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Turner Broadcasting System, Inc. Business Information, Profile, and History

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History of Turner Broadcasting System, Inc.

The history of Turner Broadcasting System, Inc. (TBS), is closely tied to the personal history of its flamboyant founder, chairman, and president, Robert Edward 'Ted' Turner III. Alternately seeking and shunning media attention, Ted Turner has accumulated colorful nicknames, including 'Captain Outrageous,' 'the Mouth of the South,' and 'Terrible Ted,' and has earned a reputation for daredevil tactics. Turner's freewheeling entrepreneurial style is reflected in the strategic and financial risks the company has taken under his leadership.

Turner became president and chief operating officer of a $1 million billboard enterprise, Turner Advertising Company, upon his father's suicide in 1961, which occurred shortly after the elder Turner concluded an agreement to sell the firm's recently acquired Atlanta, Georgia, division. Turner offered the buyers $200,000 to rescind the deal and persuaded them to accept his offer by shifting employees and contracts to another division, threatening to destroy financial records.

In 1970 Turner's firm merged with Rice Broadcasting Company, Inc., a small Atlanta UHF television station. The transaction took the resulting company public, with Turner as majority stockholder, under the new name Turner Communications Corporation.

Turner Communications bought the right to broadcast the Atlanta Braves major league baseball games, then bought the team in 1976. The Braves were said to be losing money at the time and were on the verge of being transferred to another city; Turner's acquisition kept popular broadcasts on the air and provided diversification for his growing company. Turner increased his sports presence in 1977 by acquiring the National Basketball Association's Atlanta Hawks.

After reading that the cable television network Home Box Office (HBO) was transmitting programs nationwide via satellite, Turner saw an opportunity to expand his station's audience enormously and to make it more attractive to advertisers by beaming its signal to cable TV systems throughout the country. The resulting SuperStation WTBS, begun in December of 1976, became, in effect, another TV network. But start-up costs were substantial, cable operators who signed up tended to have questionable credit records, and advertisers were skeptical and reluctant to invest. In the course of a few years, however, the concept proved viable as WTBS-TV gradually became profitable.

Meanwhile, Robert J. Wussler, a 21-year veteran of CBS, joined TBS in April of 1980 as executive vice-president, an office he would held for several years. At CBS, Wussler had been instrumental in the expansion of satellite usage in news coverage--which began as early as 1962--and in the development of the minicam for on-the-spot news coverage. His career included positions as president of the CBS television network and of the CBS sports division.

In its early years, Turner's SuperStation aired primarily reruns and sports. But in June of 1980, Turner created the Cable News Network (CNN) subsidiary to broadcast live news on a 24-hour basis. News bureaus were established in major cities throughout the United States and the world. The live, 24-hour format encouraged a more direct and unedited presentation of the news than the networks provided, as well as instant availability at viewers' convenience. The minimal editing and absence of star anchors sparked both positive and negative reactions: some felt the approach lacked polish and professionalism, but others felt it brought viewers closer to the news items at hand. In January of 1981, shortly after CNN began operation, another subsidiary, Turner Program Services, was created to serve as the syndication arm of TBS.

In January of the following year, Turner formed a second all-news television network. Officially named Headline News, the network aired a sequence of half-hour segments edited from the live material shown on CNN. If CNN was conceived as 'a newspaper you can watch,' in Turner's words, then Headline News permitted a quick scan of the top stories at any time. Just months later, in April of 1982, CNN Radio commenced operations, offering a 24-hour, all-news format on a network basis in the radio market.

By this time the broadcast market was becoming increasingly competitive. TBS benefitted as cable became available to an increasing portion of U.S. households. CNN's success pressured the three established networks to acknowledge the audience CNN had tapped and to provide late-night and early-morning news broadcasts for this group. In addition, Satellite News Channels (SNC)--a second 24-hour cable news headline service--opened direct competition, promising financial incentives to combat the loyalty of CNN's cable operators and viewers.

In January of 1985 TBS purchased for $60 million a 75 percent interest in an Atlanta real estate complex that contained approximately 470 hotel rooms and 775,000 square feet of office and retail space. By 1987 the company had acquired the remaining 25 percent of the facility, which was renamed CNN Center and housed the corporate offices as well as the Atlanta headquarters for CNN, Headline News, and CNN Radio.

