Turner Broadcasting System, Inc.

views updated

Turner Broadcasting System, Inc.

One CNN Center
100 International Boulevard
Atlanta, Georgia 30318
U.S.A.
(404) 827-1500

Public Company
incorporated: 1965
Employees: 3,187
Sales: $806.6 million
Stock Index: American

The history of Turner Broadcasting System is closely tied to the personal history of its flamboyant founder, chairman, and president, Robert Edward “Ted” Turner III. Alternately seeking and shunning media attention, Turner has accumulated colorful nicknames (“Captain Outrageous,” “the Mouth of the South,” “Terrible Ted”) and a reputation for daredevil tactics. Turner’s freewheeling entrepreneurial style is reflected in the strategic and financial risks that the company has taken under his direction and control.

Turner became president and chief operating officer of a $1 million billboard company, Turner Advertising Company, upon his father’s suicide in 1963, shortly after concluding an agreement to sell the firm’s recently acquired Atlanta division. Turner offered the buyers $200,000 to rescind the deal, and persuaded them to accept his offer by shifting employees and contracts to another division, threatening to destroy financial records, and similar tactics.

In 1970, Turner’s company merged with Rice Broadcasting Company, Inc., a small Atlanta UHF TV station. The transaction took the resulting company public, with Turner as majority stockholder, under the new name Turner Communications Corporation.

Turner Communications bought the right to broadcast the Atlanta Braves major league baseball games, then bought the team itself in 1976. The team was said to be losing money at the time and about to leave town; Turner’s acquisition kept popular broadcasts on the air and provided diversification for his growing company.

After reading that Home Box Office was transmitting programs nationwide via satellite, Turner saw an opportunity to expand his station’s audience enormously and to make it more attractive to advertisers by beaming its signal via satellite to cable TV systems around the country. The resulting “superstation,” begun in December, 1976, became, in effect, another TV network. But start-up costs were substantial, cable operators who signed up tended to have questionable credit records, and advertisers were skeptical and reluctant to invest. In the course of a few years, however, the concept proved viable as WTBS-TV became fractionally and then tremendously profitable.

Meanwhile, in January 1977, Turner increased his sports presence by acquiring the National Basketball Association’s Atlanta Hawks.

After 21 years at CBS, Robert J. Wussler joined Turner Broadcasting System in April, 1980 as executive vice president, an office he held for several years. At CBS, Wussler had been instrumental in the expansion of satellite usage in news coverage as early as 1962, and in the development of the minicam for on-the-spot news coverage. His career included positions as president of the CBS Television Network and of the CBS sports division.

In its early years, Turner’s “superstation” aired primarily reruns and sports. But, in June 1980, Turner created the Cable News Network (CNN) subsidiary to broadcast live news on a 24-hour basis. News bureaus were established in major cities across the United States and around the world. The live, 24-hour format encouraged a more direct and unedited presentation of the news than the networks provided, as well as instant availability at viewers’ convenience. The minimal editing and absence of star anchors sparked both positive and negative reactions: some felt the approach lacked polish and professionalism, but others felt it brought viewers closer to the news items at hand. In January, 1981, shortly after CNN began operation, another subsidiary, Turner Program Services, was created to serve as the syndication arm of Turner Broadcasting System.

In January 1982, Turner formed a second all-news television network. Officially named Headline News, the network aired a sequence of half-hour segments edited from the live material shown on CNN. If CNN was conceived as “a newspaper you can watch,” in Turner’s words then, Headline News permitted a quick scan of the top stories at any time. Just months later, in April, 1982, CNN Radio began operations, offering a 24-hour all-news format on a network basis in the radio market.

By this time the overall broadcast market was becoming increasingly competitive. Turner Broadcasting System benefited as cable became available to an increasing portion of U.S. households. CNN’s success pressured the three established networks to acknowledge the audience CNN had uncovered and to provide late-night and early-morning news broadcasts for this group. In addition, Satellite News Channels (SNC) opened direct competition in 1982, as a second 24-hour cable news headline service, promising financial incentives to combat the loyalty of CNN’s cable operators and viewers.

In January 1985, Turner Broadcasting System purchased a 75% interest in an Atlanta real estate complex which contained approximately 470 hotel rooms and 775,000 square feet of office and retail space for $60 million. By 1987, Turner Broadcasting had acquired the remaining 25% of the facility, which was renamed CNN Center and housed the corporate offices as well as the Atlanta headquarters for CNN, Headline News, and CNN Radio.

In 1982, CBS had declined to comment on industry rumors that it wished to buy CNN. It wasn’t as quiet in April, 1985 when the Turner Broadcasting Company filed a preliminary exchange offer with the Securities and Exchange Commission for CBS. CBS immediately bought back about six million shares of its common stock (amounting to almost $1 billion), forcing Turner to withdraw his offer in August. The aborted bid cost Turner Broadcasting about $20 million in underwriting, legal, and accounting fees, but Turner argued that the action, by forcing CBS into significant borrowing to finance its buyback and absorbing CBS management time and attention, at least hindered CBS as a competitor.

In later years, Turner defended his bid for CBS as an attempt to protect his own company’s vulnerability. In addition to the three major networks there were, by this time, more than 25 independent ones, including Fox, Tribune, HBO, USA, Viacom, Time, and Showtime. Turner worried that networks, as the distributors of TV programming, could be held at the mercy of program producers and described his attempt to gain control of CBS as an attempt to strengthen his bargaining position with them.

