COMPANY TOWN : Turner Learns Flip Side of Partnership

Despite the conventional wisdom in the entertainment business about the need for corporate alliances, the sputtering pace of Time Warner Inc.’s attempt to seal a deal to buy Turner Broadcasting System Inc. is a good lesson about the flip side.

For all his billions of dollars in net worth and his swashbuckling image as an entrepreneur, Ted Turner answers to a guy housed in an 11th-floor office in suburban Denver who owns one-fifth of his company. It’s cable baron John Malone who continues this week to drive a hard bargain before allowing Time Warner to get its hooks into Turner, holding the deal hostage as he demands such concessions as an assurance that his Tele-Communications Inc. will carry Turner and Time Warner networks at favorable rates .

The influence at Turner given to Malone is the price Turner paid when Malone and other cable operators--including Time Warner itself--bailed him out in 1987 after he bit off more than he could chew in acquiring “The Wizard of Oz,” “Ben-Hur” and the rest of the classic Metro-Goldwyn-Mayer film library.

At the time Turner called it a partnership that made sense. In reality, it was like handing the keys of his car to Malone and Time Warner with the promise he’ll ask permission whenever he takes it for a spin. So restrictive are the conditions that if Turner Broadcasting suddenly decided on a whim it wanted to start half a dozen McDonald’s franchises, it would need the blessing of Malone and Time Warner since they can veto any transaction of $2 million or more.

Should the Time Warner deal fall through, it wouldn’t be the first time a transaction that Turner favors has been torpedoed by his partners. In 1987, he was denied permission to buy Financial News Network, eventually sold to NBC. He also has complained for years that his partners won’t let him buy a network, suggesting, with characteristic hyperbole, that his suffering is similar to some of the 20th Century’s worst atrocities.

It was a similar reality encountered last year by Barry Diller, who thought he was taking control of CBS using shopping channel QVC Inc. until cable operator and investment partner Comcast Corp. informed him otherwise.

Amid talk that companies ranging from CBS to Sony Pictures could eventually take on strategic investors, it’s important to keep in mind that companies with strong balance sheets and the freedom to fly solo--like Walt Disney Co.--will continue to enjoy an upper hand. Turner lusts after a network for a decade. Disney’s Michael Eisner bumps into Capital Cities / ABC investor Warren Buffett at a picnic in Idaho, and within two weeks he’s got a network.

The conditions Turner agreed to are more drastic than most, and are the legacy of a brief period of financial desperation. Still, it’s not just entrepreneurs short of cash who jump into alliances only to have second thoughts later.

Case in point is Time Warner itself. Faced with the choice of selling assets or taking on major partners, Time Warner four years ago chose to take the money from Japanese investors Toshiba Corp. and Itochu Corp., as well as regional phone giant US West. Now, trying to untangle the company’s Byzantine corporate organization--toward possibly splitting the company into separate cable and entertainment operations--is no easy task. Toshiba and Itochu just agreed to convert their equity into preferred shares, but US West--which owns 25.5% of a unit that includes Warner Bros., Time Warner’s cable business and Home Box Office--appears unenthusiastic about the kind of restructuring Time Warner wants.

In addition to Disney, a few others in the entertainment world enjoy the kind of luxury of freedom to act fast that Turner and others don’t. News Corp.’s Rupert Murdoch recently formed an alliance with MCI Communications Inc. and got a $2-billion check to spend, but nonetheless is the sole vote needed to decide whether to bet the House of Fox. Likewise, Seagram Chief Executive Edgar Bronfman Jr. has the cash and relative freedom to make a major move through MCA Inc., although he is acutely sensitive to the desires of stockholders. No doubt part of the reason is that a good many of them share the name Bronfman, including his father and uncle. As Bronfman joked last May, screwing up isn’t a pleasant option for him, since he still is expected to attend family dinners.

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Following Disney’s web-footed steps?: MCA Inc. is being pitched in a big way the idea of buying the financially struggling Los Angeles Kings hockey team, although sources say a sale to the entertainment giant appears to be remote for now.

A group of lawyers representing parties trying to resolve the team’s fate--the Kings have been in turmoil since the financial collapse of former owner Bruce McNall last year--is trying to sell MCA executives on the idea of buying the Kings and building a new arena on its land at Universal City. The lawyers believe MCA might bite, given Walt Disney Co.’s successful ownership of the Mighty Ducks of Anaheim franchise.

Sources say MCA executives haven’t said no and continue to ponder the proposal. But they also downplay the company’s interest, noting that MCA only recently was bought by Seagram Inc. and, as a result, continuing to build its new management team takes priority.

The front-runner to buy the team remains Denver billionaire Philip Anschutz if details can be worked out. Another group of Hollywood executives--including former Sony Pictures Entertainment Chairman Peter Guber and Warner Bros. Co-Chief Executive Terry Semel--is said to remain interested.

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Allen & Co. by-the-sea?: Merrill Lynch & Co. has quietly scheduled a mogulfest behind closed doors next week at its Media & Entertainment Conference at the Ritz Carlton Hotel in Marina del Rey.

Although lacking the golf shirt-clad billionaires the Allen & Co. summer conference attracts each year in Idaho, some heavy-hitting speakers are planned. Among them are Edgar Bronfman Jr., Terry Semel, Viacom Entertainment Chairman Jonathan L. Dolgen, Sony Corp. Executive Vice President Jeff Sagansky, Walt Disney Chief Financial Officer Stephen F. Bollenbach and Fox Television Chairman Chase Carey.

In what may be symbolic of the unpredictability in the entertainment business amid all of the merger frenzy, the designated speaker listed for CBS at a presentation on Wednesday is merely noted as “TBA.”