Monday's announcement that America Online will buy Time Warner Inc. not only creates the world's largest media company, it highlights the shift from
traditional 20th century media into the brave new World Wide Web
media of the 21st.
Time Warner, which had been drowning in debt at the end of
the 1980s, built an impressive stable of traditional media
brands like Time, Sports Illustrated and People magazines, cable
TV's CNN and HBO, the Warner Bros. film studio and Warner music
group, and emerged at the end of the century with worldwide
sales in excess of $12 billion.
But at the dawn of a new millennium, it becomes part of a
company that has built its reputation on the so-called "new
media" of the computer age. Time Warner Chairman and Chief
Executive Gerald Levin, successor to old-time entertainment
mogul Steve Ross who died in 1992, becomes chief executive of
the new AOL Time Warner.
The writing was on the wall last year when
independent-minded Warner Bros. studios' co-heads Bob Daly and
Terry Semel left after 20 years.
Their departure underscored the transition of Time Warner
from an entertainment-based company to a cable and digital
company, Variety's Peter Bart wrote at the time. "The balance
of power, which once resided in the office of Daly, now
ineluctably lies with Levin in New York."
Under Levin, Time Warner could rightly claim to be the
world's leading media company, with fingers in multiple media
pies, like movie and TV production, cable systems and cable
programming such as Turner Entertainment. It also owns
baseball's Atlanta Braves and World Championship Wrestling.
Nearly 50 percent of sales are generated through Warner
Bros., which produces and distributes programming for feature
films, television ("ER," "Friends"), and home video markets.
Time Warner also manages America's largest cable system,
serving nearly 13 million subscribers. The company's Home Box
Office is the most popular pay television service in the United
States, which along with affiliated network Cinemax, has about
35 million subscribers. In addition, TWE owns The WB Television
Network which targets young audiences with programs such as
"Dawson's Creek," "Buffy the Vampire Slayer," and the
ubiquitous "Pokemon" and has stakes in cable's Comedy
Central and Court TV.
Time Warner owns 75 percent of Time Warner Entertainment;
cable firm MediaOne Group owns 25 percent, but terminated its
management interest in 1999 in preparation for its purchase by
It's all a far cry from 1989, when Time Inc. and Warner
Communications merged in a heavily leveraged deal. In order to
reduce debt and generate funds to upgrade cable systems, Time
Warner Inc. created TWE in 1992 as a limited partnership to
house most of its filmed entertainment and cable business.
Japanese companies Toshiba Corp. and Itochu Corp each took 6
percent stakes in the new entity for a combined $1 billion.
In 1993, telecommunications company U S WEST invested $2.5
billion for a 25 percent stake in TWE and Time Warner welcomed
its new partner's expertise. But the next year, the two were at
odds and Time Warner began looking for ways to reclaim its
Warner Bros. and HBO properties while leaving its cable business
under the partnership agreement.
TWE entered a cable television joint venture with media
conglomerate Advance Publications and Newhouse Broadcasting in
1995. It also sold 51 percent of its Six Flags Theme Parks to
Boston Ventures Group for $200 million plus the assumption of
$800 million in debt.
That same year, Toshiba and Itochu exchanged their stakes in
TWE for Time Warner stock. Time Warner also announced in 1995
that it would acquire Turner Broadcasting System and restructure
its entertainment holdings.
Outraged that Time Warner was acquiring TBS for itself
instead of TWE, U S WEST sued to block the transaction. Time
Warner responded with a countersuit, claiming that U S WEST
failed to help upgrade TWE's cable systems.
In 1996 a federal judge rejected U S WEST's suit and by the
end of the year Time Warner completed its purchase of TBS. Also
in 1996, Road Runner, a high-speed Internet access joint venture
between Time Warner and TWE, was launched. The following year
TWE announced it would merge Road Runner with U S WEST's
MediaOne Express to create the nation's largest broadband online
In 1998 Microsoft Corp. and Compaq Computer Corp. invested
in Road Runner, each gaining a 10 percent stake. U S WEST
changed its name to MediaOne Group in 1998 and after AT&T;
announced last year it would purchase MediaOne, the cable
company ended its 50 percent management interest (although it
still owns 25 percent equity), giving Time Warner complete
control of TWE.