If opposites attract, then the 1989 merger between Time Inc and
Warner Communications was destined to be a marriage made in heaven. It
may yet work out that way, but so far there has been much more trouble
and strife than sweetness and light. Although Time Warner is easily the
world’s largest media owner in terms of revenue, it has reported net
losses in almost every single year of its existence.
These losses are almost entirely down to a huge amount of debt taken on
at the time of the merger; but a clash of corporate cultures hasn’t
helped - particularly in the early days and especially with regard to
strategy. The New York-based Time Inc was East Coast Establishment,
owner of America’s top news weekly, Time, plus a stable of publishing’s
most revered magazines, including People, Life, Fortune and Sports
Warner Communications spanned music and television, but its flagship was
the Warner Brothers studio. Time’s patrician executives were
uncomfortable not only with their new partner’s brash Hollywood style,
but also with its ambitious expansion plans. Warners wanted TV network
interests commensurate with its status as a film and programme maker -
sooner rather than later.
As New York stalled, a damaging struggle for the soul of the company
began, with senior executives at Time Warner Entertainment - the
division created to run film and TV - threatening open revolt as the
years slipped by. In the end, salvation was sought in an unlikely source
- Ted Turner.
Although the dollars 7.5 billion acquisition in 1996 of Turner
Broadcasting System went a long way towards resolving strategic issues,
it raised its own question-marks. It pushed Time Warner even further
into debt. And Turner, who became Time Warner’s vice-chairman and
largest individual shareholder, was yet another exotic ingredient in the
corporate culture mix - he has a reputation for volatility that makes
Warners look staid. There was even speculation that he would mount a
boardroom coup to oust the Time Warner chairman, Gerald Levin.
It hasn’t happened. Paradoxically, the maverick and self-confessed
’contrarian’ Turner has been a model team player and has almost
single-handedly reinvigorated the company. In the third quarter of 1997,
revenues were up by 25 per cent year on year to a record dollars 6.1
billion. Growth across the whole year has been running at about that
level and although it still has a dollars 17 billion mountain of debt to
shift, the company is now heading towards profitability.
Turner brings not only his much-prized TV interests - the TBS and CNN
cable channels - but a ruthless attitude to costs. He built his empire
on lean, mean principles and on taking up his new role he immediately
embarked on a programme to shed 1,000 jobs, saving dollars 350 million.
A further dollars 500 million is to be saved over the next three
Turner’s presence has galvanised Levin, who now seems to have the
resolve to do what critics say he should have done years ago - end the
east-west schizophrenia by folding Time Warner Entertainment’s
management structure into Time Warner headquarters in New York. Turner
and Levin, to the surprise of many commentators, work well together and
the company now has a greater strategic focus than at any time in its
history. Turner hasn’t had everything his own way - his own Hollywood
’boutique’ studio, Turner Pictures, was a victim of the cuts programme
and he was unable to dissuade Levin from selling the entertainment cable
channel, E!, last year.
On the television side, Time Warner is now a classic vertically
integrated media owner. It has its own programme-making base and its own
It doesn’t have one of the big networks but it would argue that its
clutch of cable channels more than makes up for that. Lastly, as the
second-largest cable network operator in the US, it also has its own
Cable network management is one of the company’s most successful sectors
and it has invested hugely to stave off the threat of satellite. Last
year, that investment paid off handsomely with the addition of CNN, TBS
Superstation and TNT to Time Warner’s cable subscription packages.
Much of that investment has been on technological upgrading, positioning
cable for new opportunities such as video-on-demand and Internet
Embarrassingly, though, the company has had to admit defeat in one area:
last year, as part of the rationalisation programme, it pulled the plug
on its world-famous interactive media trial in Orlando, Florida.
In the broad scheme of things, that was only a minor setback. Levin
still has critics on Wall Street who argue that he remains a weak
leader. But a challenge to his position is unlikely to come from Turner,
who says he has no appetite now for running a major corporation and is
happy in his support role. If the sequence of record results continues
this year, it will become increasingly difficult to find fault in the
Levin-Turner regime. The signs are that Time Warner is only just
beginning to realise its full potential.