Time Warner pursues Turner Broadcasting

THE BALTIMORE SUN

In the entertainment industry these days, nobody wants to be small -- and nobody wants to depend on anybody else for anything.

Yesterday, Time Warner Inc. confirmed that it was negotiating to buy Turner Broadcasting System in a deal valued at $8.5 billion. This comes just 30 days after the Walt Disney Co. announced it planned to acquire ABC for $19 billion and just 29 days after Westinghouse's Group W weighed in with a $5.4 billion offer for CBS.

Each of these recent media mega-mergers has its own internal logic, but through them runs a common theme.

"It's kind of like a case of 'God Bless the Child Who's Got His Own,' " said Michael Wirth, director of the School of Communication at the University of Denver. "By having your own network, you can't be frozen out of the game."

If it goes through, the Time Warner-TBS merger will create the world's largest entertainment conglomerate -- with $18.7 billion in revenues compared with the $16.4 billion expected from Disney's planned acquisition of Capital Cities/ABC Inc. TBS' revenues, from holdings including such properties as CNN, the Cartoon Network and Turner Classic, come to $2.8 billion a year.

Media industry analysts and experts were conducting a robust debate yesterday over the wisdom and appropriateness of the Turner deal and other proposed media mergers, but on one point the opinion was virtually unanimous: You ain't seen nothing yet.

"Everybody's getting on the bandwagon and feeling that if they don't partner up with somebody, they'll be left without a decent partner," said John Aronsohn, senior analyst at the Yankee Group in Cambridge, Mass.

Each of the proposed deals -- as well as a string of other acquisitions stretching back to Rupert Murdoch's acquisition of Twentieth Century Fox in the mid-1980s -- to some extent brings program production and distribution together under the same corporate roof.

By acquiring the company built by Ted Turner, Time Warner, the nation's second-largest cable operator, will add to its already vast arsenal of what is known in the media industries as "content." Besides some of the nation's best-known cable channels, Time Warner would become owner of the National Basketball Association's Atlanta Hawks and baseball's Atlanta Braves. The Disney deal was almost the reverse -- a content provider guaranteeing that it will have an outlet for whatever it produces.

The proposed CBS-Westinghouse deal would create a company that combines the nation's No. 3 television network with a leading station owner to form a company with 15 local TV stations. For CBS, also a major producer of its own content, those would be stations it wouldn't have to worry about losing to Mr. Murdoch's upstart Fox Network -- which has picked off several affiliates from CBS in recent years.

Bringing program production and distribution together in one company has some distinct advantages, but also significant dangers.

Mr. Aronsohn said such an arrangement could let a producer have more control over the time slot in which a program is shown and give high-quality programs such as "I'll Fly Away" and "Brooklyn Bridge" more time to catch on than the often-impatient networks now allow.

And in a world of multiplying outlets such as competing cable ventures, telephone video networks and direct broadcast satellite, competitors will be looking for ways to distinguish themselves from their rivals, he said.

"You need to be able to produce original programming in order to differentiate," Mr. Aronsohn said.

But Eli Noam, head of Columbia University's Institute for Tele-Information, said the programmers could feel pressures to schedule their company's own shows over those of other producers -- at least when it's a close call.

"If you've got good content, people are dying to have it, and if you don't have good content, you shouldn't be showing it yourself," he said.

Dr. Noam also said the virtues of size are being overestimated as executives engage in what he called "empire-building."

"All these organizations become so sprawling they become difficult to control," he said.

Of course, before that theory can be tested in the case of Time Warner, the deal has to go through -- and it faces some formidable hurdles.

While Time Warner and Ted Turner have apparently agreed on a deal that would make the flamboyant entrepreneur vice chairman of the combined company, any deal would likely have to receive the approval of Tele-Communications Inc. and its hard-bargaining chief executive, John Malone, who controls 21 percent of Turner.

The stock swap proposed by Time Warner, which owns 18 percent of Turner, would make TCI a minority stockholder in its leading competitor, which could bring scrutiny from the Justice Department.

Then there is the possibility of another bidder turning the Turner sale into an auction. The chances of that happening increased yesterday as NBC restated its interest in acquiring the Atlanta-based company.

Whatever finally happens with Turner, there is no end to the feeding frenzy in sight. If the deal goes through, it could give Mr. Turner the bankroll he needs to make a run at CBS. And if the telecommunications deregulation legislation pending on Capitol Hill passes this fall, it could bring a flood of hungry new players into the market in the form of the nation's telephone companies.

"I would expect a lot more to happen," said Dr. Noam. "This is a very interesting environment."

Time Warner stock fell $1.25, to $41.125, a share yesterday on the New York Stock Exchange. Turner's widely traded Class B stock shot up $6.50, to $30.50 a share on the American Stock Exchange.

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