12/11/95 ...BUT FIRST, A WORD FROM THE FTC

...BUT FIRST, A WORD FROM THE FTC

Time Warner CEO Gerald M. Levin may dream of running the world's largest media company. But first he has to win over five mandarins at the Federal Trade Commission. Led by ex-Georgetown University law professor Robert Pitofsky, the commission will have final say over his pending $7.5 billion merger with Turner Broadcasting System Inc.
It's unlikely the FTC will block the deal outright when it concludes its antitrust review by next spring. But it could attach significant strings that could complicate matters. And given that this deal has three parties--Time Warner, Turner, and Tele-Communications (TCI)--any major changes run the risk of scotching the whole thing. The possibilities: forcing the spin-off of some programming or cable assets or writing new rules to ensure that rivals get equal access at fair rates.
For now, Levin, a former antitrust lawyer himself, isn't sweating. ``I don't think there is anything in the transaction that needs restructuring,'' he says. But FTC Chairman Pitofsky, a Clinton appointee, may not be so quick to agree. He has said that media mergers require extra scrutiny because industry concentration could shrink the available spectrum of viewpoints. And in an election year, those and other considerations may spark much debate. While Pitofsky won't discuss specifics, insiders say the Time Warner-TBS probe is a top priority.
MALONE'S DEAL. A new Time Warner-TBS (with TCI attached) worries trustbusters on several fronts. Theoretically, the three companies could dominate the market for both cable programming and distribution. They could use power in one area to block rivals in the other. Already, the companies separately control some of the cable industry's most popular channels, including HBO and CNN. And cable-TV systems owned by Time Warner and TCI serve almost half of all U.S. cable subscribers.
The deal was structured with those concerns in mind. TCI is a factor because its Liberty Media Corp. unit owns 22% of Turner and can block any deal. The transaction is a stock swap, so Liberty will end up with 9% of Time Warner. Because that 9% ownership of a competitor would violate Federal Communications Commission rules as well as raise antitrust issues, TCI CEO John C. Malone agreed up front to cede his vote to Levin, becoming a passive investor.
The trouble is, Malone also got a special side deal that gives him a 20-year contract to carry CNN and other Turner shows at a discount. TCI maintains the discount is based on volume, since it's the No.1 cable operator. Moreover, Time Warner and TBS say they're complying with a 1992 law requiring programmers owned by cable operators to give equal access to other distributors.
NERVOUS RIVALS. Still, Malone is a lightning rod for regulators, and his deal has angered rival cable operators and phone companies. ``It's a real concern because I'm building a network going head-to-head with TCI,'' says James R. Young, general counsel for Bell Atlantic Corp., which is launching a video service next year. The FTC has subpoenaed cable operators Comcast Corp. and Continental Cablevision, both Turner shareholders, for their views. They declined to comment for this story.
Competing programmers also fear that TCI and Time Warner cable systems could shun them in favor of their own networks. On Nov. 13, the Center for Media Education alerted the FTC to allegations that TCI had discouraged Children's Television Workshop from launching a new kids' cable program after refusing to carry the show--a possible rival to TCI's part-owned Learning Channel. CTW had no comment, and TCI denied that the episode happened. But such complaints, focusing on TCI, might be moot if the FTC decides TCI is indeed a passive investor. The industry nervously awaits the next word from Washington--but no one is watching closer than Jerry Levin.
By Catherine Yang in Washington