Time Warner and Turner are telling everybody that their merger was made in Wall Street heaven, with the new company bestriding the entertainment world like a showbiz colossus.
But a closer look suggests that it’s John Malone – whom Ted Turner described as “smarter than a treeful of owls” – who has walked away from the deal with the lion’s share of the marbles.
Malone’s Tele-Communications Inc. has racked up unprecedented carriage deals for Turner’s cable networks on all of TCI’s systems. The Starz paycable network, owned by Malone’s Liberty Media, will renew its deal for the exclusive rights to New Line movies. And Liberty Media gets the chance to buy two lucrative regional sports networks.
To get the agreement of TCI, TW and Turner said they’ve extended the carriage contracts of all of the Turner networks – CNN, TNT, TBS, Cartoon and Turner Classic Movies – to the 1,200 cable systems owned by TCI, which reach more than 15 million subscribers.
After the formal news conference announcing the merger Sept. 22, Terry McGuirk, executive VP of Turner Broadcasting, said TCI, which is the largest multiple system cable operator in the U.S., would get guaranteed access to the five Turner cable networks for a remarkable 20 years. There’ll be hikes in monthly subscriber fees built into the deal throughout the two decades, but company sources say TCI will end up getting the networks at rates well below their market value.
But McGuirk says the plus for Turner is that if Rupert Murdoch and NBC create 24-hour-a-day cable-news networks, TCI won’t be able to dump CNN in favor of the new competitors – or to shove CNN into the cable Siberia of channel 100 while awarding CNN’s favorable position on the dial to a rival news network.
TCI should become a cheerleader for the merger, says Bob Daly, co-chairman of Warner Bros., because, with Malone owning 9% of the stock of the merged company, “he has a vested interest in our growth.”
For example, McGuirk revealed that TCI already has agreed to start paying a monthly fee to carry TBS on all of its systems as Turner begins the process of transforming TBS from Atlanta-based superstation to basic-cable network, like CNN, TNT and Cartoon.
As a superstation, TBS receives no fees from cable operators – its sole revenue source is from the sale of advertising time on the schedule. McGuirk says that when TBS completes the transition to basic-cable network, “we’ll unlock $100 million a year in new cash flow,” even taking into account the loss of two minutes of advertising time each hour, which TBS will have to make available to cable operators as part of the transition. According to Paul Kagan Associates, TBS will harvest a projected $325 million in ad revenue in 1995 and $343 million in 1996.
WB net pickup
Daly is counting on Malone’s vested interest in the success of TW/Turner to induce him to carry the fledgling WB broadcast-network wannabe on TCI’s cable systems in markets where WB doesn’t have a TV-station affiliate. Malone’s support was vital in the early days of the Fox Network eight years ago, Daly says. During that period, he says, TCI agreed not only to create local-origination cable channels to carry the Fox lineup in areas where it didn’t have an over-the-air outlet, but also to give the Fox channel a choice dial position.
One insider says Malone chalked up another advantage from the deal: His Starz paycable network will get a renewal deal for the theatrical output of New Line Pictures, a wholly owned division of Turner. Published reports surfaced recently that Showtime, whose inventory of theatrical movies is some-what thin, was talking to New Line about signing a longterm contract when New Line’s current deal with Starz expires next year.
TW and Turner announced three other cable spinoffs from the merger:
* TBS will sell its interest in the regional cable network Sports South to Malone’s Liberty Media for about $60 million.
* TW will issue five-million common shares of TCI for a six-year option to buy Southern Satellite Inc., which transmits the signal of TBS to cable operators.
* TW will give Liberty Media an option to buy TWs interest in the Sunshine Network, a Florida-based sports cable channel, for $14 million.