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Time Warner Inc [1].
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Time Warner Inc.

75 Rockefeller Plaza

New York, New York 10019

U.S.A.

(212) 484-8000

Fax: (212) 522-0907

Public Company

Incorporated: 1990

Employees: 40,215

Sales: $13.07 billion

Stock Exchanges: New York

SICs: 2721 Periodicals: Publishing, Or Publishing & Printing; 2731 Books: Publishing, Or Publishing & Printing; 4841 Cable & Other Pay Television Services; 3652 Phonograph Records & Pre-recorded Audio Tapes & Discs; 7812 Motion Picture & Video Tape Production; 3952 Lead Pencils, Crayons & Artists’ materials; 3823 Industrial Instruments for Measurements, Display & Control of Process Variables & Related Products; 7922 Theatrical Producers, (Except Motion Picture) & Miscellaneous Theatrical Services; 7822 Motion Picture & Video Tape Distribution

From its inception as the thinly capitalized passion of two young men in 1923 through its 1990 merger with Warner Communications Inc., Time Inc. has been a steady, guiding force in U.S. media. As the world’s largest media concern, Time Warner’s mandate is to expand its global reach and transfer more of its communications arts from print to electronic form. In the process, Time Warner is on its way to becoming the quintessential self-marketing media producer, due in large part to the cultivation of synergies between Time and Warner assets. By 1992 Time Warner claimed to be the world’s leading creator and owner of creative software copyrights, and the only media and entertainment company to control 100 percent of its distribution.

The magazine that launched Time Inc. was conceived by Yale University sophomores Briton Hadden and Henry Robinson Luce during officers’ training at South Carolina’s Camp Jackson during World War I. ‘The paper,” as they referred to it, was a dream they put on hold for three years, until February of 1922, when they resigned from their positions as reporters at the Baltimore News. Armed with $86,000 of borrowed capital, Haddon and Luce moved to New York and prepared to launch the weekly news magazine Time. The magazine’s initial mandate eventually became that of the entire company: to keep the public informed. Haddon and Luce spent a year organizing investors, staff, and tradesmen and collecting criticism and advice. The first, 32-page, issue of Time was dated March 3, 1923. Haddon was Time’s editor, Luce its business manager.

Just as impressive as Time’s expansive editorial content was the duo’s then-novel approach to marketing the publication, which included postcard inserts soliciting subscribers and circulation of lists of prominent charter subscribers. The magazine was developed by a lean staff, who doubled as clerks. Luce’s and Hadden’s own salaries were at subsistence level.

For its first year, Time prospered modestly. When Time was just over a year old, it had garnered 30,000 paid subscribers. On August 2, 1924, Luce and Hadden launched a second publication, the Saturday Review of Literature. Hadden, who served as editor, determined that everything printed had to be either directly attributable to a person or to the publication’s own authority. Time’s other early journalistic innovations included the use of historical background in stories.

In 1925 Luce insisted that Time’s operations be moved to less-expensive facilities in Cleveland, Ohio—a move that Hadden and much of the publication’s staff bitterly but unsuccessfully fought. Three years later, printing of the magazine was moved to the offices of the R. R. Donnelley company in Chicago, while Time’s editorial office was moved back to New York. Hadden and Luce opted at the same time to switch titles and functions temporarily. Hadden became Time’s business manager, overseeing the publication’s daily operation, while Luce took command of Time’s journalistic direction.

By 1928 Time Inc. posted a net profit, after taxes, of $125,788 on revenues of $1.3 million. Making Time a lucrative proposition had taken its toll on Hadden, however, who began the new year fighting off a streptococcus virus. Hadden died at the age of 31 on February 27, 1929, six years after the first issue of Time was put to press.

To protect the ownership of the company, Luce and other Time staffers and directors bought 2,828.5 of Hadden’s 3,361 company shares at $360 a share. Hadden’s family retained the remaining 532.5 shares. Within two years, Time Inc. stock peaked at $1,000 per share, and was split 20-to-l. In the meantime, Luce proposed to launch a new weekly magazine, Fortune, that would cater to business managers. With the Time Inc. board’s approval, Luce set out to launch Fortune on the eve of the Great Depression. Fortune’s first issue, in February of 1930, won satisfying acceptance among its targeted audience. In September 1931, however, Parker Lloyd-Smith, Fortune’s managing editor and codeveloper with Luce, committed suicide.

Also in 1931, Time was making its controversial transition to radio. Time Inc.’s “The March of Time” radio show featured re-enactments of historical events. The show, although popular, was a limited run promotion that some observers felt threatened Time’s journalistic integrity. In 1935 the “March of Time” format reappeared, as a motion picture series of short subjects.

In April of 1932 Time Inc. acquired 75 percent of Architectural Forum. The company completed its acquisition of that professional journal for builders the following year. Luce’s personal interest in architecture had spurred Time Inc.’s acquisition of Architectural Forum, which he reshaped throughout the 1930s to reflect the monumental socio-political events of the day. When New Deal legislation made $3.3 billion available for construction projects, Forum editors rushed to press an 18-page guide explaining how builders could benefit. Forum editor Howard Nyers cultivated young architects and, in 1938, Frank Lloyd Wright traveled to New York and produced an issue of Forum devoted to the subject of his works. Although Forum expanded its circulation from 5,500 to almost 40,000 in the decade following Time Inc.’s acquisition of the publication, it posted only one year of profit. Luce resisted Time Inc.’s attempts to sell the publication.

In 1936 Luce began to explore the concept of a weekly photo magazine. Time subsequently brought pictures to print with the publication of Life, which first appeared in November 1936.

In 1937 Luce created Time Inc.’s divisional system, the corporate organization that defined Time’s operations for decades. Each of the company’s three fundamental publications—Time, Fortune, and Life —was assigned its own publisher, managing editor, and advertising director. Although a huge circulation success, Life was proving to be a major financial drain due to the unexpectedly high cost of producing the magazine. The explosive popularity of Life propelled Time Inc. into increasing circulation, and thus costs, pushing losses on the picture magazine into the millions. Life continued to lose money, a total of about $5 million, until January 1939, when the magazine turned its first profit.

While Life continued to lose money for Time directly, it was also the indirect cause of losses for the company as some readers of Time switched to Life. In May of 1938 the company sought to relieve Time’s circulation problems with the $25,000 acquisition of Literary Digest. About 60 percent of Literary Digest’s 250,000 subscribers chose to transfer their subscriptions to Time, bolstering that magazine’s sagging circulation.

In 1938, on the news that Time Inc.’s earnings were forecasted to drop a record $2 million, Time’s publisher, Ralph Ingersoll, and Luce became embroiled in a fierce argument over the company’s earnings. Ingersoll felt that Luce had diluted Time’s earning potential by siphoning off Time’s profits to start up and maintain publications such as Fortune and Architectural Forum. Ingersoll and Luce disagreed on editorial issues as well. In April of 1939 Ingersoll took a leave of absence from Time and did not return. Following Ingersoll’s departure, Luce appointed himself Time’s publisher and editor-in-chief.

Luce, who had strong ideas about how the tumultuous events in Europe that would lead to World War II should be reported, decided later in 1939 to devote more time to the editorial direction of Time Inc.’s magazines. Thus, in September of 1939, Luce resigned as president and CEO of Time Inc., remaining editor-in-chief, and chairman Roy E. Larsen was elected to the posts that Luce had vacated. Like most other key Time Inc. executives, Larsen was younger than many of his industry peers.

