11.14.2002 03:54 PM
CNN & ABC News Last Man Standing
Together, CNN and ABC News would have everything. ABC has the faces. CNN has the bureaus. ABC has the ratings. CNN has the profit. ABC has the prestige. CNN has the proletariat. Then again, CNN says "po-tay-to" and ABC says "po-tah-to," and you know the rest.
"You cannot see Larry King and Peter Jennings existing in the same tent," said Porter Bibb, head of Technology Partners, Inc., a media consulting firm in New York, and author of the unauthorized biography of CNN Founder and AOL Time Warner (AOLTW) Vice Chairman Ted Turner.
King and Jennings may indeed be oil and water, but they're so far down on their respective corporate food chains÷AOL Time Warner and Disney÷as to be vicariously consequential. Of greater concern to their bosses is self-preservation. AOL Time Warner Chairman Steve Case and Disney Chairman and CEO Michael Eisner are both on shaky ground with their boards. If combining CNN and ABC News will contribute to their welfare, they'll jump like Mike.
Reports leaked at the end of September (Disney says AOL leaked it, AOL says not...) had both companies spinning out their TV news divisions into a joint venture 65%-owned by AOLTW. Cost savings for the combined units were estimated to be $200 million a year. Moreover, a joint venture between the two is logistically sexy. CNN has a worldwide presence that will be the envy of every news organization once "Desert Sword" (or dagger or cutlass or side arm or whatever the Iraq attack is going to be called) begins. ABC has the promotional power of reaching on average eight times more households in primetime than CNN, and the star power its executives crave. Both divisions occupy pricey New York City real estate. And of course there's the old ãredundant positionsä routine. Chances are, more of that will occur in unionized New York shops than in right-to-work "Hotlanta."
When pressed about the leaked reports, an uncharacteristically coquettish Eisner told New York trade writers he'd be "thrilled" to do a deal with AOLTW. Could this be the same Michael Eisner who demonized Time Warner in a cable carriage dispute and lobbed cautionary volleys to Capital Hill against any Time Warner cable company merger? Well, whaddya know. Hence the conciliatory tone. Eisner needs the deal.
Disney's aging savant is finally grappling with the possibility that his spectacular 18-year success at the Magic Kingdom was as much a function of a healthy economy as it was his own financial wizardry. Disney's recent billion-dollar Go.com fiasco and $5.3-billion Family Channel buy÷acceptable false starts in the 1990s÷are oafish blunders in the current fiscal environment. Revenues have grown 1,250% in Eisner's tenure, in part due to his $19-billion purchase of Cap Cities/ABC in 1995. Now, ABC is losing nearly as much money as it was making the year before Disney bought it. Network earnings reached $680 million in 1994; losses for this fiscal year (ended September 30) and the next year combined are expected to reach more than $1 billion. Sources say the Disney board has directed Eisner to find his own replacement. Ouch!Meanwhile, AOLTW is choking on its own merger excess. The AOL stock, valued at $160 billion when the deal was cut in January 2000, is now worth around $26 billion with Time Warnerâs value thrown in. It has a debt load of nearly $28 billion and cash reserves of less than $2 billion. Those fabulous corporate synergies envisioned by former Time Warner boss Gerald Levin have thus far materialized in annoying cross-promos of Warner Bros. releases and TBS movies in the CNN Headline News crawl; and dorky People magazine dreck in the AOL Welcome window. Mass cross-platform content delivery, the motivation behind the AOL/Time Warner merger, is still years away. Online subscriber growth has stalled. As if thatâs not enough, the Securities and Exchange Commission and the Justice Department are checking to see if AOL cooked its books. Chairman Case will take the fall within six months, Bibb predicts. And the driving force behind his demise is none other than the CNN founder himself.
Last Man Standing
In a 16-year corporate version of Survivor, Ted Turner's torch is still burning. The dapper Mr. Levin, who squeezed Turner out of a functional role in the AOL/Time Warner merger, is gone. Bob Pittman, COO boy genius...gone. CFO Mike Kelly...history. AOL head Barry Schuler...please. Vice Chairman Turner...alive and kicking, thank you very much, and basically being offered a substantial piece of a broadcast network.
There was a day when Turner would have chewed his arm out of a jaw-trap to get to a bank the minute someone waved something like ABC News in his face. His desire to own a broadcast network is mythic. Long before CNN was an "AOL Time Warner Company," Turner tried to wheedle, cajole, and buffalo his way into a relationship with one of the Big Three. As far back as the early 1980s, he invited CBS honchos down to Atlanta, ostensibly to bail him out of dire financial straits. A few years later, NBC came calling, but the discriminating chairman didn't like their politics, or so the urban legend goes. More likely, the investors who pulled his bacon out of the fire put the kibosh on his network fever. Back then, Turner was visionary in his business pursuits, but an awkward, emotion-driven adolescent in the art of the deal.
