Time Warner Ousts Music Chief After Power Struggle

One of the entertainment industry’s bloodiest behind-the-scenes corporate struggles ended Thursday when Time Warner Inc. ousted its music chief, Michael J. Fuchs, and handed his duties to the two veteran Hollywood executives who run the Warner Bros. studio.

The corporate realignment is a hands-down victory for Robert Daly and Terry Semel, the Warner Bros. co-chairmen who will now oversee a nearly $10-billion entertainment operation from their offices at the studio lot in Burbank, and represents a shift of power at the world’s biggest entertainment and media company--from New York to Los Angeles.

Time Warner’s move came on what turned out to be one of the most turbulent days ever in the U.S. music business. Within hours after the Warner announcement, MCA fired its longtime music chief, Al Teller. He was replaced by Doug Morris, who, ironically, was fired from Warner in May by Fuchs.

Daly and Semel, the longest-running management team in Hollywood and one of the few bastions of stability in a chronically unstable business, have battled for years in gladiator-like fashion over turf with the mercurial Fuchs, considered one of entertainment’s most talented, yet most temperamental, executives.

The restructuring by Time Warner Chief Executive Gerald M. Levin was designed to bring stability to a company that has been rocked by inner turmoil for the past year, exacerbated by Fuchs’ sometimes-abrasive management style. The infighting at Time Warner has been considered potentially damaging as the company prepares for a $7-billion acquisition of Turner Broadcasting System.

“It’s been like a play all along. It makes for good theater,” said analyst Harold Vogel of Cowen & Co.

One of the clear motives for Levin is to keep intact the team of Daly and Semel--who both signed new long-term contracts as part of the deal--by adding to their entertainment empire the world’s largest music company. In an interview, Semel, who could have exercised an escape clause from his contract in January, for the first time publicly acknowledged that he had been considering other job options, specifically joining MCA.

The realignment consolidates Warner Bros.--whose operations range from distributing such movies as “Batman Forever” and “Ace Ventura: When Nature Calls” to making the hit television shows “E.R.” and “Friends”--with a music company that features such top artists as Green Day, Madonna and Hootie and the Blowfish.

Since taking over Time Warner’s tumultuous music division after successfully building the company’s Home Box Office channel, Fuchs abruptly fired a number of senior executives, riding roughshod over a unit he believed had been loosely managed. He forced out such executives as Morris, the company’s former domestic music chief, and former Warner Bros. Records chief Danny Goldberg.

Daly, 58, and Semel, 52, are paternalistic in management style, building a loyal team of executives at a studio where departures and firings are rare. They also pal around with Hollywood talent, including such stars as Clint Eastwood and Mel Gibson.

The two, who have worked together at Warner Bros. for some 15 years, live on the same block in Bel-Air and commute to work together at least three times a week. In conversation, they often finish each other’s sentences and fill in for each other at work when the other is unavailable.

That contrast with the harder edge of Fuchs was one of the sources of tension between Fuchs and the two executives.

“I’ve said it before that Michael’s style and my style are totally different, though I think he’s a terrific executive and especially with what he did at HBO,” Daly said. “Unfortunately, when Jerry decided to consolidate, Michael did not fit in.”

Tensions between Daly and Fuchs also stem from business as well, from their negotiations over movie deals at HBO. Daly was especially irritated when Fuchs had HBO invest in fledgling film distributor Savoy Pictures Entertainment, a Warner Bros. competitor.

Fuchs, who had been with Time Warner for nearly 20 years, said in a statement that he was “deeply saddened to leave Time Warner.”

Fuchs’ firing and the realignment was mostly praised by analysts, although some observers questioned whether it is yet another sign of Levin’s inability to steer the huge company. In addition, it will add to an already expensive package of severance payments the company is making to departing executives, which some estimate at well over $100 million.

“He allowed a lot of executives to be fired, then fired the guy he put in place to fire them,” said one top entertainment executive.