Time enjoyed steady success during World War II, as its national magazines chronicled the war. Time Inc.’s publications dominated the newsstands. In 1941 Time’s circulation was rapidly approaching one million. Life had weekly sales of 3.3 million magazines, with a significant additional readership. Fortune had a small but influential group of 160,000 readers. The organization of 2,500 full-time employees would grow to 5,500 over the next two decades of continued expansion.

Time assumed a prominent role reporting most major news events, including World War II and the McCarthy era. There were times when the magazine clashed openly with major decision makers; President Franklin Roosevelt and Time criticized one another openly during the war. During the winter of 1941-1942, also in the name of covering the war, Luce and his wife, Clare Boothe Luce, reported on the state of world affairs from England and the Far East, respectively; he for Time, she for Life.

In the fall of 1942 Clare Boothe Luce was elected to Congress as a representative of the Connecticut district that her stepfather, Dr. Albert E. Austin, had served from 1938 to 1940. Her position in national politics raised the dilemma of how Time Inc.’s magazines should cover the wife of their editor-in-chief. Eventually, Luce called for a blackout on the coverage of his wife in all of Time’s magazines.

In 1945 Time redirected the energies of its pool of wartime correspondents and photographers, organizing them into an international reporting operation under the command of C. D. Jackson. Luce simultaneously redefined the job of publisher of Time and appointed James A. Linen III to that position. Linen was among the first of a generation of younger managers who came up through Time’s editorial and sales ranks. Edward K. Thompson came up through the ranks to serve as managing editor of Life beginning in 1949.

Given more of a free hand than his predecessors, Thompson dismantled the periodical’s divisional structure and launched the publication on its most successful decade. Soon afterward, the financially troubled Fortune was the subject of what Time Inc. executives referred to as a “re-think.” Also in the postwar years, Luce adapted to technological advances that helped offset increases in the price of materials and wages. Despite reporting a ten-percent operating profit on a record high $120 million in revenues in 1947, Luce, ever the conservative manager, abandoned several projects, including the construction of a New York skyscraper, due to the cost.

Arguably, Time Inc.’s most important and lucrative long-term decision to diversify was the launch of Sports Illustrated in 1954. Sports in the United States then still tended to be seasonal, and sports marketing was relatively primitive. Despite the fact that Sports Illustrated did not turn its first profit for a decade, the magazine eventually became very profitable.

During the mid-1950s Time undertook to widen the appeal of longtime money-loser Architectural Forum. Although the company was successful in boosting circulation, the magazine continued to run at a loss. Forum was spun off to an existing nonprofit group in 1964. House & Home, a magazine Time Inc. had formed to complement Forum in 1952, was sold to McGraw-Hill in 1964 as well. In 1953 Time launched Life en Español, a companion to Life International. Life en Español was suspended in 1969, however, and Life International was eliminated the following year.

The post-war years also marked Time Inc.’s expansion into media other than print. In 1952 the company founded its Time-Life Broadcast subsidiary with a 50 percent interest in KOB and KOB-TV in Albuquerque, New Mexico. In a second bid for broadcast experience, Time acquired a majority interest in the Intermountain Broadcasting and Television Corporation of Salt Lake City, Utah, operators of the KDYL stations. Time acquired its first wholly owned and operated stations, KLZ-AM and KLZ-TV of Denver, Colorado, in 1954. Three years later, Time acquired the Bitner television and radio properties—WOOD in Grand Rapids, Michigan; WFBM in Indianapolis, Indiana; and WTCN in Minneapolis, Minnesota, for the then-record sum of $16 million. Eventually, Time sold its Salt Lake City and Minneapolis broadcast properties to acquire KOGO-TV in San Diego, California, and KERO-TV in Bakersfield, California.

In 1959, after recovering from his first heart attack, Luce began preparations to pass the title of editor-in-chief-to Hedley Donovan, who was then managing editor of Fortune. Although Luce did not finally surrender the title until 1964, in 1959 he set in motion a management reorganization that put a new generation of Time Inc. managers in control. The company prospered under its new leadership. From 1960 to 1964, net revenues jumped from $287.12 million to $412.51 million, and net income increased from $9.30 million to $26.53 million, due to sales expansion and tighter cost controls. This profitability had been enhanced by the 1961 creation of Time-Life Books, an extension of Time’s already profitable book publishing operation. Time’s new management initiated explosive growth. Time continued to expand overseas offices throughout the decade, and in 1962 Time acquired textbook publisher Silver Burdett Co. in a $6 million stock swap. In 1964 Hedley Donovan was appointed to succeed Luce as editor-in-chief. In January of 1968 Time bought book publisher Little, Brown and Company for $17 million worth of Time stock. In 1966 Time initiated the General Learning Corporation, a joint venture with General Electric designed to sell a variety of learning tools; it was sold in 1974 at a loss.

Luce died on February 28, 1967. Even after his death, Luce’s influence was felt at the company where separation of editorial and publishing interests was considered sacrosanct. Time’s new leadership continued to guide the company profitably. In October 1970 the company announced plans to sell its broadcast properties to concentrate solely on cable television—a segment of the electronic media in which it already had amassed a considerable interest. By that time, Time had created East Texas Pulp and Paper Company, a joint enterprise with the Houston Oil Company, as its own source of paper. It also had erected a new Manhattan skyscraper at Rockefeller Center and successfully fended off competition from magazines such as Look and the Saturday Evening Post. In December 1972, however, Time announced it would cease publication of Life, which had faced soaring production costs, shrinking advertising sales and circulation, and postal rate increases. Life had lost $30 million between 1969 and 1972.

Throughout the 1960s and 1970s Time Inc. acquired a number of large and small enterprises in a continuing bid to diversify. Perhaps Time Inc.’s most costly and controversial acquisition at the time was its $129 million merger in 1973 with Temple Industries, Inc., a producer of lumber, plywood, and other building materials. Time took another step toward diversification in 1978 when it acquired Inland Container Corporation for $272 million.

In November of 1972 Time’s J. Richard Munro, who eventually became Time Inc.’s chairman and chief executive officer, launched the pay-TV service Home Box Office (HBO) through the Time subsidiary Sterling Information Services, Ltd. HBO was one of Time’s few commercial successes. Even after Time-Life Films was phased out in the early 1980s, HBO continued to finance major films, as well as invest in a movie distribution company and join Columbia Pictures and CBS in a studio venture.

HBO, coupled with two new publications—Money, launched in 1972, and People, launched in 1974—emerged as Time’s new profit centers during the 1970s and 1980s. Nicholas J. Nicholas, Jr., who had risen through Time’s corporate finance ranks and would later become its president and chief operating officer in 1986, recommended that Time divest its sluggish forest-products interests to concentrate on its video and print businesses, where future growth would be focused. Consequently, Temple-Inland was formed and spun off to Time shareholders in 1983. Time Inc. was left to focus on its seven magazines and their foreign-language equivalents; American Television and Communications Corporation, one of the country’s largest cable companies, which is 82 percent-owned by Time Inc.; HBO and Cinemax (begun in 1980), two of the country’s most successful pay TV services; and Time-Life Books.

Time added four new magazine titles in 1988, bringing its total number of published magazines to 24. It paid $185 million for a 50-percent interest in Whittle Communications, which provided satellite public affairs and news programming directly to classrooms. It was involved in international publishing ventures with foreign-based companies such as Hachette, Arnoldo Mondadori, and Seibu. Time’s growth continued through the 1980s, culminating in the 1989 agreement to acquire Warner Communications Inc. for $14 billion, creating the world’s largest entertainment and media concern. Time itself had become an attractive takeover target in an era of unprecedented leveraging and hostile bids, and thus had accepted Warner’s invitation to merge.

