Company Town : Masters at Expressing Brotherly Love

While one division of a major entertainment company, Time Warner Inc.’s music group, is feeling the aftershocks of a senior management shake-up more powerful than the 4.9 earthquake that shook L.A. early Monday, another of its units, Warner Bros., is busy celebrating the blockbuster success of its latest “Batman” movie.

On one page of Friday’s Wall Street Journal, there was a boastful story about the huge anticipated profits from “Batman Forever,” which has grossed more than $100 million in 10 days. On the opposite page was an article questioning the future of Warner’s successful music operation in light of a yearlong management upheaval whose latest casualty was domestic music chief Doug Morris.

With all the money rolling in for the latest “Batman” sequel, Terry Semel and Robert Daly, co-chairmen of Warner Bros., appear happy as could be.

But, as anyone in Hollywood will attest, appearances can be deceiving.

Though they run one of the industry’s most stable and consistently successful movie and television studios, in terms of both profitability and market share, Semel and Daly have been privately exasperated for some time.

The executives--Hollywood’s longest-reigning management team--are the last top divisional management still intact on the Warner side from the Steve Ross era. A confidant of the pair said they “have not been happy with the way the company is being run and the way some of their colleagues have been treated.”

Though Semel and Daly would never cop to it, a number of sources close to the pair say they have long had differences with Time Warner Chairman Gerald Levin over various business decisions, including the recent sale of the company’s controlling interest in its theme park business.

In an interview late Monday, Daly said that initially “I had some objections [to the sale]. Then the deal was modified and I was fine with it.” In fact, he said, he and Semel now have management control of the parks.

It’s also widely known within industry circles that Semel and Daly are perpetually frustrated by the parent company’s massive debt load and continued investment in the cable industry. While the sale of assets such as the Six Flags amusement parks is meant to reduce Time Warner’s $15-billion debt, about $3 billion in new debt is being created from two recently negotiated cable acquisitions expected to close by the end of the year.

And management tensions, sources contend, have intensified since Levin gave HBO Chairman Michael Fuchs increased control over two Time Warner divisions, HBO and Warner Music Group.

“Michael Fuchs is definitely consolidating power,” one highly placed industry source said after the Warner Music chairman abruptly fired Morris last week.

While Semel and Daly have made no secret to close friends and associates about their ill feelings toward Fuchs, Daly publicly denies any rift.

“I thought Michael was an excellent choice to run the music operation,” he said.

But there’s a history of competition between the two Warner executives and Fuchs, including HBO’s investment in upstart film rival Savoy Entertainment and the license fees HBO pays for Warner movies.

Said Daly: “These are old arguments. We’ve been getting along for the last two years. . . . Our styles are not the same, but there are zero tensions.”

In a phone interview from New York, Fuchs said: “I think those guys are as good at what they do as anybody in the business. I wish we could work more closely together.”

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Although the current management upheaval in the music division has no direct effect on Semel and Daly, one source suggested, “When you have a guy like Doug Morris, who has worked for the company for 17 years, invited to come into an office with the supposed agenda to talk about his promotion and he’s told in two minutes ‘You’re fired,’ it’s not going to make anyone feel very secure.”

“When you have people who are that expedient and not caring at the top of a company, it makes people re-evaluate their priorities; the circumstances are too brutal not to affect everybody,” the source added.

One Time Warner executive said there are growing fears at the company about a leadership vacuum under Levin and that Fuchs is quickly moving to fill it. The source said a camp of executives have been urging Daly to step into the ring, fearful that otherwise they could all be reporting to Fuchs someday.

Daly has the clout and the experience, though not necessarily the ambition, to succeed Levin. “He’s the most powerful executive at Time Warner right now,” the source said. “But it’s not in his nature to go for this job.”

Regarding word that he and Semel have been at odds with Levin, Daly said that, too, is history: “Word in town is a little late. Terry and I had a very pleasant two- or three-hour meeting with Gerry today. Our stock is up, cable legislation has loosened a little and everybody is happy right now.” Meanwhile, the Time Warner board has shown no signs of turning on Levin, though he is clearly under constant pressure to drive up the stock price.

Despite denials from Semel, rumors also persist that he is a likely candidate for the top job at MCA. He is still under a long-term contract, though he does have an out at the end of the year that nobody has yet been able to define.