Merged Giants Likely to Bless the Sale of Castle Rock, New Line

Now that the Time Warner-Turner merger seems certain, the new company is expected to give its formal blessing to the sale of New Line Cinema and Castle Rock Entertainment. Both companies, which have unofficially been in play for some months, could sell within the next 30 to 60 days if Time Warner-Turner can fetch the kind of prices it wants, sources said.

Industry observers agree that there is no strategic or philosophical reason that either movie company--both of which were bought by Ted Turner about three years ago--would fit into the larger Warner Bros. operation. Even if the companies were to be kept intact as stand-alone entities, there would be too much redundancy, too much overhead expense and, perhaps most significantly, too many independent-minded individuals to make for one big, happy Warner family.

Warner already releases about 25 major movies a year. At a time when most studios are cutting back on their production programs because movies are cannibalizing each other in an overcrowded marketplace, it makes no sense for a studio to add another 40 or 50 titles a year to its slate.

Whereas New Line and Castle Rock are expected to be sold off, Turner Pictures, which is run by former Columbia Pictures executive Amy Pascal, is expected to continue operating under the Warner Bros. umbrella as a production concern whose A-level movies would be marketed and distributed by the studio. Although the company would be able to retain its own identity under Pascal and her team, Warner Bros. co-Chairmen Bob Daly and Terry Semel would not be totally hands-off when it came to the movies being green-lighted under that banner.

Neither New Line nor Castle Rock has officially been put on the block, though it’s no secret that Castle Rock has been in active talks with such suitors as Sony Pictures Entertainment and a potential partnership of MCA/Universal Pictures and NBC.

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Castle Rock, run by a five-person management team, including director Rob Reiner and company Chairman Alan Horn, has had a dismal run on the movie side with such flops as “City Hall,” “Othello” and, most recently, “Striptease.” Earlier this year, Turner Broadcasting System disclosed a $60-million write-off on Castle Rock films, resulting in a first-quarter loss of $10 million and a 43% drop in Turner’s cash flow.

Castle Rock’s television operation, on the other hand, is very profitable, thanks to such shows as “Seinfeld,” “Boston Common” and “The Single Guy.”

When Turner decided to sell his company to Time Warner, Horn approached the mogul about the possibility of spinning off Castle Rock. “I went to Ted and said that the original strategic reason [that Turner bought Castle Rock] is mitigated by his selling the company to Time Warner,” Horn recalled.

Turner agreed and gave Horn his blessing to explore a sale.

Horn said he is continuing discussions with Sony and MCA, with “the likelihood that this will be resolved sooner rather than later,” possibly within the next month. Although Horn said Castle Rock is not leaning toward one suitor over the other, a source familiar with the talks said MCA may have an edge because of Castle Rock’s longtime relationship with MCA President Frank Biondi Jr. When Biondi was an executive with Coca-Cola’s entertainment group in the mid-1980s, he helped put together the money to back Castle Rock.

Castle Rock also has a long relationship with Sony’s Columbia Pictures, which distributes its movies and will continue to do so through the end of 1997. Castle Rock also has a distribution deal with Columbia TriStar Television.

Horn reiterated what he has said before, that “there is no for-sale sign” on the company at the moment, and he insisted that “there’s no fire sale here.” Sources say Turner and Time Warner Chairman Gerald Levin expect the company to fetch between $300 million and $500 million.

In 1993, Turner paid $100 million in cash and close to $300 million in assumed debt for the company, which had produced such hits as “When Harry Met Sally,” “A Few Good Men” and “In the Line of Fire.”

A source close to Turner said if Horn can’t come up with a good enough deal, the plan is to de-emphasize Castle Rock’s feature film business and essentially focus the company on its TV operations. If that happens, the assumption is that Castle Rock may operate as a division of Warner, the same way Lorimar did when Warner bought it, but eventually be folded into the overall operation.

Sources said Time Warner-Turner is hoping to get close to $1 billion for New Line and its Fine Line specialty film subsidiary. Turner had paid about $600 million for the company, whose hit movies include Jim Carrey’s “The Mask” and “Dumb and Dumber,” the “Nightmare on Elm Street” series and the “Teenage Mutant Ninja Turtles” franchise.

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Unlike Castle Rock, which releases a handful of films a year through Columbia, New Line has its own distribution operation and releases as many movies (about 25) as any of the other major studios.

When Turner bought the company, New Line principals Robert Shaye and Michael Lynne were contractually guaranteed autonomy even in the event of a sale. This could prove problematic if New Line is forced to join the Time Warner-Turner organization.

But that’s not likely. Although New Line, unlike Castle Rock, has not engaged in talks with potential buyers, it will begin doing so immediately, sources familiar with the situation said Wednesday. New Line executives declined to comment.

New Line has been approached by investment bankers anxious to bring the company prospective buyers.

PolyGram is regarded as a natural suitor. The company aggressively pursued the acquisition of Metro-Goldwyn-Mayer but lost its bid Tuesday to a management buyout bid backed by billionaire Kirk Kerkorian.

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The Two Titans

Time Warner Inc. said it reached preliminary agreement with the Federal Trade Commission staff on a consent decree that would allow it to proceed with its $7.5-billion acquisition of Turner Broadcasting Systems Inc. A look at the two companies:

TIME WARNER INC.

* Headquarters: New York

* Chairman/CEO: Gerald Levin, who became chief executive in 1993 after the death of Steven Ross.

* Origin: Time Warner was created by the 1989 merger of Time Inc. and Warner Communications Inc.

* Results: Loss of $166 million on revenue of $17.69 billion in 1995.

* Movies: The company’s Warner Bros. studio is one of Hollywood’s biggest producers of movies and TV shows. In recent years, it has made such blockbusters as the “Batman” and “Lethal Weapon” series and such top-rated TV programs as “ER” and “Friends.” It also launched television’s WB Network.

* Publishing: Time Inc., founded by Henry Luce and Briton Hadden in 1922, is the country’s biggest magazine publisher. It owns Time, People, Sports Illustrated and Fortune, among other magazines. It also owns book publishers Warner Books and Little, Brown.

* Cable: The company is the second-biggest cable operator in the U.S. with about 11 million subscribers, behind only Tele-Communications Inc., which has 12.7 million subscribers. It also owns Home Box Office Inc., the leading premium cable channel.

* Music: Warner Music Group is the world’s largest recorded-music company. Under labels such as Warner Bros. Records, Atlantic and Elektra, it represents artists such as Madonna, Eric Clapton and R.E.M.

TURNER BROADCASTING SYSTEM INC.

* Headquarters: Atlanta

* Chairman/CEO: Ted Turner

* Origin: In 1970, Turner took profits from his billboard advertising business to buy a small Atlanta TV station, forming Turner Communications Corp.

* Results: The company earned $102.7 million on revenue of $3.4 billion in 1995.

* Cable programming: Turner owns some of the best-known cable networks in the country, including TBS, Turner Network Television, Turner Classic Movies and the Cartoon Network. Its Cable News Network has become one of the world’s most recognizable brand names.

* Movies: In recent years, Ted Turner has also become a movie mogul. His company acquired New Line Cinema, maker of the “The Mask” and “Nightmare on Elm Street,” and Castle Rock Entertainment, producer of “When Harry Met Sally” and “The Shawshank Redemption” and TV’s “Seinfeld.” Turner also owns the Hanna-Barbera and the pre-1986 MGM libraries.

* Sports: Turner Broadcasting owns basketball’s Atlanta Hawks and baseball’s Atlanta Braves.