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It was NCTA time again in New Orleans this past week. That's the annual gathering of the National Cable Television Assn., the place where John Malone, Ted Turner, and the other cable luminaries usually hang out. Well, this year it had an awfully strange look about it. Malone was a no-show, choosing instead to spend time with his son and daughter back in Denver. And Ted Turner might has well have been there with him.
Turner is usually his flamboyant self at these industry gatherings, and this year he was even the convention chairman. But Turner issued none of those great quips to which we in the press corps have long been accustomed. Instead, he opened the convention with a sure and listless welcome, reading from a ready teleprompter that it was "a great time to be in the cable industry."
The question is whether Turner, the man who gave America CNN, the Goodwill Games, and the Cartoon Network, really in the cable industry these days? Not if you believe the press release that Time Warner handed out on May 4 along with its merger partner America Online. Since combining with the Turner Broadcasting System back in 1996, Time Warner has been Ted Turner's place of employ. But that will change dramatically whenever Time Warner and AOL close the $160 billion deal they announced on Jan. 10. At that point, Turner will become vice-chairman of the new company as well as a "senior adviser," the press release said. Turner, however, will no longer be in charge of CNN, TNT, TBS, the Cartoon network or any of the other cable channels he brought into existence.
"CREATIVE CRAZY."
What a shame. Perhaps more than any one else person today, Ted Turner revolutionized the way we watch TV. It was Turner who saw the potential in beaming sports by satellite, as he did with Atlanta Braves games over his superstation TBS. And it was Turner who found value in those dusty old movies lying around Hollywood studios, nearly bankrupting his company back in the mid-80s to fill cable stations with vintage flicks.
Turner is the kind of guy -- in Hollywood they call them "creative crazy" -- who thinks outside the box and dares to be the first and the most outrageous. That's called showmanship. And by taking away any operational responsibility, the folks at Time Warner are closing down one of the true entertainment entrepreneurs who knew how to bring an audience to the screen -- something that's in short supply generally and might be sorely lacking in a new AOL-Time Warner confab that indeed looks heavier on technology brainpower than entertainment.
Turner executives gathering for the show in New Orleans say they were dumbstruck by the move, and some say Turner himself took it hard. While their boss isn't always at the office, but he's never far from the action. One Turner exec told me he gets weekly phone calls from Turner, who always seems to know the ratings for his channels and which ones are looking a little soft. When Larry King's ratings slid recently, Turner was on the phone with quick suggestions, he says. More recently, Turner has been heavily involved in expanding his cable channel's push into sports programming, worrying about Internet rights for the pro basketball games they cover, and trying to jump-start the CNNfn financial network.
BOTTOM-LINE BOOSTER.
The Turner channels will be just fine. Under the planned AOL Time Warner reorganization, they'll continue to operate under Terry McGuirk, the long-time Turner lieutenant who is among the smartest people in the cable business. The last time I checked, Turner's results were robust enough, with among the heftiest operating margins in the company. In the most recent Time Warner earnings release, in fact, only the company's cable unit had stronger operating margins than Turner's 22.9% margin. And Turner isn't saddled with all of the debt that drags down Time Warner's cable income. The $364 million that Turner's operation showed in EBIDTA (earnings before interest, depreciation, taxes, and amortization) in the most recent quarter went right to the bottom line.
Which is why Time Warner Chairman Gerry Levin went looking for Turner in the first place. The cable channels are strong cash generators that require little or no capital expenditure, a perfect compliment to the cash-using cable systems that were then weighing down his company. But Levin got more in the bargain than just the channels when Turner came aboard. Along with his 9.6% stake in the company, Turner became a very vocal critic of the cliques and money-squandering ways that had ravaged Time Warner's morale and earnings for years. He pushed for stronger cooperation between company units, the selling off of such Warner Bros. perks as private jets and vacation homes that were made available to movie stars. He insisted that New Line Cinema report directly to him instead of Warner's hierarchy, and he even got HBO shuttled under his control.
Company insiders say Levin and Turner actually got along well enough. But when it came time to choose between Turner and AOL, there really wasn't much choice. AOL was the future, Turner the past. Levin acquiesced, allowing AOL President Robert Pittman to become co-chief operating officer along with current Time Warner President Richard Parsons. Levin will be chief executive, presumably until he retires in 2003, while AOL Chairman Steve Case gets the same job in the new company.
ON THE OUTSIDE.
As for Ted Turner, his $9 billion stake in Time Warner becomes a 4.5% piece of a larger company. Company insiders say he was hurt that he was effectively being demoted and that it took several meetings with Levin to square the new reorganization with Turner. After being a willing participant in the merger talks, Turner now was clearly on the outside looking in.
Turner has plenty to keep him busy. The $1 billion foundation he set up at the U.N. in 1998 has given away more than $237 million already, including funds for AIDS prevention, to help inner cities, and to various environmental causes near his heart. He has enlisted former Senator Sam Nunn to help him create a foundation to promote world peace. He was scheduled recently to meet with new Russian President Vladimir Putin to discuss nuclear disarmament, and he has become intensely interested in the problem of unexploded land mines in various countries.
He's among the largest land owners in the U.S., with more than 1.7 million acres of ranch property in Montana, Nebraska, New Mexico, and elsewhere. On the personal front, he seems to have rebounded well from his well-publicized split with Jane Fonda and has been seen dating Bo Derek along with others.
With all he has going on, Ted Turner would still be a key asset for the megamedia empire that AOL and Time Warner envision. Sure, he can be outrageous. And he sometimes doesn't fully think through his bombastic comments. But few folks are out there with what Fred Silverman once called "the golden gut." Gerry Levin & Co. would be wise to listen to whatever advice Turner has to offer.
Grover is Los Angeles bureau chief for Business Week. Follow his Power Lunch column every Friday, only on BW Online EDITED BY DOUGLAS HARBRECHT
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