The proposed Time-Warner combination was nearly thwarted by an unsolicited takeover bid for Time from Paramount of $175 cash per share, or $10.7 billion. The raid proved unsuccessful and cost Paramount $80 million. It also required Time to rework the logistics of its merger with Warner, burdening itself with $12 billion in debt. Time and Warner engaged in a swap of each other’s stock early in the merger process in an additional defensive move.

Although strategically driven, not all of Time Inc.’s board members, especially Henry Luce III and Arthur Temple, were convinced that the merger was a wise course of action. Munro and Nicholas engaged in one-on-one consultation with each director to secure unanimous approval for the January 1990 transaction. The merger created a vertically integrated company.

At the first annual shareholders meeting of Time Warner, in the spring of 1990, Munro did as expected and announced that he would step down as co-chairman and chief executive officer of Time Warner Inc., but would remain chairman of the board’s executive committee. Nicholas assumed the co-chief executive title while retaining the job of president. The merger agreement called for Nicholas to succeed Time Warner chairman and co-chief executive Steven Ross as the company’s sole chief executive in mid-1994.

Time Warner claimed that all of its media and entertainment franchises ranked first or second in their categories. Time Warner’s cable pay-television services, HBO and Cinemax, posted record performances. Pay-TV revenues from HBO and programming continued to grow, increasing 7.6 percent in 1990. Time combined its Time-Life Books and Book-of-the-Month-Club operations. Its American Television and Communications Corporation achieved record revenues and earnings on four million basic cable and three million premium subscriptions. Time also sold off Scott, Foresman, its textbook publisher, in December 1989 for $455 million because it no longer fit into its core businesses.

In its first year as a merged entity, Time Warner created Time Warner Publishing to oversee all of the company’s book and magazine publishing activities, which accounted for $3 billion of its annual combined revenues. The new unit launched such new magazines as Martha Stewart Living and acquired the 50-percent interest in Health that it did not already own. Time Warner made a small effort to begin tapping the synergies of their combined assets when, in February of 1990, Time launched Entertainment Weekly using Warner’s tape and book subscription lists. Time Warner revealed plans to open a nationwide chain of retail stores, similar to those operated by The Walt Disney Company, to sell merchandise featuring Bugs Bunny and other Warner Brothers Looney Tunes characters, as well as other products related to the company’s vast operations. Time Warner also began taking a more creative approach to cross marketing its products and publications. For instance, in November 1990 Time Warner signed an unprecedented agreement with Chrysler for advertising in seven of Time Warner’s national magazines and its cable group, and to make product placements in selected Warner Brothers film releases.

To the surprise of many, within months of the merger, the highly leveraged Time Warner announced the acquisition of Lane Publishing Company, publisher of Sunset magazine, for $225 million—$80 million in cash and $145 million in preferred stock. In another surprising move, in April 1990 Time Warner offered to provide a $650 million bridge loan to Pathe Communications Company to help with its $ 1.4 billion acquisition of MGM/UA Communications Company in exchange for certain valuable MGM/UA assets, including the United Artists film library. However, Time Warner withdrew its offer, and Time Warner and Pathe eventually sued each other over the aborted agreement. In October of that year the companies opted to settle their differences out of court when Time Warner agreed to pay $125 million for the international home video rights to 1,700 titles in the United Artists and Pathe/Cannon film libraries for more than 12 years.

By late 1990, Time Warner was struggling to find ways to establish joint ventures with various international concerns. Such ventures would bring much needed new development funds into its operations while offering special expertise and foreign business connections. Management continued to promise shareholders a reduction and financial restructuring of Time Warner’s $11.2 billion debt. With more than $2.5 billion in bank loans due in early 1993, one option the company had was to sell its partial stakes in businesses such as Atari, Hasbro, the Franklin Mint, Six Flags Corporation, the record clubs of Columbia House, Cineamerica theaters, and Turner Broadcasting System Inc. A weak economy in 1990 kept Time Warner from resorting to such a move as the sluggish marketplace made it impossible for them to command a premium for its business interests. Yet by the end of 1991, Time Warner’s 22-percent ownership of Turner Broadcasting and its 14-percent ownership of Hasbro represented $1.6 billion of market value.

In the meantime, the company worked diligently to keep Wall Street at bay. Although initially supportive of the transaction, some Wall Street analysts soured on Time Warner six months after the merger. In May 1991 Time Warner announced an unorthodox rights offering. The company planned to issue 34.5 million shares at between $63 and $105 per share, priced according to the number of shareholders who participated. In July, following vigorous objections from the Securities and Exchange Commission and many powerful investors, Time Warner replaced the plan with a traditional $80-per-share offering. Citing the unexpected softness of media advertising, tight financing, and an uncertain economy, Time Warner officials conceded it would take them longer than expected to arrange the joint ventures and limited equity placements that would launch the merged company back into a development mode.

As a result of the $2.6 billion raised by the rights offering, which was completed in early August 1991, Time Warner’s debt was significantly reduced to $8.7 billion at year’s end. It helped demonstrate to potential partners that newly formed alliances would be based on long-term strategic goals.

By October 1991 Time Warner had formed a strategic alliance at the subsidiary level with its first two partners, Toshiba Corporation and C. Itoh & Co. Ltd., who agreed to invest $500 million each for a 6.25 percent stake. The agreement maintained American ownership and control. It excluded Time Warner’s publishing, journalism, music, and certain other assets and called for a limited partnership, Time Warner Entertainment, which included Warner Bros. Pictures, Home Box Office, and Time Warner Cable. It was capitalized at $20 billion.

Time Inc. boasted 40 percent of the magazine industry’s 1991 profits and one-third of its revenues while taking a one-time $60-million charge to cover restructuring. According to the Publisher’s Information Bureau, People, Sports Illustrated, and Time weeklies led in 1991 advertising revenues. Advertising clients were offered one-stop shopping through a cross-media package that united Time Inc.’s magazine franchises with Time Warner’s video, cable, programming, and book entities. Book division profits were down in 1991, despite the presence of Warner Books’ best seller Scarlett and Little, Brown’s Waldo series.

More than half of the Warner Music Group’s 1991 revenues came from outside the United States. In February the group bought 50 percent of Columbia House, the music and video club operator, and invested in label start-ups. Laser-disc manufacturing was added.

Warner Bros. Feature Film Division finished first in 1991 domestic box-office share. A series of partnerships were created to broaden the range of motion-picture products and international distribution. In January 1991 Warner Bros, and three European companies signed a $600-million financing, production, and distribution deal.

A new operating group, Time Warner Telecommunications, was formed in late 1991 to take advantage of the next generation of mobile voice telephone services. Quantum, a 150-channel, interactive cable service, was launched in Queens, New York, in December of 1991. Coaxial and fiber-optic cable was joined to create a two-way digital pathway into homes that allowed viewers to control what they saw and when they saw it.

Time Warner Cable had been comprised of wholly owned Warner Cable and 82-percent-owned American Television and Communications Corp. In February 1992, to help form Time Warner Entertainment, Time Warner signed a merger agreement to purchase the 18 percent of American Television and Communications that previously had been publicly owned. Viacom International Inc., a Time Warner competitor, ended its three-year, $2.4 billion antitrust lawsuit against the media giant in mid-1992. Time Warner reached a settlement with Viacom that called for greater cooperation between the two companies.

For 1991, earnings before operating results were $2.26 billion on revenues of $12.02 billion. A net loss of $99 million for the year marked an improvement from the $227 million in losses posted in 1990. In April 1992 a $1.1 billion long-term senior debt-financing lengthened the maturity of Time Warner debt.