Said another with close ties to Warner: “It’s like the musical ‘Evita.’ He takes the chair away, and one general falls. Then he takes another chair away. It makes you wonder who is next.”

Some also said that Fuchs, despite his abrasive personal style, is a loss for the company. Fuchs is credited with making HBO into a profitable, Emmy-winning operation.

“On the one hand, you have got strong executives coming in, but you have a strong executive leaving. It’s hard to say whether five years from now it will be more favorable or less favorable,” said David Londoner, entertainment analyst with Schroeder Wertheim in New York.

Fuchs, 49, has been on thin ice since Time Warner announced in September that it is buying Turner--which owns such assets as Cable News Network, New Line Cinema, Castle Rock Entertainment and the Atlanta Braves. He reportedly alienated Levin by making clear his dislike for the deal and his corporate responsibilities.

Semel cited the Turner acquisition as the chief reason he chose to stay at Time Warner, praising Levin--who has been much maligned on Wall Street and in the entertainment community--for conceiving the deal. Semel also said he welcomes the move because it puts the company focus back on creating entertainment content rather than buying cable television systems. For years, Daly and Semel have been at odds with Levin over that issue.

“Jerry came up with the idea [for the Turner acquisition], and pulled it off, which allowed me to feel great respect for my boss,” Semel said.

Levin has been under increasing pressure to whip debt-laden Time Warner into shape and boost the company’s stock price, which has languished. Time Warner stock gained 62.5 cents Thursday, rising to $38.375 on the New York Stock Exchange. The company made the personnel announcement after the market closed.

Some analysts speculated that the realignment announced Thursday increases the chances that Time Warner--following the lead of such companies as ITT Corp. and AT&T--could; spin off units such as cable in a larger restructuring.

But Levin still faces hurdles in completing the Turner deal. The company has a restless investor in U.S. West that doesn’t like the acquisition, and its largest shareholder, Seagram Co. Ltd., is also unhappy. In addition, the deal is expected to receive tough scrutiny from regulators.

Both Daly and Semel denied persistent speculation that they actively lobbied to gain control of the music division, putting Fuchs out of a job. The two said that Levin pitched the idea two weeks ago during a trip to Los Angeles.

“This was not about ‘Do this, or else,’ ” Semel said. “Jerry’s conclusion was that this is the way he would like to run the company.”

The two were named chairmen and co-CEOs for music, the identical titles they hold at Warner Bros. Despite their lack of experience running a music operation, the two executives said they had no plans to name another executive to oversee day-to-day music operations.

“Our intention is to run it similar to the way it was in the past, where individual labels run themselves and report into corporate,” Daly said.

But both executives clearly have their work cut out for them in restoring morale and stability to the beleaguered music division. “I know there has been turmoil, but we hope to return to that company the spirit of good relations, longevity and stability--we know it needs it,” Semel said.

Speculation continues that other Time Warner units, such as HBO and possibly some of the Turner enterprises, will be folded into the domain of Daly and Semel if the merger is completed next year.

Levin, in justifying the deal, said in announcing the reorganization that it will “send a clear message” that Time Warner will be managed “to maximize shareholder value,” something some analysts found puzzling since the first goal of virtually any major public company is to do that.

A New York native, Daly left CBS after 25 years in 1980 when the late Time Warner Chairman Steven J. Ross recruited him to come over as chairman. Semel, a certified public accountant who also grew up in New York, worked as Daly’s second-in-command until 1994, when Daly named Semel as his equal--co-chairman and chief executive. The generosity is unusual in Hollywood, where most executives are loathe to share credit with others. But it also was viewed as a way to placate Semel, who had flirted with the idea of leaving Warner Bros. to rebuild Metro-Goldwyn-Mayer.

Semel began his career at Warner Bros. in 1966 in distribution. In the early 1970s, he left the studio for four years, working in distribution for both CBS-Center Films and Walt Disney Co. before rejoining Warner in 1975.

On Thursday, Semel indicated his flirtations with other jobs are over. He said that the new realignment and the pending Turner merger “made me want to stay home.”

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