Time Warner Inc. Business Information, Profile, and History
New York, New York 10019
History of Time Warner Inc.
From its inception as the thinly capitalized passion of two young men in 1923 through its 1990 merger with Warner Communications Inc., Time Inc. has been a steady, guiding force in U.S. media. As the world's largest media concern, Time Warner's mandate is to expand its global reach and transfer more of its communications arts from print to electronic form. In the process, Time Warner is on its way to becoming the quintessential self-marketing media producer, due in large part to the cultivation of synergies between Time and Warner assets. By 1992 Time Warner claimed to be the world's leading creator and owner of creative software copyrights, and the only media and entertainment company to control 100 percent of its distribution.
The magazine that launched Time Inc. was conceived by Yale University sophomores Briton Hadden and Henry Robinson Luce during officers' training at South Carolina's Camp Jackson during World War I. "The paper," as they referred to it, was a dream they put on hold for three years, until February of 1922, when they resigned from their positions as reporters at the Baltimore News. Armed with $86,000 of borrowed capital, Haddon and Luce moved to New York and prepared to launch the weekly news magazine Time. The magazine's initial mandate eventually became that of the entire company: to keep the public informed. Haddon and Luce spent a year organizing investors, staff, and tradesmen and collecting criticism and advice. The first, 32-page, issue of Time was dated March 3, 1923. Haddon was Time's editor, Luce its business manager.
Just as impressive as Time's expansive editorial content was the duo's then-novel approach to marketing the publication, which included postcard inserts soliciting subscribers and circulation of lists of prominent charter subscribers. The magazine was developed by a lean staff, who doubled as clerks. Luce's and Hadden's own salaries were at subsistence level.
For its first year, Time prospered modestly. When Time was just over a year old, it had garnered 30,000 paid subscribers. On August 2, 1924, Luce and Hadden launched a second publication, the Saturday Review of Literature. Hadden, who served as editor, determined that everything printed had to be either directly attributable to a person or to the publication's own authority. Time's other early journalistic innovations included the use of historical background in stories.
In 1925 Luce insisted that Time's operations be moved to less-expensive facilities in Cleveland, Ohio--a move that Hadden and much of the publication's staff bitterly but unsuccessfully fought. Three years later, printing of the magazine was moved to the offices of the R. R. Donnelley company in Chicago, while Time's editorial office was moved back to New York. Hadden and Luce opted at the same time to switch titles and functions temporarily. Hadden became Time's business manager, overseeing the publication's daily operation, while Luce took command of Time's journalistic direction.
By 1928 Time Inc. posted a net profit, after taxes, of $125,788 on revenues of $1.3 million. Making Time a lucrative proposition had taken its toll on Hadden, however, who began the new year fighting off a streptococcus virus. Hadden died at the age of 31 on February 27, 1929, six years after the first issue of Time was put to press.
To protect the ownership of the company, Luce and other Time staffers and directors bought 2,828.5 of Hadden's 3,361 company shares at $360 a share. Hadden's family retained the remaining 532.5 shares. Within two years, Time Inc. stock peaked at $1,000 per share, and was split 20-to-1. In the meantime, Luce proposed to launch a new weekly magazine, Fortune, that would cater to business managers. With the Time Inc. board's approval, Luce set out to launch Fortune on the eve of the Great Depression. Fortune's first issue, in February of 1930, won satisfying acceptance among its targeted audience. In September 1931, however, Parker Lloyd-Smith, Fortune's mana-ging editor and codeveloper with Luce, committed suicide.
Also in 1931, Time was making its controversial transition to radio. Time Inc.'s "The March of Time" radio show featured re-enactments of historical events. The show, although popular, was a limited run promotion that some observers felt threatened Time's journalistic integrity. In 1935 the "March of Time" format reappeared, as a motion picture series of short subjects.
In April of 1932 Time Inc. acquired 75 percent of Architectural Forum. The company completed its acquisition of that professional journal for builders the following year. Luce's personal interest in architecture had spurred Time Inc.'s acquisition of Architectural Forum, which he reshaped throughout the 1930s to reflect the monumental socio-political events of the day. When New Deal legislation made $3.3 billion available for construction projects, Forum editors rushed to press an 18-page guide explaining how builders could benefit. Forum editor Howard Nyers cultivated young architects and, in 1938, Frank Lloyd Wright traveled to New York and produced an issue of Forum devoted to the subject of his works. Although Forum expanded its circulation from 5,500 to almost 40,000 in the decade following Time Inc.'s acquisition of the publication, it posted only one year of profit. Luce resisted Time Inc.'s attempts to sell the publication.
In 1936 Luce began to explore the concept of a weekly photo magazine. Time subsequently brought pictures to print with the publication of Life, which first appeared in November 1936.
In 1937 Luce created Time Inc.'s divisional system, the corporate organization that defined Time's operations for decades. Each of the company's three fundamental publications--Time, Fortune, and Life --was assigned its own publisher, managing editor, and advertising director. Although a huge circulation success, Life was proving to be a major financial drain due to the unexpectedly high cost of producing the magazine. The explosive popularity of Life propelled Time Inc. into increasing circulation, and thus costs, pushing losses on the picture magazine into the millions. Life continued to lose money, a total of about $5 million, until January 1939, when the magazine turned its first profit.