Principal Subsidiaries

American Family Publishers; American Television and Communications Corporation; Astroworld/Waterworld; Book of the Month Club; cable system joint ventures (50%); Cinamerica Theatres, L.P. (50%); Comedy Partners (50%); E! Entertainment Television, Inc. (44%); Hankook Ilbo Time-Life Ltd; Home Box Office Inc.; Ivy Hill Corporation; Little, Brown & Co (Canada) Ltd; Little, Brown & Co; MacDonald & Co. (Publishers) Ltd; President Inc.; Six Flags Corporation (50%); Six Flags Great Adventure; Six Flags Great America Inc.; Six Flags Magic Mountain Inc.; Six Flags Over Georgia; Six Flags Over Mid-America Inc.; Six Flags Over Texas; The Columbia House Company partnerships (50%); The Time Inc Magazine Co.; The Time Warner Cable Group; Time Canada Ltd.; Time Life International do Brazil Ltda; Time Publishing Ventures Inc.; Time Warner Enterprises; Time Warner Publishing Inc.; Time Warner Trade Publishing; Time-Life Books BV; Time-Life Inc.; Time-Life International BV; Time-Life International de Mexico SA de CV; Time-Life International GmbH; Time-Life International Ltd.; Time-Life International SA; Time-Life International SrL; Time-Life Libraries Inc.; Turner Broadcasting Systems, Inc. (22%); Warner Cable; Warner Communications Inc.; Warner Music Group Inc.; Warner Music International (Europe) Ltd.; Warner Publishing Inc.; Warner Special Products; Warner/Chappell Music Inc.; WEA Corp.; WEA Intl Inc.; WEA Manufacturing; Whittle Communications L.P. (37%).

Further Reading

Elson, Robert T., Time Inc.: The Intimate History of a Publishing Enterprise—1923-1941, New York, Athenaeum, 1968; Elson, Robert T., The World of Time Inc.: The Intimate History of a Publishing Enterprise —1941-1960, New York, Athenaeum, 1973; Prendergast, Curtis, and Geoffrey Colvin, The World of Time Inc.: The Intimate History of a Changing Enterprise —1960-1980, New York, Athenaeum, 1986; Annual Report, New York, Time Warner, 1991; Higgins, John M., “Black Ink, Slow Growth at Time Warner,” Multichannel News 13, no. 17 (April 27, 1992); “Time Warner refinances $6.2B Debt,” Multichannel News 13, no. 20 (May 18, 1992); Brown, Rich, “Viacom, Time Warner Bury the Hatchet,” Broadcasting 122, no. 35 (August 24, 1992); Fabrikant, Geraldine, “Time Warner Shows Gains As It Shrinks Merger’s Debt,” New York Times, February 9, 1993.

—Diane C. Mermigas

updated by Anne C. Hughes

Time Warner Inc.

75 Rockefeller Plaza

New York, New York 10019

U.S.A.

(212) 484-8000

Fax: (212) 522-0907

Public Company

Incorporated: 1990

Employees: 41,000

Sales: $11.52 billion

Stock Exchanges: New York Pacific

From its inception as the thinly capitalized passion of two young men in 1923 through its 1990 merger with Warner Communications, Time Inc. has been a steady, guiding force in U.S. media. As the world’s largest media concern, Time Warner’s mandate is to expand its global reach and transfer more of its communications arts from print to electronic form. In the process, Time Warner is on its way to becoming the quintessential self-marketing media producer, due in large part to the cultivation of synergies between Time and Warner assets.

The magazine that launched Time Inc. was conceived by Yale University sophomores Briton Hadden and Henry Robinson Luce during officers’ training at South Carolina’s Camp Jackson during World War I. “The paper,” as they referred to it, was a dream they put on hold for three years, until February 1922, when they resigned their reporting jobs at the Baltimore News. With $86,000 of borrowed capital, Haddon and Luce moved to New York and prepared to launch the weekly news magazine Time. The magazine’s initial mandate eventually became that of the entire company: to keep the public informed. Haddon and Luce spent a year organizing investors, staff, and tradesmen and collecting criticism and advice. The first issue of Time was dated March 3, 1923. It was 32 pages long. Haddon was Time’s editor; Luce its business manager.

Just as impressive as Time’s expansive editorial content was Hadden and Luce’s then-novel approach to marketing the publication, which included postcard inserts soliciting subscribers and circulation of lists of prominent charter subscribers. The magazine was developed by a lean staff, who doubled as clerks. Luce’s and Hadden’s own salaries were at subsistence level.

For its first year, Time prospered modestly. When Time was just over a year old, it had 30,000 paid subscribers. On August 2, 1924, Luce and Hadden launched a second publication, the Saturday Review of Literature. Hadden, who served as editor, determined that everything printed had to be either directly attributable to a person or to the publication’s own authority. Other of Time’s early journalistic innovations included the use of historical background in stories.

In 1925 Luce insisted that Time’s operations be moved to less-expensive facilities in Cleveland, Ohio—a move that Hadden and much of the publication’s staff bitterly but unsuccessfully fought. Three years later, printing of the magazine was moved to R.R. Donnelley, in Chicago, while Time’s editorial office was moved back to New York. Hadden and Luce opted at the same time to switch titles and functions temporarily. Hadden became Time’s business manager, overseeing the publication’s daily operation, while Luce took command of Time’s journalistic direction.

By 1928 Time Inc. posted a net profit, after tax, of $125,788 on revenues of $1.3 million. Making Time a lucrative proposition had taken its toll on Hadden, however, who began the new year fighting off a steptococcus virus. Hadden died at age 31 on February 27, 1929, six years after the first issue of Time was put to press.

To protect the ownership of the company, Luce and other Time staffers and directors bought 2,828.5 of Hadden’s 3,361 Time shares at $360 a share. Hadden’s family retained the remaining 532.5 shares. Within two years, Time Inc. stock peaked at $1,000 a share, and was split 20-to-l. In the meantime, Luce proposed to launch a new weekly magazine catering to business managers, called Fortune. With the Time Inc. board’s approval, Luce set out to launch Fortune, on the eve of the Great Depression. Fortune’s first issue, in February 1930, won satisfying acceptance among its targeted audience. In September 1931 Parker Lloyd-Smith, Fortune’s managing editor and with Luce, co-developer, committed suicide.

Also in 1931, Time was making its controversial transition to radio. Time Inc.’s “The March of Time” radio show featured re-enactments of historical events. The show though popular, was a limited run promotion, which some felt threatened Time’s journalistic integrity. In 1935 the “March of Time” format reappeared, as a motion picture series of short subjects.

In April 1932 Time Inc. acquired 75% of Architectural Forum. Time completed its acquisition of that professional journal for builders the following year. Luce’s personal interest in architecture had spurred Time’s acquisition of Architectural Forum, which he reshaped throughout the 1930s to reflect the monumental socio-political events of the day. When New Deal legislation made $3.3 billion available for construction projects Forum editors rushed to press an 18-page guide explaining how builders could benefit. Forum editor Howard Nyers cultivated young architects; and, in 1938, Frank Lloyd Wright traveled to New York and produced an issue of Forum devoted to the subject of his works. Although Forum expanded its circulation from 5,500 to almost 40,000 in the decade following Time’s acquisition of the publication in 1932, it posted only one year of profit. Luce resisted Time Inc.’s attempts to sell the publication. In 1936 Luce began to explore the concept of a weekly photo magazine, and Time brought pictures to print with the publication of Life, which first appeared in November 1936.

