AOL Time Warner Restructures Its Cable, Broadcast Networks

In a move that breaks down entrenched Time Warner fiefdoms, AOL Time Warner has merged its broadcast and cable networks and named the founder and chairman of the company’s WB network,Jamie Kellner, as chief.

AOL’s surprising move is in keeping with its take-no-prisoners style as it eliminates barriers to growth and cross-promotion.

“AOL is treading where Time Warner feared to tread,” said Tom Wolzien, an analyst at Sanford C. Bernstein & Co. “This cleans up some structural stupidity at Time Warner that was born out of political concerns. Having parallel structures [for cable and broadcasting] was unnecessary.”

Wall Street applauded AOL’s first major corporate realignment since the acquisition of Time Warner in January made it the world’s largest media company. Analysts see Kellner’s appointment as a signal that Turner cable networks such as CNN, TBS and TNT will get a much-needed revitalization.

“The Turner networks in the last two years or so have lost their focus, as evidenced by declining ratings and below-industry growth,” wrote Jessica Reif Cohen and Henry Blodget, analysts at Merrill Lynch in a report on the management change. “Kellner is a perfect fit, given his entrepreneurial achievements and expertise in building solid brands.”

Kellner, 53, will be chairman and chief executive of Atlanta-based Turner Broadcasting, overseeing operations that contribute nearly 20% of both revenue and cash flow at AOL Time Warner. Besides cable and broadcast networks, those operations include the Atlanta Braves, Atlanta Hawks and Atlanta Thrashers. HBO is not included.

Bob Pittman, co-chief operating officer of AOL Time Warner, said merging the company’s cable channels, including CNN, TBS, TNT and the Cartoon Network, with the WB broadcast network will lead to greater efficiencies in serving advertisers, buying programming, pushing deeper into the Internet, cross-promoting AOL brands and starting new channels.

The restructuring further dismantles the empire built by cable visionary Ted Turner and merged into Time Warner in 1996. Turner, who became vice chairman of Time Warner and the largest shareholder of the company after the sale, was stripped of his operating role, overseeing the cable channels, as part of a management realignment by AOL. Turner remains vice-chairman of AOL Time Warner, but day-to-day management of his cable operations were taken over by Pittman, the former chief operating officer of AOL.

Under Tuesday’s restructuring, Turner’s longtime deputy, Terence McGuirk, a 28-year veteran of Turner Broadcasting, steps aside as chairman and chief executive of the company to become vice chairman. Kellner will move his family from Montecito to Atlanta.

The management change occurred, Pittman said, because McGuirk wanted to retire and the two reached a compromise under which the executive will become vice chairman.

The change, however, prompted Steven Heyer, Turner president and chief operating officer, to resign. Heyer, a former management consultant and advertising maverick, was considered an up-and-comer at Time Warner, rising fast in the ranks and credited with improving Madison Avenue treatment of cable television.

after Time Warner bought Turner Broadcasting to become the world’s largest entertainment company, Turner went on the warpath to kill the WB, arguing that it was losing too much money and was no longer needed as an outlet for Warner Bros. programming because his cable networks could serve that purpose.

Kellner, who owns 11% equity in the WB and expects the network to break even next year, said he refused to take the job without Turner’s blessing and that their dispute was not personal. “The first call of congratulations this morning was from Ted,” Kellner said.

In addition to building the WB into the top-rated network for teens and young adults, Kellner was instrumental in launching Fox. Earlier this year, Kellner named advertising head Jed Petrick to be WB’s first president, freeing himself from day-to-day operations so he could focus on using AOL’s Internet reach to broaden the network’s audience.

WB executives were taken aback by the move because of Kellner’s distaste for big companies and the autonomy he has carved out for himself as head of the WB.

In July 1993, Kellner formed the WB as a joint venture between Time Warner and Tribune Co., now parent of the Los Angeles Times. “Despite competition from same-time start-up UPN, the WB has established itself as THE branded network targeted to young adults and teens,” said the Merrill Lynch report.

At Fox and again at the WB, Kellner championed the innovative model under which network affiliate stations pay the network for programming rather than being paid by the network for carrying its shows.

Kellner said having the cable and broadcast channels under one roof will build asset value. Programming costs can be amortized over more than one network, airing first on the WB before repeating within the same week on the cable channels.

Analysts said they expect Kellner to be more aggressive in leveraging Time Warner’s cable brands, which many industry executives believe have not been fully exploited.

While Walt Disney Co.’s ESPN and Viacom’s MTV have used their powerful names to launch several new channels in sports and music, respectively, Turner has not been as aggressive in extending its own brands.