Creating an Entertainment Giant : The Big Time

Time Warner Inc. and Turner Broadcasting System Inc. agreed Friday to merge in a $7.4-billion deal that would create the largest entertainment company in the world. The deal, which has been brewing for more than a month, would change the landscape of cable and media companies. It also is likely to be challenged by consumer groups and other cable companies.

Deal at a Glance

Stock swap: Time Warner will pay 0.75 of a share of newly issued Time Warner stock for each of Turner Broadcasting System’s Class A and B shares. Owners of Turner Class C shares, including Tele-Communications Inc., will get 0.8 of a share of Time Warner stock. Time Warner will issue up to 178 million new shares.

Cable agreements: TCI gets extended agreements to carry Turner cable networks as well the right to buy TBS’s interest in SportsSouth, a regional sports cable network, for $60 million.

Biggest shareholders of a merged Time Warner:

Ted Turner: 10%

Tele-Communications Inc.: just under 10%

Seagram Co.: 8%-9%

Capital Research: 7%-8%

The New Order

If this year’s blockbuster media mergers are approved by regulatory officials, Time Warner Inc. and Turner Broadcasting and Walt Disney and Cap Cities/ABC Inc. would vault No.1 and No. 2, respectively, on the list of the top 10 media conglomerates based on total revenues.

Revenues (in billions)

1. Time Warner Inc-Turner Broadcasting: $18.8

2. Walt Disney-Cap Cities/ABC: $17.0

3. Bertelsmann: $14.9

4. News Corp.: $8.9

5. Sony Entertainment: $8.8

6. Fujisankei Commun.: $8.2

7. Fininvest: $7.4

8. Viacom: $7.4

9. Thorn EMI: $7.2

10. Havas: $7.1

Handicapping the Merged Company

Time Warner is already a highly complex company, with its huge studio, top-ranked music division, premiere pay service HBO, the second-largest cable system in the United States and publishing interests that include Time magazine. The addition of Turner Broadcasting’s assets would create opportunities but would also add to the complexity.

Segment: Cable TV

Includes HBO, Comedy Central (50%), CNN, TBS SuperStation, Turner Network Television, Cartoon Network, Turner Classic Movies

Strengths: Time Warner already has the second largest US cable group behind Tele-Communications Inc. With Turner’s channels and its own HBO, the company also dominates in cable programming.

Weaknesses: Cable technology is vulnerable to competition from different delivery systems, such as satellite TV and telephone systems. Regulators can also enforce changes.

Rivals: Black Entertainment Television, Comcast, Cox, Disney, ESPN, QVC Network, TCI, Tribune, Viacom

Segment: Movies and Video

Includes Warner Bros. and Warner Home Video, New Line Cinema, Castle Rock Entertainment, Turner Pictures Worldwide, Hanna-Barbera

Strengths: Warner Bros. now battles Disney for top spot in movies and home video. Addition of Turner’s three studios could give Time Warner the edge.

Weaknesses: Meshing the two companies’ operations could be difficult. How do you compete with yourself?

Rivals: Disney, Fox (News Corp.), Orion Pictures, Viacom, Sony

Segment: Broadcasting

Includes Warner Bros. Television and WB Network

Strengths: Warner Bros. has strong programming (the highly rated “E.R.” and “Friends”) plus a foothold in distribution through its WB Network.

Weaknesses: WB Network has hardly established itself, consistently trailing the Big Three networks, Fox and UPN in ratings.

Rivals: Capital Cities/ABC, News Corp., CBS, NBC (General Electric Co.), United Paramount Network

Segment: Music

Includes: Warner Bros. Records, Atlantic Group, Elektra Entertainment, Warner Chappell Music Publishing

Strengths: With an impressive slate of artists including R.E.M., Seal, Anita Baker and Green Day, Warner Music Group is largest U.S. record firm.

Weaknesses: Departure of six top music executives in less than a year has destabilized management. Rap label Interscope has been public relations problem.

Rivals: Bertelsmann, MCA (Seagram), Polygram, Sony, ThornEMI

Segment: Other

Atlanta Braves, Atlanta Hawks, Book of the Month Club, CNN Interactive, Little, Brown & Co., Six Flags theme park, Time Inc., Warner Books

Strengths: With pro baseball and basketball teams plus World Championship Wresting, Turner is big in sports franchises. Time Warner is strong in publishing. Both firms are developing interactive media.

Weaknesses: Competition is always ruthless in sports, where ego sometimes pushes aside bottom-line considerations. It’s uncertain whether the two firms can smoothly integrate their multimedia ventures.

Rivals: Advance Publications, Bertlesmann, Blockbuster Entertainment, Capital Cities/ABC, Disney, Hearst, McGraw Hill, News Corp., Tribune

Sources: Bloomberg Business News; Paul Kagan & Associates; Times reports. Researched by TOM MULLIGAN and JENNIFER OLDHAM / Los Angeles Times