INTERNATIONAL: Ted Turner’s marriage guidance allows the Time Warner odd couple to find happiness - Time and Warner have put their differences aside, and it’s about time too. Report by Alasdair Reid

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.

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

Illustrated.



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

years.



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

stations.



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

delivery systems.



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

access.



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.



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