In 1937 Luce created Time Inc.’s, divisional system, the corporate organization that defined Time’s operations for decades. Each of the company’s three fundamental publications—Time, Fortune, and Life— was assigned its own publisher, managing editor, and advertising director. Although a huge circulation success, Life was a major financial drain due to the unexpectedly high cost of producing the magazine. The explosive popularity of Life propelled Time Inc. into increasing circulation, and thus costs, pushing losses on the picture magazine into the millions. Life continued to lose money, a total of about $5 million, until January 1939, when the magazine turned its first profit.

While Life continued to lose money for Time directly, it was also the indirect cause of losses for the company as some readers of Time switched to Life. In May 1938 the company sought to relieve Time’s circulation problems with the $25,000 acquisition of Literary Digest. About 60% of Literary Digest’s 250,000 subscribers chose to transfer their subscriptions to Time, bolstering that magazine’s sagging circulation.

In 1938, on the news that Time Inc.’s earnings were forecasted to drop a record $2 million, Time’s publisher, Ralph Ingersoll, and Luce became embroiled in a fierce argument over the company’s earnings. Ingersoll felt that Luce had diluted Time’s earning potential by siphoning off Time’s profits to start up and maintain publications such as Fortune and Architectural Forum. Ingersoll and Luce disagreed on editorial issues as well. In April 1939 Ingersoll took a leave of absence from Time, and did not return. Following Ingersoll’s departure, Luce appointed himself Time’s publisher and editor-in-chief.

Luce, who had strong ideas about how events in Europe lead to World War II should be reported, decided later in 1939 to devote more time to the editorial direction of Time Inc.’s magazines. Thus, in September 1939, Luce resigned as president and CEO of Time Inc., remaining editor-in-chief, and chairman Roy E. Larsen was elected to the posts Luce vacated. Like most other key top Time Inc. executives, Larsen was younger than many of his industry peers. Time enjoyed steady success during World War II, as its national magazines chronicled the war. Time Inc.’s publications dominated the newsstands. In 1941 Time’s circulation was rapidly approaching one million. Life had weekly sales of 3.3 million magazines, and readership many times that. Fortune had a small but influential 160,000 readers. The organization of 2,500 full-time employees would grow to 5,500 over the next two decades of continued expansion.

Time assumed a prominent role reporting most major news events, including World War II and the McCarthy era. There were times when the magazine clashed openly with major decision-makers; President Franklin Roosevelt and Time criticized one another openly during the war. During the winter of 1941-1942, also in the name of covering the war, Luce and his wife, Clare Boothe Luce, reported on the state of world affairs from England and the Far East, respectively; he for Time, she for Life.

In the fall of 1942 Clare Boothe Luce won election to Congress from the Connecticut district that her stepfather, Dr. Albert E. Austin, had represented from 1938 to 1940. Her position in national politics raised the dilemma of how Time’s magazines should cover the wife of their editor-in-chief. Eventually, Luce called for a blackout on the coverage of his wife in all of Time’s magazines.

In 1945 Time redirected the energies of its pool of wartime correspondents and photographers, organizing them into an international reporting operation under the command of C.D. Jackson. Luce simultaneously redefined the job of publisher of Time, and appointed James A. Linen III to that position. Linen was the first of a generation of younger managers who came up through Time’s editorial and sales ranks. Edward K. Thompson came up through the ranks to serve as managing editor of Life beginning in 1949.

Given more of a free hand than his predecessors, Thompson dismantled the periodical’s divisional structure and launched the publication on its most successful decade. Soon afterward, the financially troubled Fortune was the subject of what Time Inc. executives referred to as a “re-think.” Also in the postwar years, Luce adapted to technological advances that helped offset increases in the price of materials and wages. Despite reporting a 10% operating profit on a record high $120 million in revenues in 1947, Luce, ever the conservative manager, abandoned several projects including the construction of a New York skyscraper, due to the cost.

During the mid-1950s Time undertook to widen the appeal of long-time money-loser Architectural Forum. Although the company was successful in boosting circulation, the magazine continued to run at a loss. Forum was spun off to an existing nonprofit group in 1964. House & Home, a magazine Time had formed to complement Forum in 1952, was sold to McGraw-Hill, in 1964 as well. In 1953 Time launched Life en Español, a companion to Life International. Life en Español was suspended in 1969, however, and Ufe International was eliminated the following year.

In 1952 the company founded its Time-Life Broadcast subsidiary with a 50% interest in KOB and KOB-TV in Albuquerque, New Mexico. In a second bid for broadcast experience, Time acquired a majority interest in the Intermountain Broadcasting and Television Corporation of Salt Lake City, Utah, operators of the KDYL stations. Time acquired its first wholly owned and operated stations, KLZ-AM and KLZ-TV of Denver, Colorado, in 1954. Three years later, Time acquired the Bitner television and radio properties—WOOD in Grand Rapids, Michigan, WFBM in Indianapolis, Indiana; and WTCN in Minneapolis, Minnesota, for the then-record sum of $16 million. Eventually, Time sold its Salt Lake City and Minneapolis broadcast properties to acquire KOGO-TV in San Diego, California, and KERO-TV in Bakersfield, California.

In October 1970 the company announced plans to sell its broadcast properties to concentrate solely on cable television— a segment of the electronic media in which it already had amassed a considerable interest. By that time, Time had created East Texas Pulp and Paper Company, a joint enterprise with the Houston Oil Company, as its own source of paper. It also had erected a new Manhattan skyscraper at Rockefeller Center and successfully fended off competition from magazines like Look and the Saturday Evening Post. The company continued to operate under the watchful eye of its founder, Luce.

Arguably, Time’s most important and lucrative long-term decision to diversify was the launch of Sports Illustrated in 1954. Sports in the United States then still tended to be seasonal, and sports marketing was relatively primitive. Despite the fact that Sports Illustrated did not turn its first profit for a decade, the magazine became very profitable.

In 1959, after recovering from his first heart attack, Luce began preparing to pass the title of editor-in-chief-to Hedley Donovan, who then was managing editor of Fortune. Although Luce did not finally surrender the title until 1964, in 1959 he set in motion a management reorganization that put a new generation of Time Inc. managers in control. The company prospered under its new leadership. From 1960 to 1964, net revenues jumped from $287.12 million to $412.51 million, and net income increased from $9.30 million to $26.53 million, due to sales expansion and tighter cost controls. This profitability had been enhanced by the 1961 creation of Time-Life Books, an extension of Time’s already profitable book publishing operation. Time’s new management initiated explosive growth. Time continued to expand overseas offices throughout the decade, and in 1962 Time acquired textbook publisher Silver Burdett in a $6 million stock swap. In 1964 Hedley Donovan was appointed to succeed Luce as editor-in-chief. In January 1968 Time bought book publisher Little, Brown and Company, for $17 million worth of Time stock. In 1966 Time initiated a joint venture with General Electric, General Learning Corporation. The venture was to sell a variety of learning tools, and was sold in 1974 at a loss.

Luce died February 28, 1967. Even after his death, Luce’s influence was felt at the company where separation of editorial and publishing interests was considered sacrosanct. Time’s new leadership continued to guide the company profitably. In December 1972, however, Time announced it would cease publication of Life, which had faced soaring production costs, shrinking advertising sales and circulation, and postal rate increases. Life had lost $30 million between 1969 and 1972. Throughout the 1960s and 1970s Time Inc. acquired a number of large and small enterprises in a continuing bid to diversify. Perhaps Time Inc.’s most costly and controversial acquisition at the time was its $129 million merger in 1973 with Temple Industries, a producer of lumber, plywood, and other building materials. Time took another step toward diversification in 1978 when it acquired Inland Container Corporation for $272 million.

