforms and practices that define consumers' lives is critical; it requires more risk-taking and out-of-the-box thinking and acting that demands permanent structural and procedural changes. The Batman madness will be only a one-time boost to Time Warner's estimated 7% earnings growth in 2008 and $4.5 billion in fee cash flow.

Time Warner must learn to play in the new media arena where the more choices consumers have, the more diffused their attention and spending, and the less dominant most other traditional fare becomes. It must routinely utilize the Web as a Petri dish for more original low-cost content creation, viral marketing, innovative advertising forms and development of micro brands. Time Warner's reliance on traditional mass audience content was evident in its recent decision to postpone the premiere of the next Harry Potter movie from November to July 2009 in order to spread the big-screen wealth into next year.

If Time Warner had rigorously learned from and integrated AOL into every fiber of its being, it wouldn't be thinking about selling the Internet portal to Yahoo or Microsoft or about unloading its branded niche magazines (from Fortune to Sports Illustrated). It's difficult to believe that the publishing division's 11% earnings decline on a 6% decline in revenues last quarter could not be helped by more enterprising digital applications.

Content synonymous with unique slices of the American experience should be more than online retreads of its printed issues. Such content should be regenerating itself with the digital flair and function that consumers expect, especially on mobile phones.

Time Warner's usually guarded behavior would not be well-suited to the acquisition of NBC Universal, which generally has been among the most aggressive and creative traditional entrants into the digital content arena. Still, like its other peers, NBCU and Time Warner have been so obsessed with protecting existing content with walled gardens that they have come up short on innovating original digital content forms and access.

That 37.4% of Time Warner's total revenues are generated from content (compared to 70% from Walt Disney) mostly connected to DVD, theatre, domestic network, international and other traditional distribution threatened by digital disruption is why Lehman Brothers analyst Anthony DiClemente downgraded all media conglomerates earlier this year. Industry analysts are generally so focused on uncertainties surrounding AOL, Time Warner Cable and company buybacks that they fail to concentrate on the absence of more enterprising digital content growth.

DiClemente says entertainment companies' core business models and profits will be ravaged by technology, a structural change that already has triggered the decline in the $24 billion domestic retail home video market--with no burgeoning digital content revenues streams to rely on.

"The decline in packaged media revenues will dramatically outpace the growth in digital media revenues in the next two years," DiClemente predicts for all media conglomerates.

As content shifts from physical to digital media, the blended average per-unit contribution for each form of conventional delivery "marginally deteriorates upon moving to legal online digital platforms including iTunes," he said. The existing 87%-13% ownership/rental split will shift to lower-priced rental options as consumers become more digital, and DVD sales will become virtually nonexistent. The "tipping point" for the movie and TV industries is closer than we think. Total studio DVD rentals and sales revenues will become one-fifth of what they are today by 2015. Even the dual subscription fees and advertising revenues of its popular Turner cable networks will be pinched in a prolonged deteriorating economy.

If Time Warner is betting on commoditized content as a new strategy, it will need a digital game plan that calls for more than DVD sales, VOD and TV syndication. Its struggling monetization of online products such as its CW's "Gossip Girl" is proof that it has a ways to go in developing independent distribution outside of Apple's iTunes. Otherwise, it will be wrestling within 18 months with the deteriorating economics of online distribution and rampant piracy. Other studios, like Sony, are engaging in more aggressive theatrical film releases simultaneously on DVD and direct to consumers with Internet-enabled Sony Bravia television.

To listen to Time Warner CEO Jeff Bewkes, the problem is all about investors' inability to value what has always been its dissimilar portfolio businesses. The production of media content has never been more in demand--but this is not an assurance of success. Time Warner shares, down 20% from a year ago, have failed to rally even amid the excitement and success of "Dark Knight." Even Wall Street expects more.

Likewise, the estimated $12 billion sale of AOL will add a potential $2.50 of near-term per-share upside to Time Warner, but do nothing to fortify its digital content future. If digital content constitutes only 10% of Time Warner's business today, maybe it's because it functions as a business afterthought. By next year, a streamlined and simplified Time Warner will have nothing else to think about, except maybe what to use as an excuse for digital content failure.

This commentary is insightful. I recommend it to others.