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Turner Takes Tough Stance on Possible CNN-ABC Deal

The cable mogul sees the financial benefits of combined news operations but is scrutinizing the price and timing of such a venture, sources say

September 29, 2002|SALLIE HOFMEISTER and MEG JAMES | TIMES STAFF WRITERS

Is Ted Turner ready to let CNN go?

The creator of Cable News Network is asking the toughest questions on AOL Time Warner Inc.'s board about a possible merger between CNN and the ABC News division, according to people close to the company.

As a little-known cable renegade from Atlanta, Turner dreamed up the idea for CNN in 1978, when cable subscribers had just 12 channels on the TV dial and Home Box Office's first original program was the Pennsylvania Polka Festival.

Few in the industry believed that a 24-hour TV news channel would work. But today, AOL Time Warner's CNN is among the nation's most profitable television news operations, earning more than $200 million annually before taxes on revenue of $1.6 billion, sources said.

So Turner, it seems, is not about to allow CNN to join forces with Walt Disney Co.'s ABC News without an exacting agreement. "This is his baby," said one person close to Turner.

Turner, AOL Time Warner's vice chairman and the company's largest individual shareholder, took a lead role in grilling management about the possible news merger during a board meeting 10 days ago, executives close to the cable mogul said.

Turner, 63, could not be reached for comment. He is hiking in China and Tibet, associates said.

For 18 months, CNN and ABC News have been talking about joining their news operations. The discussions heated up recently, sources said, because both companies are grasping for ways to cut costs in the wake of severe stock slides.

Under the proposal being discussed, AOL Time Warner and Disney would combine CNN and ABC News into a new company that would be controlled by AOL, with a stake of about 65%. Disney would own the rest. Management of the news operations, however, would be more evenly shared, said sources close to the talks. Among the complicated issues to be worked out are which overlapping news bureaus would be cut, and how ABC's celebrated news broadcasters, such as Peter Jennings, Ted Koppel and Barbara Walters, would fit into any CNN broadcasts.

Both companies confirmed last week that they were in discussions, but said no deal is imminent.

Turner sees the financial merits of a CNN-ABC News combination, sources say, because a joint venture could save an estimated $200 million a year as news programming costs are rising and TV audiences are sliced ever smaller by an explosion of channel choices. But Turner questions whether the price and timing of a CNN-ABC venture are right and whether a better deal could be had by waiting, sources said.

Disney is feeling pressure from Wall Street to stem losses at its ABC Network that could top $500 million this year.

"There's no question that right now ABC is under more pressure to do a deal," said Christopher Dixon, an analyst at UBS Warburg.

Turner also doesn't want to rush into any partnership that unnecessarily restricts AOL Time Warner's flexibility, as joint ventures notoriously do, sources said.

Disney and AOL Time Warner have a history of bad blood. Disney was one of the most vocal opponents of America Online's $99-billion acquisition of Time Warner, first announced in January 2000.

Since then, several negotiations between the two rivals have languished. Cable operators, including Time Warner Cable, have threatened to drop Disney's ABC Family Channel rather than pay higher subscriber fees it demanded. Another sore point is Time Warner Cable's two-year effort to secure a video-on-demand deal with Disney's movie studio.

"Before we do a deal benefiting Disney, Ted wants to make sure everything is buttoned up," one AOL Time Warner executive said. "Nothing is going to slide through this company from now on without extreme scrutiny."

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Feeling Burned

Veteran Time Warner executives, including Turner, feel burned by the sale of the company to Internet service provider America Online. Many privately blame former AOL Time Warner Chief Executive Gerald Levin in particular for a lack of "due diligence"--failing to examine AOL's books for signs of weakness as well as aggressive AOL accounting practices that are the target of federal investigations.

The completion of the America Online-Time Warner merger in January 2001 was a bitter awakening for Turner. The company failed to deliver on the promised synergies between new and old media. A steep decline in revenue at America Online, which had been hyped as the growth engine of the new company, sent investors bailing. And as AOL Time Warner failed to meet revenue and earnings targets, the company's stock tumbled 75%, leading to several management shake-ups.

On the AOL Time Warner board, Turner has become what one company executive describes as a "catalyst for change."

"Ted is still angry at himself for not asking more questions about the AOL merger," one source close to Turner said. "So now, he's doing his own due diligence, as a board member."

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