In November 1972 Time’s J. Richard Munro, who eventually became Time Inc.’s chairman and chief executive officer, through the Time subsidiary Sterling Information Services, Ltd., launched the pay-TV service Home Box Office (HBO). HBO was one of Time’s few commercial successes. Even after Time-Life Films was phased out in the early 1980s, HBO itself continued to finance major films, invested in a movie distribution company, and joined Columbia Pictures and CBS in a studio venture.

HBO; Money, launched in 1972; and People, launched in 1974, emerged as Time’s new profit centers during the 1970s and 1980s. Nicholas J. Nicholas Jr., who had risen through Time’s corporate finance ranks and would later become its president and chief operating officer in 1986, recommended that Time divest its sluggish forest-products interests to concentrate on its video and print businesses, where future growth would be focused. Consequently, Temple-Inland was formed and spun off to Time shareholders in 1983. Time Inc. was left to focus on its seven magazines and their foreign-language equivalents, American Television and Communications Corporation, one of the country’s largest cable companies, which is 82%-owned by Time Inc.; HBO and Cinemax, two of the country’s most successful pay TV services begun in 1972 and 1980, respectively; and Time-Life Books.

Time added four new magazine titles in 1988, bringing its total number of published magazines to 24. It paid $185 million for a 50% interest in Whittle Communications, which provided satellite public affairs and news programming direct to classrooms. It was involved in international publishing ventures with foreign-based companies like Hachette, Arnoldo Mondadori, and Seibu. Time’s growth continued through the 1980s, culminating in the 1989 agreement to acquire Warner Communications Inc. for $14 billion, creating the world’s largest entertainment and media concern. Time itself had become an attractive takeover target in an era of unprecedented leveraging and hostile bids, and thus had accepted Warner’s invitation to merge.

The proposed Time-Warner combination was nearly thwarted by an unsolicited takeover bid for Time from Paramount of $175 cash per share, or $10.7 billion. The raid proved unsuccessful, and cost Paramount $80 million. It also required Time to rework the logistics of its merger with Warner, burdening itself with $12 billion in debt. Time and Warner had also engaged in a swap of each other’s stock early in the merger process, in an additional defensive move.

Although strategically driven, not all of Time Inc.’s board members, especially Henry Luce III and Arthur Temple, were convinced that the merger was wise. Munro and Nicholas engaged in one-on-one consultation with each director to secure unanimous approval for the January 1990 transaction. The merger created a vertically integrated company.

At the first annual shareholders meeting of Time Warner, in spring 1990, Munro did as expected and announced he would step down as co-chairman and co-chief executive officer of Time Warner Inc. but would remain chairman of the board’s executive committee. Nicholas assumed the co-chief executive title while retaining the job of president. The merger agreement called for Nicholas to succeed Time Warner chairman and co-chief executive Steven Ross as the company’s sole chief executive in mid-1994.

Time Warner claims that all of its media and entertainment franchises rank first or second in their categories. Time Warner’s cable pay-television services, Home Box Office and Cinemax, posted record performances. Pay-TV revenues from Home Box Office and programming continued to grow, 7.6% in 1990. Time combined its Time-Life Books and Book-of-the-Month-Club operations. Its American Television and Communications Corporation achieved record revenues and earnings on four million basic cable and three million premium subscriptions. Time also sold off Scott, Foresman, its textbook publisher, in December 1989, for $455 million because it no longer fit into its core businesses.

The first year as a merged entity, Time Warner created Time Warner Publishing to oversee all of the company’s book and magazine publishing activities, which account for $3 billion of its annual combined revenues. The new unit launched such new magazines as Martha Stewart Living and acquired the 50% interest in In Health that it did not already own. Time Warner made a small effort to begin tapping the synergies of their combined assets when, in February 1990, Time launched Entertainment Weekly using Warner’s tape and book subscription lists. Time Warner revealed plans to open a nationwide chain of retail stores, like those operated by The Walt Disney Company, to sell merchandise that features Bugs Bunny and other of Warner Brothers’s Looney Times characters or products related to other of the company’s vast operations. Time Warner also began taking a more creative approach to cross marketing its products and publications. For instance, in November 1990, Time Warner signed an unprecedented agreement with Chrysler for advertising in seven of Time Warner’s national magazines and cable group, and to make product placements in selected Warner Brothers film releases.

To the surprise of many, within months of the merger, the highly leveraged Time Warner announced the acquisition of Lane Publishing Company, publisher of Sunset magazine for $225 million—$80 million in cash and $145 million in preferred stock. In another surprising but savvy move, Time Warner in April 1990 offered to provide a $650 million bridge loan to Pathe Communications Company to help with its $1.4 billion acquisition of MGM/UA Communications Company in exchange for certain valuable MGM/UA assets including the United Artists film library. However, Time Warner withdrew its offer, and Time Warner and Pathe eventually sued each other over the aborted agreement. In October 1990, the companies opted to settle their differences out of court when Time Warner agreed to pay $125 million for the international home video rights to 1,700 titles in the United Artists and Pathe/ Cannon film libraries for more than 12 years.

By late 1990, the newly merged Time Warner still was struggling with ways to establish joint ventures with various international concerns that would bring much needed new development funds into its operations while offering special expertise and foreign business connections. Management continued to promise shareholders a reduction and financial restructuring of Time Warner’s nearly $11 billion debt. With more than $2.5 billion in bank loans due in early 1993, one option the company had was to sell its partial stakes in businesses like Atari, Hasbro, the Franklin Mint, Six Flags Corporation, record clubs like Columbia House, Cineamerica theaters, and Turner Broadcasting System Inc. A weak economy in 1990 kept Time Warner from resorting to such a move since it could not command a premium for its business interests in a sluggish marketplace.

In the meantime, the company worked diligently to keep Wall Street at bay. Although initially supportive of the transaction, some Wall Street analysts soured on Time Warner six months after the merger. In late May 1991 Time Warner announced an unorthodox rights offering. The company planned to issue 34.5 million shares at between $63 and $105 per share, priced according to how many shareholders participated. In July, following vigorous objections from the Securities and Exchange Commission and many powerful investors, Time Warner replaced the plan with a traditional $80-per-share offering. Citing the unpredicted softness of media advertising, tight financing and an uncertain economy, Time Warner officials conceded it would take them longer than expected to arrange the joint ventures and limited equity placements that would launch the merged company back into a development mode.

Principal Subsidiaries

American Television and Communications Corporation (82%); Asiaweek Limited (Hong Kong, 84%) 541 Fairbanks Corp.; Hankook Ilbo Time-Life Ltd. (Korea, 50%); Home Box Office Inc.; Sunset Publishing Corporation; Time Australia Magazine Pty. Ltd.; Time Canada Ltd.; The Time Inc. Book Company; The Time Inc. Magazine Company; Time Information Services, Inc.; Time Internaltional Inc.; Time-Life Books (Australia) Pty. Ltd.; Time-Life International B.V. (Netherlands); Time-Life Libraries Inc.; Time-Life Pictures, Inc.; Time-Life Video Inc.; Time Life International do Brasil Ltda. (Brazil); Time Overseas Ventures, Inc.; Time TBS Holdings, Inc.; Time-T.I. Communications Co., Ltd. (Japan, 10%); Time Video Holdings Inc.; Time Warner Cable Inc.; Time Warner Foundation Inc.; Time Warner Telecommunications Inc.; TPS Acquisiton Inc.; The Washington Star Company; Warner Communications, Inc.