In 1982 CBS had declined to comment on industry rumors that it wished to buy CNN but wasn't as quiet in April of 1985, when TBC filed a preliminary exchange offer with the Securities and Exchange Commission (SEC) for CBS. CBS immediately bought back nearly six million shares of its common stock--amounting to almost $1 billion--forcing Turner to withdraw his offer in August. The aborted bid cost TBS approximately $20 million in underwriting, legal, and accounting fees, but Turner argued that the action, which forced CBS into significant borrowing to finance its repurchase and absorbed management time and attention, at least hindered CBS as a competitor.

In later years Turner defended his bid for CBS as an attempt to protect his own company's vulnerability. In addition to the three major networks, there were by this time more than 25 independent ones, including Fox, Tribune, HBO, USA, Viacom, Time, and Showtime. Turner worried that networks, as the distributors of television programming, could be held at the mercy of program producers, and he described his bid to gain control of CBS as an attempt to strengthen his bargaining position with them.

Turner also took a small step into the production business in the 1980s. He helped found the Better World Society in 1985, a nonprofit organization that produced documentaries on ecological and environmental issues. Turner's global consciousness was also behind his company's contribution to the Goodwill Games with the former Soviet Union. These games, patterned after the Olympics, were held in order to bring U.S. and Soviet athletes away from recent political boycotts of the Olympics and back into sporting competition. Conceived and organized in 1985, they were first held in Moscow in July of 1986. TBS's production costs associated with the Goodwill Games amounted to more than $25 million, a sum not completely recovered through the increased revenues that resulted from the broadcast syndication of the Games.

TBS's ventures into original programming were dwarfed, however, by its acquisition of the film company MGM/UA Entertainment in 1986. Turner contended with Kirk Kerkorian, the 50.1 percent owner of MGM/UA, which was losing money and valued on Wall Street at about $825 million in August of 1985. Kerkorian was represented by Drexel Burnham Lambert, an investment-banking firm famed for dealing in high-risk junk bonds. In an unusual move and with the consent of all parties, the bankers switched sides and represented Turner when it became apparent that he needed their expertise to finance the deal that was being discussed.

In the end, TBS bought MGM/UA Entertainment for $1.4 billion in March of 1986, immediately sold the United Artists portion back to Kerkorian for $480 million, and assumed $700 million of MGM debt, for a net purchase price of more than $1.6 billion. Because the purchase price was almost twice the street price, Drexel Burnham Lambert was at first unable to create securities acceptable to Turner and to potential investors. After Kerkorian was persuaded to accept approximately $475 million less in cash in return for a new issue of TBS preferred stock, financing for the remainder could be secured. When critics questioned the purchase price, Turner cited the enduring merit of the classic films in MGM's library, the programming security he sought from this entertainment base, his fear of being outbid by another buyer, and, characteristically, his disinclination to haggle.

The new issue of preferred stock carried two provisions. The first was a necessary payment of $600 million of notes in September of 1986. To meet this requirement, Turner was forced to sell all MGM assets except the film library; many were bought by Kerkorian himself just before the September deadline. The second provision involved dividend requirements that threatened corporate control, depending on market performance.

The entire MGM deal also weighed heavily on the TBS's financial statements. As Turner conceded in his 1986 report to shareholders, 'The financial representation of 1986 is what it is--a net loss of approximately $187 million on revenue of more than $556 million.' (In 1985, TBS had earned a net income of $1 million on $352 million in revenues.) Interest payments, together with amortization of the MGM purchase price, would lead to what Turner described as 'substantial accounting losses in the foreseeable future.'

In 1987 Turner called on the support of the cable industry to deal with the preferred stock problem created as a result of the MGM deal. A group of 31 cable operators--the companies that provide local cable service and choose what cable networks subscribers can get--headed by TeleCommunications Inc. (TCI), paid nearly $565 million for 37 percent of TBS. This capital secured Turner's control of voting stock and introduced new directors to Turner operations, including John Malone, president of TCI; Michael Fuchs, chairman of HBO; and Jim Gray, chairman of Warner Cable. While the backing of the cable industry virtually guaranteed the success of the Turner networks, the presence of major cable operators on Turner's board also posed certain problems. Since cable operators such as TCI purchase programming from TBS, Turner commented in the New York Times, the operators 'don't have much incentive to see us make healthy profits.' But the rescue deal succeeded in keeping Turner afloat.