In a smaller way, Turner also ventured into the production business himself. He helped found the Better World Society in 1985, a nonprofit organization that produced documentaries on ecological and environmental issues. Turner’s global consciousness was also behind his company’s contribution to the Goodwill Games with the U.S.S.R. These games, patterned after the Olympic Games, were staged as a way to bring U.S. and Soviet athletes away from recent political boycotts of the Olympics and back into sporting competition. Conceived and organized in 1985, they were first held in Moscow in July, 1986. Turner Broadcasting’s production costs associated with the Goodwill Games amounted to more than $25 million, a sum not completely recovered through increased revenues as a result of the broadcast syndication of the games.

These ventures into original programming were dwarfed, however, by Turner’s acquisition of the film company MGM/UA in 1986. Turner dealt with Kirk Kerkorian, the 50.1% owner of MGM/UA, which was losing money and valued by Wall Street at about $825 million in August, 1985. Kerkorian was represented by Drexel Burnham Lambert, an investment-banking firm famed for dealing in high-risk “junk bonds.” In an unusual move, and with the consent of all parties, the bankers switched sides and represented Turner when it became apparent that he needed their expertise to finance the deal that was being discussed.

In the deal’s final structure, Turner Broadcasting bought MGM/UA Entertainment for $1.4 billion in March, 1986, immediately sold the United Artists portion back to Kerkorian for $480 million, and assumed $700 million of MGM debt, for a net purchase price of more than $1.6 billion. At almost twice the street price, Drexel Burnham Lambert was at first unable to create securities acceptable to Turner and to potential investors. After Kerkorian was persuaded to accept about $475 million less in cash in return for a new issue of Turner Broadcasting preferred stock, financing for the remainder could be secured. When critics questioned the purchase price, Turner cited the enduring merit of the classic films in MGM’s library, the programming security he sought from this entertainment base, his fear of being outbid by another buyer, and, characteristically, his disinclination to haggle.

The new issue of preferred stock carried two provisions. The first was a required payment of $600 million of notes in September, 1986. To meet this requirement, Turner was forced to sell all MGM assets but the film library, many back to Kerkorian himself, just before the September deadline. The second provision involved dividend requirements that threatened corporate control, depending upon market performance.

The entire MGM deal also weighed heavily on the company’s financial statements. As Turner conceded in his 1986 report to shareholders, “The financial representation of 1986 is what it is—a net loss of approximately $187 million on revenue of more than $556 million” (in 1985, Turner Broadcasting earned a net income of $1 million on $352 million in revenues). Interest payments, together with amortization of the MGM purchase price, would lead to what Turner described as “substantial accounting losses in the foreseeable future”

In 1987, Turner called on the support of the cable industry to deal with the preferred stock problem created in the MGM deal. A group of 31 cable operators (the companies that provide local cable service—and choose what cable networks subscribers can get) headed by Tele-Communications Inc. (TCI), paid some $565 million for 37% of Turner Broadcasting System. This capital secured Turner’s control of voting stock (just), and introduced new directors to Turner operations, including John Malone, president of TCI; Michael Fuchs, chairman of HBO; and Jim Gray, chairman of Warner Cable. While the backing of the cable industry virtually guarantees the success of the Turner networks, the presence of major cable operators on Turner’s board also poses certain problems. Since cable operators like TCI purchase programming from Turner, Ted Turner told the New York Times, the operators “don’t have much incentive to see us make healthy profits/’ But the rescue deal kept Turner afloat.

Although Turner’s MGM purchase was roundly criticized for putting TBS in nearly unmanageable debt, within two years the company’s prospects were looking up. TBS’s new TNT channel, which is based on the MGM film library but also offers original programming, has done exceptionally well. With eight of 15 places on Turner’s board in the hands of the cable consortium, Turner Broadcasting is moving more slowly and deliberately than in the past. Turner himself points to the completion of cable wiring for metropolitan areas as critical to his industry’s growth, noting that major events can’t very well be covered by cable while cable remains unavailable to large blocks of viewers.

In 1989 Turner Broadcasting made several important moves, including a $1.6 billion refinancing of its debt. The company also launced Turner Pictures, a film-making division, and Turner Publishing, a subsidiary that develops TBS properties for book publication. Meanwhile, Cable News Network is a steady profit maker, and TNT has made a promising start. As the company rebounded, speculation about a takeover—or Turner selling out—surfaced again. Turner’s own stake in TBS was reduced from 80% to 43% after the cable-industry bail-out, and Time Inc. already owns 13% of the company. The Time-Warner merger, of course, may well distract Time from buying any more of Turner, but it has said it would like to. Ted Turner’s unpredictability makes speculation on the future ownership of TBS futile, but whatever the future holds, Turner Broadcasting seems certain to remain a major force in the communications industry.

Principal Subsidiaries

Atlanta Hawks, Inc.; Atlanta National League Baseball Club, Inc.; Cable News Network, Inc.; Turner Broadcasting Sales, Inc.; Superstation, Inc.; Cable News International, Inc.; Stadium Club, Inc.; TBS Productions, Inc.; Turner Reciprocal Advertising Corp.; Turner Teleport, Inc.; Turner Entertainment, Co.; Omni Ventures; Turner Network Television; Turner Program Services, Inc.; TBS Superstation; Turner Pictures; Turner Publishing; World Championship Wrestling, Inc.; Turner Home Entertainment.