His financial rescuers, an assemblage of cable operators that included then TCI Chairman John Malone, tempered Turner's compulsive behavior. Malone, who is said to be a brutal hand-to-hand negotiator, is also adept at waiting with cat-like composure for just the right moment to jump on his prey. He will do no deal before its time has come. Like Turner, Malone is an avid outdoorsman, a conservationist, and a substantial investor in AOLTW. And so it was that Eisnerâs initial flirtations were met with the sound of reverberating indifference from the halls of AOLTW.
For weeks after the CNN/ABC News trial balloon was launched, silence settled over the trade press like a blanket of snow. Representatives of both companies continued to profess ignorance of any further negotiations. Scrupulously informed industry insiders and CNN confidantes went tabula rasa. Sources close to Disney said "there is a fair amount of trepidation" about the deal. Bibb said they'll talk themselves breathless before anything is consummated. But one ABC executive said "it makes too much sense not to do it." Above all else, however, Wall Street smiled at the trial balloon, and when that happens, lawyers are inevitably dispatched to hammer out deal terms.
As originally suggested, AOLTW would most likely be the majority owner. CNN clears a profit of nearly $200 million on an annual newsgathering budget of around $700 million. ABC News does about $66 million on $600 million. CNN has 36 bureaus, with satellite links that allow their multilingual correspondents to deliver live reports from around the world. They program to Europe, India, Asia, Latin America, Africa, and the Middle East. In addition to English, they have websites in Arabic, Spanish, Portuguese, German, Italian, Danish, and Korean. They will also have a state-of-the-art digital production facility in New York once AOLTW's new $1.7 billion skyscraper (financed by a $1.3 billion construction loan÷the largest ever at the time) on Columbus Circle is completed next year.
That skyscraper is a dark bellwether for one ABC veteran, whom would like to stay employed, working seven blocks away from the network's former headquarters on West 66th. Look at Eisner's reorg, he says. All of ABCâs broadcast divisions are being aligned with their corresponding cable counterparts: ABC Sports with ESPN; Daytime with SoapNet; Kids programming with Disney Channel and Toon Disney; and primetime with ABC Family.
"ESPN is building a whole new tech center in Bristol, CT, the first one since they went on the air," continued the veteran. "That stuff has got to move up to Bristol."
Back office functions have already been moved out, he said. Soaps are produced in a handful of studios throughout Manhattan. World News Tonight, Good Morning America, 20/20, and Primetime Live come out of Disney's Times Square studio. Entertainment would logically be folded into Buena Vista and Walt Disney Television, leaving six floors of news, the sales department, and network operations occupying a full square block of real estate next to Lincoln Center.
"You don't need sales in a trophy building. You need them down in the advertising area,ä he said. ãAnd if all I had to do was feed a network, I can think of a lot better places to do it than New York."
That NABET's contract is due to expire in March 2003 is simply one less obstacle for Disney.
That leaves news, the only division without a cable (read: dual-revenue) counterpart. In the event that CNN/ABC News do become one, ABC's marquee talent simply makes a very short move uptown. Those who are not marquee talent might want to visit Devry.com.
If, and it's a fairly substantial "if", observers note, there can be a dZtente of egos long enough to craft a merger, the necessary ingredient for success is a strong executive. It would preferably be someone from the outside, whom would be allowed to run the company without interference from the fabled egos running AOLTW and Disney. Unfortunately, Colin Powell is busy and Superman is make-believe. Rudolph Giuliani might have time between giving consultations on crime-fighting in Mexico City.
"It comes down to how the leaders of the companies encourage their various executives to work together," said Stephen Unger, a managing partner with the executive search firm of Heidrick & Struggles. "A stronger predictor is based on the economics and how executives are rewarded. You have to have economic awards parallel with the type of behavior you're looking for. If you put in a reward system giving someone an executive benefit of stock, that will encourage cooperation rather than bonuses based on how business units do."
Such a person not only would have to manage keeping Larry King and Peter Jennings in the same tent, but keeping Turner and Eisner out of it. They would have to somehow combine the insular culture of CNN with the celebrity ethos of ABC without alienating both, and without allowing the big names to overshadow the whole raison d'?tre of the operation: news, 24/7.
Itâs easily worth the search for a business that would have everything. Now, what to call it...
Deborah D. McAdams is a contributing editor. She can be reached at: email@example.com.