The Scoop...

Time Warner

Time Warner has the versatility of a great Dr. Seuss character, entertaining (in a box, to a beat, through a wire, on a page) the world through a broad variety of media. Formed by the 1989 merger of Time Inc. and Warner Communications, Time Warner is the largest and most prominent entertainment conglomerate in the world. Its holdings include a movie studio, music labels, cable television networks and systems, and the world's largest publishing firm. Its merger with America Online in January 2000 ushered in a new era for a quintessentially old media company whose effort at creating an online portal for its content, pathfinder.com, was a well-publicized flop. The new company, to be called AOL Time Warner, unifies two media leaders in a $156 billion stock-for-stock deal.

That's entertainment

Time Warner's entertainment division includes Warner Brothers studios, producer and distributer of movies and television shows; music subsidiaries; and 161 Warner Brothers retail stores. The publishing sector includes influential Time Inc., publisher of 28 magazines; several publishing houses; and the world's largest book club, the Book-of-the-Month Club. In keeping with its AOL-inspired new-school image, in May 2000 the company also spun off a new, internet-only publishing division. The online venture, called iPublish.com at Time Warner Books, will publish hundreds of original works, including full-length books, essays and short stories, in the 12 months following its launch early next year. The cable networks sector includes Home Box Office, the world's first and most successful premium cable television service, the Time Warner Cable television service, and the channels started by Ted Turner - CNN, TNT, and TBS - that Time Warner acquired when it bought out Turner Communications in 1996. The company's cable systems division boasts 13 million subscribers to a massive and increasingly important cable infrastructure.

Even before its merger with AOL, Time Warner was increasingly trying (mostly in vain) to establish a viable online presence. Time Warner Trade Publishing (parent company of Little, Brown, and Company) and www.talkcity.com partnered online for an author chat room series, slotted for Thursday nights, and Columbia House music has been expanding its function in its own high-speed cable online business, Road Runner. In June 1999, former CFO and executive vice president Richard Bressler was named chairman and CEO of Time Warner Digital Media to bring focus to the diverse digital interests of Time Warner in digital cable, digital music, and DVD. With the merger, however, Time Warner gets an instant outlet for its old media content products, including HBO, Time, New Line Cinema, and Warner Bros. Time Warner will also market AOL in its bricks-and-mortar retail stores, and AOL will get to use Time Warner's valuable cable television lines to provide high-speed Internet access to subscribers. The deal, which is expected to close in 2001, will find current AOL chief executive Steve Case as chairman of the board, with Time Warner chairman and CEO Gerald Levin taking on the role of CEO of the new company.

One step forward, billions back

When Time Inc. and Warner joined in 1989, it was not a smooth merger. Trying to fight off a hostile takeover bid by Paramount, Time Warner was saddled with $14 billion in debt. Since this time, the company has been trying move forward with a huge weight on its back. Subsequently, no matter how well the individual units of Time Warner perform - especially its prized publishing unit - the media conglomerate is bogged down by underlying financial issues. This weight of debt has kept Time Warner from succeeding in the new age of digital cable services.

I want my cable TV

However, the company is seeing a light at the end of debt's tunnel, thanks in large part to the stellar performance of its cable television business, and the potential of its cable system to provide Internet and other telecommunications services. While TNT, the Cartoon Network, CNN, and other cable channels have brought steady advertising cash flow, Wall Street analysts are more focused on the potential of the cables that deliver those stations. In 1997, Time Warner and US West Media Group (now called MediaOne Group) embarked on a joint venture to create the nation's largest cable online business, called Road Runner. In February 1999, Time Warner joined forces with AT&T to sell local phone service over Time Warner's cable systems. The companies aim to charge 20 percent less than the competition in this $100 billion business. As of May 1999, AT&T purchased the Media One entity that owns 25 percent of Time Warner Entertainment, and has traditionally been a cramp in Time Warner's style. Industry observers say that Time Warner executives, who had to sell out company shares to dig out of debt, want to buy back control from AT&T, with whom they have a better relationship. The exclusivity contract with Road Runner is slated to end in 2001, but AOL is now pushing to break it even sooner so that AOL Time Warner can begin to open their huge cable system to online competitors.

A mere two weeks after the announcement of its acquisition by AOL, Time Warner acquired the music business of the London-based EMI Group. If the deal goes through, Warner EMI Music will sell approximately one of four records in the U.S., and will shrink the field of major music companies from five to four. The deal faces major scrutiny from EMI shareholders, who will receive a payment of 1 pound per share, even though EMI's shares at the time of the merger were worth nearly ten times that amount. In addition, the deal is expected to lead to a substantial loss of jobs, as the merged company plans to eliminate thousands of positions worldwide.

Time Warner in court

July 2000 was a bad month for Time Warner in court. The Georgia Court of Appeals upheld a $454 million verdict against Time Warner for mismanagement of Six Flags over Georiga. A Gwinnett County jury had found in 1998 that Time Warner, which held the controlling stake in Six Flags Over Georgia, tried to depress the park's value and withheld money and information from the partnership that owned it.

The company has also filed lawsuits against two former employees who allegedly breached their strict employment contracts.

On the plus side, the proposed merger with AOL has been given the early green light to proceed, calming (for now) fears of antitrust problems.

It's nice to share

Facing increasing pressure to open its cable systems, Time Warner announced in July 2000 an agreement to let Juno Online Services offer high-speed Internet access through its cable network. The agreement was the first between Time Warner and a non-affiliated ISP. Time Warner also inked a similar deal with EarthLink in November 2000. The company signed the deal under pressure from the Federal Trade Commision, which threatened not to approve Time Warner's merger with AOL unless the company signed deals with non-affiliated ISP's. Because another ISP, Road Runner, has an exlusive contract with Time Warner, however, the companies cannot begin offering services until 2001.