TIME FOR TURNER

By Bill Saporito

Like a gambler unwilling to cut his losses, Time Warner CEO Gerald M. Levin keeps doubling his bet. In 1989 Levin, then vice chairman, negotiated Time Inc.'s buyout of Warner Communications, an acquisition that enriched Warner's shareholders but not Time Inc.'s. Without making much of a dent in the $11 billion debt incurred by the deal, Levin kept rolling the dice. He sold pieces of the new company into complex partnerships that raised billions but tied up Time Warner's best assets, including Warner Bros. studios and HBO. And instead of paying down the mortgage, Levin went out and bought a couple more cable-television companies, just as share prices in the industry were beginning to slump.

Now, with Time Warner's stock having been among the biggest dogs in media since Lassie, Levin has thrown the dice again--and this time rolled a Ted. As in Turner. Time Warner's merger with Turner Broadcasting, sealed last week, makes the company the biggest in media, with unconsolidated sales of $21 billion. Time Warner--with holdings in film and television (including Warner Bros., HBO and Cinemax), publishing (including TIME, Book of the Month Club and Little, Brown Publishers) and music (including the Atlantic and Elektra labels)--adds to its roster such gold-plated assets as CNN, TBS, TNT, a vast film collection and some 28,500 television programs. Levin paid a golden price too--178 million shares of Time Warner stock, worth about $7.57 billion.

And with that comes the rambunctious Robert Edward Turner. The question bounding around the new company is, What does Ted want? He certainly wants an active role in management, as he made clear in forcing Levin to carve out a fourth operating division for him that includes Time Warner's HBO and Cinemax, besides CNN and the other former Turner Broadcast properties. His game plan might include lifting the company's stock price by selling off assets, cutting debt and pressing for lower costs. "Ted is magic," says fellow industry maven Glenn Jones, CEO of Jones Intercable. "He can do things and say things that nobody else can do and say, because he's Ted."

Ted is also a bundle of contradictions. He has a tendency to employ his mouth and brain sequentially, but has an entrepreneur's penchant for bold ideas. He brings a shopkeeper's mentality to some costs, yet spends lavishly on quests such as the Goodwill Games, and doesn't want to get rid of favorite assets such as the Atlanta Braves. He abjures debt, but it almost drowned him after he bought MGM for about $1 billion in 1986.

In the nearly seven years since Time Warner was formed, its stock has trailed the market badly, up 32% while the Standard & Poor's index has risen 100%. The merger may help. Time Warner rose 5.7% last week, to $41.75. Part of that may be due to Turner's advent, but it also reflects Levin's promise that he's ready to purge the company's onerous level of indebtedness.

Indeed, the first order of business may be to substantially reduce Time Warner's cable-television holdings. In 1992 the company bundled its cable systems, along with Warner Bros. and HBO, into an entity called Time Warner Entertainment, and then sold 25% of it to US West, the Denver-based Baby Bell, for $2.5 billion. In doing so, the company misguidedly ceded to US West a lot of control over any big decision regarding these businesses--such as selling any of them. US West is strategically committed to cable because the company sees the cable-telephone hybrid as the perfect pipeline into consumers' homes, capable of handling video, voice and data. It might be willing to give Time Warner its freedom--as well as a guaranteed outlet for programming--in exchange for majority ownership of the cable assets.

Levin has been in love with cable for decades and is loath to give it up, but he is under pressure from his board of directors to do so. "Cable is the key issue--it's the only issue," says a source close to the board. In Levin's thinking, by marrying content, such as films and television, with distribution--networks and cable systems--Time Warner will always have an outlet for its products. The Turner deal is an extension of that thinking.

Cable is still a superb pipeline for television and interactive services, but now that consumers can find more avenues of distribution, such as direct satellite broadcasting and wireless cable, it is losing some of its allure. Some cable analysts are actually calling for a slowdown in capital spending, saying that the telephone companies' efforts to bring video to the home are going so badly that cable companies can upgrade more slowly, charge the content providers more to get on the pipeline and thus raise revenues dramatically.

Time Warner has also promised analysts it will save $300 million by consolidating the two companies and exploiting other "revenue opportunities." Almost all the initial pain will be suffered by Turner's gang in Atlanta, where 1,000 layoffs are expected. The company plans to apply a sharper pencil to its capital expenditures in all divisions, demanding higher returns.

Below the surface, Time Warner isn't exactly a happy family. While its individual divisions are highly profitable, the company has been a cauldron of intrigue that has claimed many top-level managers caught up in power struggles. Says a victim: "Time Warner is in too many things. It has become unmanageable. Just the span of control is impossible. Ted is going to have to bring some focus to all that."

But that may not be Turner's strong suit. And if the stock price continues to go up, he may find his far-flung ranches beckoning. However, if the stock price languishes and Turner feels the urge to get into the day-to-day management of the company, he could end up breaking some of the executive furniture.

Levin's critics think it's only a matter of months before Turner exerts full authority. But some of these same critics were certain that the Turner deal would never go through. The fact is, Levin and Turner are cable-industry cronies who could conceivably pair well together. Certainly, Levin is a survivor. He has outlived one boss and outplotted a co-CEO, dumped executives and board members who didn't buy his vision and hung around long enough to pull off the deal he's always wanted. But the question remains: Will the company of his dreams prove to be a nightmare? As he told the shareholders' meeting, "The stars have aligned for some interesting things to happen."

--With reporting by Bernard Baumohl and Stacy Perman/New York

With reporting by BERNARD BAUMOHL AND STACY PERMAN/ NEW YORK