A Full Platter : Time Warner Chief Levin Has His Work Cut Out for Him

Time Warner Inc. Chairman Gerald M. Levin’s decision to oust his top record executive won him kudos Wednesday in the music industry, but insiders are wondering how shareholders will react to the latest corporate shake-up when they gather in New York later this month for their annual meeting.

Under pressure from investors to reduce his company’s $15-billion debt load, Levin is expected to use the May 18 meeting as an opportunity to calm shareholders and sketch out his plans for the media giant.

The reaction was mixed Wednesday to Levin’s decision to replace Warner Music Group Chairman Robert Morgado with highly regarded HBO Chairman Michael Fuchs, an underscoring of the delicacy of Levin’s task in managing the hugely complex entertainment conglomerate. Even as the publishing, pay television, music and studio divisions are reporting strong results, Time Warner’s stock has remained stagnant because of the debt and questions about cable investments.

“Michael Fuchs is a superb executive,” music mogul David Geffen said. “He’s as smart as anybody in show business, and putting him in the record division will certainly be a major plus for Time Warner.”

But some industry observers said Levin took too long to remove Morgado.

“There are some serious questions as to whether Gerald Levin has what it takes to marshal Time Warner into the 21st Century,” said one Time Warner executive. “Why would someone let such a huge problem fester for so long before he resolved it?”

Fuchs, 48, was named chairman of Warner Music Group, the largest music company in the world, on Wednesday. He will also retain his title as chairman of Home Box Office Inc. Levin elevated Jeffrey Bewkes from president to CEO of HBO.

As head of the music group, Fuchs said Wednesday, he will rely heavily on the expertise of Doug Morris, chairman and CEO of Warner Music U.S., to guide him in steering the firm’s global music division.

“I may be in the cable TV Hall of Fame, but I doubt if I will ever get invited to join the Rock and Roll Hall of Fame,” Fuchs joked in a phone interview from New York. “But with Doug Morris and his team, I believe we’ve got the best record executives in the world on board--and I plan to consult with them regularly and count on their advice.”

There was speculation in the music division that Morris was disappointed about being passed over for the chairmanship, but he said he is pleased about Fuchs’ appointment.

“I’m glad Michael Fuchs is in,” said Morris, who had battled with Morgado for months after having staged a revolt in October against his former boss. “Michael is a man of accomplishment, and I respect that. I think we’re going to work real well together.”

Although Fuchs’ elevation may have resolved tensions in the music sector, sources at Time Warner said the move could worsen relations between the corporate level and the company’s Warner Bros. studio.

There have been tensions previously between Fuchs and Warner Bros. co-Chairmen Bob Daly and Terry Semel, two of Hollywood’s most respected executives. One major irritant was HBO’s decision to become a strategic investor in Savoy Pictures Entertainment, a Warner Bros. competitor. Sources close to the studio, however, said Wednesday that Daly and Semel have made their peace with Fuchs.

The move comes amid widespread speculation that Fuchs or Semel might leave to take key positions at MCA. Wednesday’s appointment of Fuchs to run the music group seemed to put that question to rest. But Semel is rumored to be on a short list of executives that Edgar Bronfman Jr. would potentially like to lure to MCA in the wake of Seagram Co.’s agreement to buy 80% of the company. Semel could not be reached for comment, but he has told associates he has no plans to leave.

Levin has had uneasy relations with some of the executives from the Warner Communications side of the Time Warner merger. Levin’s methodical management style contrasts sharply with the dynamic, entrepreneurial ways of the late Time Warner Chairman Steven J. Ross, who was beloved by his entertainment executives.

Levin has been under increasing pressure to boost Time Warner’s stock price, which has traded between $35 and $40 a share for most of the past two years. On Wednesday, it closed unchanged at $36.625.

Another uncertainty facing the company is the fate of the nearly 15% stake Seagram holds in Time Warner. Rumors have circulated that billionaire investors such as Warren Buffett and Ronald O. Perelman may be interested, but nothing solid has emerged, which concerns investors worried that Seagram could eventually sell the stock in chunks, flooding the market.

Levin is also struggling to trim a $15-billion debt load that is expected to increase by another $3.5 billion when two cable acquisitions close. The recent divestment of part of Six Flags and other, smaller transactions are expected to cut the debt by $1.1 billion.

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In addition, he is under pressure to revamp the company’s Byzantine corporate structure. Analysts expect Time Warner to eventually place its cable operations in a separate unit from its entertainment assets, retaining a stake in the cable operations that might be less than 50%.

Despite all the headaches Levin faces, there are no indications that his support from directors, who ultimately control his fate at the company, has eroded. Sources close to him say he has kept the board informed on all developments.

“I can’t believe anything right now is a surprise to the board or in any way influences his future at the company,” said Seidler Cos. analyst Jeffrey Logdson.

Levin has actively courted his board, with about a third of its members assuming their seats after the death of Ross in 1992. Shortly after Ross died, the company moved to eliminate six directors form its 21-member board in a move that some sources speculated--Time Warner strongly denied it--was being made to reduce the influence of longtime Ross allies.

“Picking on Time Warner has been like a sport for the press since the day we merged,” Fuchs said. “But I think most analysts who really are paying attention will know that Jerry did something smart here--not something that’s going to pop up later and smack him in the back of the head.”

Of the 12 members of Time Warner senior management whose pictures are in the company’s recent annual report, two are leaving. In addition to Morgado, Six Flags Chairman Robert W. Pittman announced he will leave after Time Warner’s decision to sell 51% of the theme park operator to an investment group led by Boston Ventures.