Further Reading

Elson, Robert T., Time Inc.: The Intimate History of a Publishing Enterprise—1923-1941, New York, Athenaeum, 1968; Elson, Robert T., The World of Time Inc.: The Intimate History of a Publishing Enterprise—1941-1960, New York, Athenaeum, 1973; Prendergast, Curtis, and Geoffrey Colvin, The World of Time Inc.: The Intimate History of a Changing Enterprise—1960-1980, New York, Athenaeum, 1986; “Warner Communications Inc.,” in International Directory of Company Histories, Vol. II, edited by Lisa Mirabile, Chicago, St. James Press, 1990.

—Diane C. Mermigas

Time Warner Inc.

founded: 1989

Contact Information:

headquarters: 75 rockefeller plz.

new york, ny 10019 phone: (212)484-8000 fax: (212)956-2847 url: http://www.timewarner.com

OVERVIEW

Time Warner stands as the largest entertainment and information company in the world. Based in New York, the company has a hand in everything from marketing books, magazines, music, and videos through Time Inc., to the television production business. It also has interests in the Atlanta Braves professional baseball team and the Atlanta Hawks professional basketball team.

While sales continue to grow, Time Warner has been burdened by a heavy debt load. Large cash flow is an encouraging sign, as the company begins to pay down the debt at a fast pace. A large portion of the company's cash flow is from cable operations, an industry experiencing tremendous growth. As long as growth continues and law-makers don't over-regulate, Time Warner's debt should continue to dwindle and its stock continue to climb.

Due to its cable operations, cost cutting measures, and the worth of its stock, analysts are cheering the company it once scorned. As long as the economy and cable industry stayed healthy, most analysts were saying in the late 1990s that the future looked bright for Time Warner.

Time Warner has produced innumerable products. Its major industries are publishing books and magazines; direct marketing, such as the Book-of-the-Month Club; music, including Warner Brothers and Atlantic; and cable, with Time Warner Cable and networks CNN and HBO.

COMPANY FINANCES

Time Warner posted combined revenues of $24.6 billion, including the Entertainment Group, which is accounted separately. Time Warner's regular revenues were $13.3 billion for 1997, up 32.1 percent over 1996's $10.1 billion. For the first time since 1992, the company reported a gain in profits, $246 million, compared to a loss of $191 million in 1996. The biggest factor holding the company from substantial profits is its heavy debt load. Time Warner took on massive debt to hold off a takeover from Paramount in 1989 and added more debt when purchasing Turner Broadcasting in 1996. At the end of 1997, long-term debt stood at $12.6 million, for a debt ratio of 52.4 percent.

Time Warner generates most of its revenues, 41 percent, in the United States, followed by the United Kingdom, Germany, and Japan, at 2 percent each. Not counting the Entertainment Group, publishing concerns recorded the most sales at 17 percent, followed by music at 15 percent, and cable networks at 12 percent.

While earnings prospects have looked dim over a 10-year period, the company points out that its stock price has risen and has had good cash flow. Time Warner's goal is to grow cash flow by 16 percent per year, which will aid in paying down its debt. By doing that, the company hopes to raise the rating of its bonds from "junk" to "BBB." Time Warner stock hit a high of $62 and a low of $36 during 1997.

ANALYSTS' OPINIONS

Much of the controversy surrounding Time Warner Inc. stems from the company's outstanding debt and its merger with Turner Broadcasting. In fact, many analysts have been in doubt of the company's debt-reduction efforts. For example, CEO Levin issued a large amount of expensive preferred stock, convertible into 74 million shares. There are analysts who claim this move has threatened shareholders and has not reduced the company's debt.

In 1998, the pounding Levin had taken from analysts and Wall Street turned to praise. Many analysts shook their heads at Levin's accumulation of debt, its acquisitions, and the fact that its accounting was a nightmare for analysts trying to crunch the numbers. From December 1993 to December 1996, Time Warner's stock had fallen 15 percent, while the Standard & Poor's 500 rose 59 percent. From December 1996 to March of 1998, the stock jumped almost 84 percent, from $38 to nearly $70. There are some analysts who think the stock will be in the mid-$80s by the end of 1998 and at least one who is predicting a high near $90 by the end of 1999.

The new exuberance by analysts toward Time Warner stems from several factors. Some say Levin, a quiet man, has shown he is in charge of the massive company; it hasn't hurt that the rambunctious Ted Turner has backed him all the way. Congress has relaxed cable regulations, paving the way for more joint ventures and higher cable fees. As Time Warner derives about 40 percent of its cash flow from cable operations, a predicted 11 to 13 percent rise in cash flow for the cable industry is welcome news. More cash flow means more money to pay down debt, which Time Warner did in 1997 to the tune of $850 million. Some analysts expect the debt to be further reduced by $1.5 billion by the end of 1999.

Time Warner also joined the expense-trimming craze, much to Wall Street's delight. The company sold an art collection, outsourced some of its auditing, and switched from 30-second commercials to 15-second commercials for its movies. Levin predicted the company will save $700 million per year very soon with all of its cost cutting measures.

There is still reason for cautious concern, however. The music division continues to perform poorly. Time Warner also issued millions in new stock, diluting shareholder's equity. Levin hopes to buy back shares with the extra cash flow. If growth in cable earnings slow or Congress decides to tighten regulation, the abundance of cable cash for Time Warner could slow dramatically. Whether Time Warner will ever be able to coordinate all of the parts of its empire to work together remains a cause for concern. At the end of the 1990s, some of the divisions within the company were yet to be coordinated with each other.

HISTORY

Time Inc. and Warner Communications merged in 1989 to become Time Warner Inc. Time Inc. had founded such magazines as Time, Fortune, Life, and People. Time Inc. also brought its cable TV venture, HBO, to the merger table. Warner Brothers brought along its reputation as one of Hollywood's largest movie studios. Bought by United Artists in 1969, its name changed to Warner Communications Inc. Warner was well-known for its successful video game subsidiary, Atari, in the late 1970s.

Big changes took place during the late 1980s and 1990s. Paramount, another movie studio, put in a bid for Time Inc. in 1989 when the merger was taking place. In an effort to fend off Paramount, the new company, Time Warner, accumulated $14 billion worth of debt. By the 1990s, Time Warner introduced magazines such as Entertainment Weekly and launched Court TV and Time Warner Entertainment, an alliance for its film, music, and TV production businesses.

Other changes during that decade involved the company's introduction of the WB television network, the 51 percent sale of Six Flags Entertainment, and the sale of its Interscope Records, which received controversial attention due to its distribution of music characterized by violent and sexually degrading lyrics. Time Warner also obtained 3 million cable subscribers in 1995 and 1996 by purchasing several cable operators. It then bought the remaining 80 percent of Turner Broadcasting.

In 1998, Warner did further trimming. The remaining 49 percent of its stake in Six Flags was sold. More cash flow was generated when the television network NBC paid $850 million to Warner Brothers for the continuing rights to air the hit show ER. Time Warner also signed an agreement with TCI cable, whereby TCI would carry the company's WB network on 90 cable stations in small markets. It was an important deal for Time Warner, which resulted in the WB reaching about 90 percent of the country, double its previous scope.