Although Turner's MGM purchase was criticized for putting TBS in nearly unmanageable debt, within two years the company's prospects were looking up. TBS's new Turner Network Television (TNT) channel, which is based on the MGM film library but also offers original programming, has done exceptionally well. With eight of fifteen places on Turner's board in the hands of the cable consortium, TBS is moving more slowly and deliberately than in the past. Turner himself points to the completion of cable wiring in metropolitan areas as critical to his industry's growth, noting that major events would not receive adequate coverage while cable remained unavailable to large blocks of viewers.

In 1989 Turner Broadcasting made several important moves, including a $1.6 billion refinancing of its debt. The company also launched Turner Pictures, a filmmaking division, and Turner Publishing, a subsidiary that develops TBS properties for book publication.

With the onset of 1990s, Turner brought the Goodwill Games to Seattle, Washington. The Games, intended to take place every four years, generated about $60 million in subscription and advertising revenues and created production costs of nearly $95 million. Naturally these figures skewed the company's overall performance statistics for the year: profit fell by about $65 million from 1989, and revenue increased significantly, reaching $1.39 billion. TBS instituted a one-dollar-per-viewer surcharge to cable operators for carrying the Games, resulting in a blackout of TBS for nearly 17 percent of the 54 million households receiving the network. Ratings for the Goodwill Games were not as high as expected, and Turner felt obligated to compensate advertisers with costly 'make good' time.

CNN's coverage of early 1990s events in the Persian Gulf resulted in spectacular ratings for the Turner networks, which beat out all other broadcast networks for the ten-week period from January 14 to March 24, 1991. CNN set new industry standards for war coverage during Operation Desert Storm, committing nearly 2,000 staff members, more than 4,000 hours of airtime, and $17.1 million to war-related telecasts. On the night of the invasion, 11 percent of U.S. households were tuned to CNN, compared with less than one percent on an ordinary day. The network's reputation soared when, at a press conference following the initial bombing runs, General Colin Powell and Defense Secretary Richard Cheney revealed that some of their information was coming from CNN.

Turner continued to create specialized networks for particular markets in 1991, launching the Airport Channel and the Checkout Channel. The Airport Channel is broadcast in strategic places in airports, including gates and baggage claim areas. Its programming consists of a 30-minute loop of live news and features lifted from CNN as well as several advertising spots. Revenues for the Airport Channel approached $10 million for its first year, with broadcasts in Dallas-Fort Worth, Miami, Cincinnati, Denver, Minneapolis, and Washington, D.C.

Late in 1991 TBS purchased Hanna-Barbera Productions for $320 million. Turner and its joint-venture partner, Apollo Investment Fund, thus gained access to more than 3,000 half-hours of animated programming, including such classics as Yogi Bear, The Flintstones, Scooby Doo, and The Jetsons, as well as a total of 350 series and films. Prior to the purchase, TBS already owned approximately 800 animated half-hours, primarily from the MGM library. These included Popeye, Tom and Jerry, and a collection of Warner Bros. cartoons from before 1948. With this impressive animation array in hand, Turner announced in early 1992 the creation of the Cartoon Network, a 24-hour animation channel for basic cable systems that was scheduled to begin broadcasting in October of 1992.

TBS has been remarkably aggressive in programming all of its cable channels, which are the heart of the company's business. As the cable television industry grows, these stations will likely improve their ability to compete with the major networks. TBS appears to be committed to expanding into more telecommunications and entertainment areas, even creating sectors that previously did not exist. Regardless of whether or not the company succeeds in all of these areas, TBS--thanks to its determined founder--seems certain to remain a major force in the communications industry.

Principal Subsidiaries: Turner Entertainment Co.; Turner Network Television (TNT); Turner Program Services, Inc.; SuperStation WTBS; Turner Publishing; Turner Home Entertainment; Turner Private Networks, Inc.; Cable News Network (CNN) Atlanta; CNN International; Turner Sports; Headline News; CNN Radio; Atlanta Hawks; Atlanta Braves; Hanna-Barbera Productions.

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