Ego Lands a Big Role in Spate of Media Mergers

When Sumner Redstone dismissed his widely respected second-in-command Frank Biondi Jr. early this year and assumed his titles as president and chief executive, entertainment pundits privately joked that the chairman of Viacom Inc. was suffering from what has been coined “Rupert Envy.”

In Redstone’s view, they said, Biondi was proceeding too cautiously in securing strongholds around the world at a time of deal-mongering and media consolidation, allowing the likes of Rupert Murdoch, the powerful head of News Corp., to plant his flag while Viacom deliberated.

Quick reflexes are a prerequisite in media these days, as mergers like those announced between Time Warner and Turner Broadcasting System, Disney and ABC, even News Corp.’s acquisition of New World Communications Group reshape the entertainment business. Driven by changes in federal rules, new digital technologies that are expanding TV channels here and abroad and a ravenous international appetite for entertainment, media conglomerates are jostling for the best positions for future growth.

Part of the feeding frenzy is born from logic: the purported need to have an artillery of offerings to build strongholds internationally, where most of the growth will come from. A huge distribution reach, whether by satellite, broadcast or Internet is necessary to justify the huge costs of entertainment content.

But another propellant is ego. Many of the buccaneering personalities angling to rule the media world control such large positions in their companies that they seem to buy, spend and accumulate with near-impunity.

“In the apocalyptic sunset, when there is one dollar left on the ground, three hands will rise up through the dirt to grab it: Rupert, Sumner and John Malone,” said Don Ohlmeyer, president of NBC West Coast. “Their game is to grab everything in sight.”

Malone is the chief of Tele-Communications Inc., the nation’s largest cable company. Malone’s tentacles spread in as many directions as Murdoch’s, across a range of new technologies, including wireless cable, satellite television, telephone and the Internet.

As the second-largest shareholder in Turner, Malone will become a top Time Warner stockholder in the merger that was sanctioned late Tuesday by antitrust officials. Through his programming arm, Liberty Media Corp., he holds interests in about 80 cable channels, including Discovery, Black Entertainment Television, Encore and new sports and news channels News Corp. is launching to take on ESPN and CNN, respectively.

In the race to get big, a handful of companies are ahead and have repeatedly demonstrated a will to expand: Murdoch’s News Corp., Redstone’s Viacom, Walt Disney Co. under chairman Michael Eisner, Time Warner under chairman Gerald Levin and Malone’s TCI.

Among executives at a series of other companies, including Sony Corp., MCA and NBC, there is a palpable fear that these larger companies will outclass them globally.

Competing head-to-head against ever-larger behemoths is what sent CNN owner Ted Turner into the arms of Time Warner. Turner believed he would find himself squeezed internationally by rivals like News Corp., which in addition to the content provided by the Fox studios, sews up key partnerships using its expertise in launching multichannel satellite services such as its British Sky Broadcasting.

For Turner, Time Warner provides a broader library from which to spin cable channels, a vast music and cartoon repertoire that travels across borders and a sophisticated worldwide film arm through which products can be bundled for leverage.

But managing these sprawling empires and capitalizing on their cross-promotional value can be arduous. Disney is a master of the art, but as one rival said about its $19-billion purchase of ABC last year: “Disney has a single product line, its characters, and has done a brilliant job at extending those brands through its various divisions. ABC is its first major acquisition and takes the company into a totally new business at a time when the network has peaked near term and the advertising cycle is on its back side. It will be an interesting test.”

There are some early signs of synergy: a TV special that ran on ABC on the making of the Disney movie, “The Hunchback of Notre Dame”; an ESPN sports bar at the resort at Disney World in Florida--ABC owns the sports channel.

But Time Warner has been another story. It still has not managed to make one plus one equal four from the 1989 merger that created the conglomerate. Though revenue rages upward, the stock price has been flat through a bull market, dragged down by high debt, cable ventures that are unappreciated on Wall Street and a complicated financial structure. Nor has Viacom made good on its $10-billion purchase in 1994 of Paramount, watching as its stock price slipped this week to a two-year low.

For Time Warner, Turner provides a multitude of cable channels that can provide an afterlife for movies and TV shows produced by its studio.

But analysts say Turner’s biggest networks, TNT, TBS and CNN, are mature in the U.S., reaching nearly all households wired for cable. Growth depends on creating new networks and from new businesses.

Time Warner may also be able to help Turner in the emerging but difficult overseas markets, where local suppliers have an edge and a multitude of assets are needed to drive channel sales and extract the best deals. For instance, BSkyB, which has a near-monopoly in the British pay television market, will pay program suppliers higher prices for their cable channels if the supplier can also provide movies for pay-per-view.

Under the logic of bigger is better, a handful of entertainment companies will call the shots, while second-tier players struggle at their knees. But the world rarely follows such easy logic. Skeptics wonder whether the entertainment companies built in the ‘90s will be dismantled after the millennium.