STRATEGY

With the core businesses of publishing, entertainment, cable networks, and cable systems, Time Warner focused on consolidating its businesses while simultaneously growing at a fast enough pace to increase its return on capital. The company claimed that by increasing its cash flow, it would, in turn, grow more rapidly, reduce debt, and buy back stock. Time Warner made investments and acquisitions that created an elite combination of journalistic franchises coupled with unbeatable global distribution networks. The company, however, shifted its focus away from further acquisitions to focus on forming partnerships through its existing divisions. Its successful cross-promotion of the 1996 movie Space Jam and the Space Jam movie soundtrack has been an example of the internal corporate partnerships the company has entertained. Time Warner also initiated a cost-cutting program due to its increasing debt.

INFLUENCES

Time Warner CEO Gerald M. Levin launched the idea to distribute HBO in 1975 using satellites. The company continued to purchase cable companies as it saw opportunities for growth. After the company merged with Turner Broadcasting, a $7.6 billion investment, its cable business had become an expensive one to operate. In fact, the company sold a portion of the E! Entertainment network and dumped its Interactive-TV Network in 1997. Previously held high hopes for the company's dominant presence in the information field vanished. High-tech costs to implement such cable systems ended up being more than the company was willing to invest after the merger with Turner.

Time Warner has appeared to hold to a defined strategy by merging with Turner Broadcasting. In doing so, Time Warner was able to acquire powerful assets like CNN, TNT, and New Line Cinema. Wall Street even predicted the company's growth to hit double digits by 1999 after the merger took place.

CURRENT TRENDS

With the cable industry exploding, and the potential of cable modems to carry Internet access growing, Time Warner was stepping to the forefront of the industry. Cable modems are hundreds of times faster than conventional modems. The company has introduced a cable access system, called Road Runner. It was predicted that Time Warner could generate a billion dollars in sales in as little as five years as a result of this innovation.

FAST FACTS: About Time Warner Inc.

Ownership: Time Warner is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: TWX

Officers: Gerald M. Levin, Chmn. & CEO, 1997 salary $7,550,000; Robert E. "Ted" Turner III, Vice-Chmn., 1997 salary $6,050,000; Richard D. Parsons, Pres., 1997 salary $3,650,000; Richard J. Bressler, Sr. VP & CFO, 1997 salary $1,725,000

Employees: 67,900

Principal Subsidiary Companies: Time Warner, Inc. owns hundreds of companies, including: Book-ofthe-Month-Club; Cable News Network; Cartoon Network; Castle Rock Entertainment; HBO; Little, Brown (book publishers); New Line Cinema; Time, Inc. (magazine publishing); Time Life; Time Warner Cable; Time Warner Communications; Turner Broadcasting System; Warner Books; Warner Brothers; and Warner Music Group.

Chief Competitors: Time Warner, Inc. competes against almost every company in the entertainment field: book publishers, cable systems, magazine publishers, movie and television production companies, pay cable stations, and record companies. Some competitors include: Advance Publications; Cable-vision Systems; Direct TV; Dow Jones; EMI Group; Forbes; MGM; Sony; TCI; Times Mirror; Viacom; and Washington Post.

PRODUCTS

Time Warner, as the largest entertainment and information conglomerate in the world, has influence in the business of media and entertainment. Through Little, Brown, Time Life, Time Inc., and Warner Books, the company publishes books and magazines. It produces films for television and theatrical release under the studio brands of New Line Cinema, Warner Brothers, Turner Broadcasting, Castle Rock Entertainment, and HBO. The cable television news and entertainment industry is carried through Time Warner Cable, and other movie and cartoon networks. Countless other smaller companies operate, as well, under its banner.

In addition to its many media companies, Time Warner owns two professional sports teams, the Atlanta Braves baseball organization and the Atlanta Hawks basketball team. Both of these acquisitions came from the merger with Turner.

CORPORATE CITIZENSHIP

Time Warner's corporate citizenship has provided a host of educational services. The company pledged $5 million to New York Networks for School Renewal, a program centered on public-school improvement in the city of New York. Time Warner's contribution was used to help implement school practices that have been proven successful. Publishing African Americans: Voices of Triumph, Time-Life Education has honored the achievements and contributions of African Americans to U.S. and world culture. The company has donated this three-volume set along with teacher's guides to every public high school and main branch library in the United States.

Other classroom contributions have included the company's educational and informational cable programming and literacy efforts. Time Warner financially supports Cable in the Classroom, a public service offering commercial-free educational programming. The cable companies owned by Time Warner have offered monitors, video cassette recorders, and teacher-in-service workshops. The company has also launched a nationwide literacy program, Time to Read. Using DC Comics and open-captioned music videos, the program has been aimed at borderline readers who, with assistance, enhance their reading and writing abilities.

Time Warner has been involved in and has encouraged its employees to participate in community services. The company annually honors employees who have volunteered their services with the Andrew Heiskell Community Service Award. Co-workers nominate employees for these awards, and Time Warner issues each winner a cash reward.

CHRONOLOGY: Key Dates for Time Warner Inc.

1917:

The Warner brothers—Jack, Albert, Harry, and Sam—begin making films

1923:

Two reporters from the Boston News launch a weekly news magazine called Time; Warner Brothers is incorporated

1927:

Warner Bros. releases the first talking film to reach a wide audience

1936:

Time Inc. introduces a weekly picture magazine called Life

1949:

A government antitrust suit makes Warner Bros. give up its theater chain

1952:

Time-Life Broadcast subsidiary is founded

1954:

Time diversifies its line by publishing Sports Illustrated

1966:

Warner is sold to Seven Arts Productions

1971:

Steven Ross buys Warner Bros. and renames it Warner Communications

1972:

Due to production costs, Time ceases publication of Life magazine; a Time subsidiary launches Home Box Office

1986:

Warner purchases Warner Amex Cable from American Express

1989:

Warner Communications and Time Inc. merge to form Time Warner

1991:

Time Warner goes public by issuing shares whose price was based on the number of shareholders who participated

1996:

Time Warner purchases Turner Broadcasting

1998:

TCI Cable and Time Warner sign an agreement for TCI to carry the WB network

GLOBAL PRESENCE

With sales in the United States, Europe, the Pacific Rim, and other regions, Time Warner Inc. has become a media and entertainment company dominant in the industry. With the majority of its sales in the United States (75 percent in 1996), the company has stopped its merger efforts in order to concentrate on its many existing businesses. The company operates in over 100 countries.

SOURCES OF INFORMATION

Bibliography

gunther, marc. "should time warner bail out?" fortune, 11 november 1996.

harris, kathryn. "time warner and turner: why levin is willing to risk everything for a deal?" fortune, 2 october 1995.

marcial, gene g. "will turner bring a turnaround?" business week, 23 december 1996.

schifrin, matthew. "the mess at time warner." forbes, 20 may 1996.

——. "truths and semitruths." forbes, 20 may 1996.

schwartz, nelson d. "suddenly, jerry levin's stock is hot." fortune, march 1998.

shapiro, eben. "time warner will pull the plug on its interactive-tv network." the wall street journal interactive edition, 1 may 1997.

sheets, ken. "time warner confounds the skeptics." kiplinger's personal finance magazine, may 1998.

"time warner has smaller loss in first quarter." reuters limited. 1997. available at http://pathfinder.com.

"time warner inc." hoover's online, may 1998. available at http://www.hoovers.com.

"time warner selling e!" cable news network, inc., 16 december 1996.

For an annual report:

write: investor relations, time warner, inc., 75 rockefeller plz., new york, ny 10019

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. time warner's primary sics are:

4841 Cable and Other Pay TV Services

5699 Miscellaneous Apparel and Accessories

6794 Patent Owners and Lessors

7812 Motion Picture and Video Production

7819 Services Allied to Motion Pictures

7822 Motion Picture and Tape Distribution

7832 Motion Picture Theaters

7922 Theatrical Producers and Services