While Life continued to lose money for Time directly, it was also the indirect cause of losses for the company as some readers of Time switched to Life. In May of 1938 the company sought to relieve Time's circulation problems with the $25,000 acquisition of Literary Digest. About 60 percent of Literary Digest's 250,000 subscribers chose to transfer their subscriptions to Time, bolstering that magazine's sagging circulation.
In 1938, on the news that Time Inc.'s earnings were forecasted to drop a record $2 million, Time's publisher, Ralph Ingersoll, and Luce became embroiled in a fierce argument over the company's earnings. Ingersoll felt that Luce had diluted Time's earning potential by siphoning off Time's profits to start up and maintain publications such as Fortune and Architectural Forum. Ingersoll and Luce disagreed on editorial issues as well. In April of 1939 Ingersoll took a leave of absence from Time and did not return. Following Ingersoll's departure, Luce appointed himself Time's publisher and editor-in-chief.
Luce, who had strong ideas about how the tumultuous events in Europe that would lead to World War II should be reported, decided later in 1939 to devote more time to the editorial direction of Time Inc.'s magazines. Thus, in September of 1939, Luce resigned as president and CEO of Time Inc., remaining editor-in-chief, and chairman Roy E. Larsen was elected to the posts that Luce had vacated. Like most other key Time Inc. executives, Larsen was younger than many of his industry peers.
Time enjoyed steady success during World War II, as its national magazines chronicled the war. Time Inc.'s publications dominated the newsstands. In 1941 Time's circulation was rapidly approaching one million. Life had weekly sales of 3.3 million magazines, with a significant additional readership. Fortune had a small but influential group of 160,000 readers. The organization of 2,500 full-time employees would grow to 5,500 over the next two decades of continued expansion.
Time assumed a prominent role reporting most major news events, including World War II and the McCarthy era. There were times when the magazine clashed openly with major decision makers; President Franklin Roosevelt and Time criticized one another openly during the war. During the winter of 1941-1942, also in the name of covering the war, Luce and his wife, Clare Boothe Luce, reported on the state of world affairs from England and the Far East, respectively; he for Time, she for Life.
In the fall of 1942 Clare Boothe Luce was elected to Congress as a representative of the Connecticut district that her stepfather, Dr. Albert E. Austin, had served from 1938 to 1940. Her position in national politics raised the dilemma of how Time Inc.'s magazines should cover the wife of their editor-in-chief. Eventually, Luce called for a blackout on the coverage of his wife in all of Time's magazines.
In 1945 Time redirected the energies of its pool of wartime correspondents and photographers, organizing them into an international reporting operation under the command of C. D. Jackson. Luce simultaneously redefined the job of publisher of Time and appointed James A. Linen III to that position. Linen was among the first of a generation of younger managers who came up through Time's editorial and sales ranks. Edward K. Thompson came up through the ranks to serve as managing editor of Life beginning in 1949.
Given more of a free hand than his predecessors, Thompson dismantled the periodical's divisional structure and launched the publication on its most successful decade. Soon afterward, the financially troubled Fortune was the subject of what Time Inc. executives referred to as a "re-think." Also in the postwar years, Luce adapted to technological advances that helped offset increases in the price of materials and wages. Despite reporting a ten-percent operating profit on a record high $120 million in revenues in 1947, Luce, ever the conservative manager, abandoned several projects, including the construction of a New York skyscraper, due to the cost.
Arguably, Time Inc.'s most important and lucrative long-term decision to diversify was the launch of Sports Illustrated in 1954. Sports in the United States then still tended to be seasonal, and sports marketing was relatively primitive. Despite the fact that Sports Illustrated did not turn its first profit for a decade, the magazine eventually became very profitable.
During the mid-1950s Time undertook to widen the appeal of longtime money-loser Architectural Forum. Although the company was successful in boosting circulation, the magazine continued to run at a loss. Forum was spun off to an existing nonprofit group in 1964. House & Home, a magazine Time Inc. had formed to complement Forum in 1952, was sold to McGraw-Hill in 1964 as well. In 1953 Time launched Life en Español, a companion to Life International. Life en Español was suspended in 1969, however, and Life International was eliminated the following year.
The post-war years also marked Time Inc.'s expansion into media other than print. In 1952 the company founded its Time-Life Broadcast subsidiary with a 50 percent interest in KOB and KOB-TV in Albuquerque, New Mexico. In a second bid for broadcast experience, Time acquired a majority interest in the Intermountain Broadcasting and Television Corporation of Salt Lake City, Utah, operators of the KDYL stations. Time acquired its first wholly owned and operated stations, KLZ-AM and KLZ-TV of Denver, Colorado, in 1954. Three years later, Time acquired the Bitner television and radio properties--WOOD in Grand Rapids, Michigan; WFBM in Indianapolis, Indiana; and WTCN in Minneapolis, Minnesota, for the then-record sum of $16 million. Eventually, Time sold its Salt Lake City and Minneapolis broadcast properties to acquire KOGO-TV in San Diego, California, and KERO-TV in Bakersfield, California.
In 1959, after recovering from his first heart attack, Luce began preparations to pass the title of editor-in-chief-to Hedley Donovan, who was then managing editor of Fortune. Although Luce did not finally surrender the title until 1964, in 1959 he set in motion a management reorganization that put a new generation of Time Inc. managers in control. The company prospered under its new leadership. From 1960 to 1964, net revenues jumped from $287.12 million to $412.51 million, and net income increased from $9.30 million to $26.53 million, due to sales expansion and tighter cost controls. This profitability had been enhanced by the 1961 creation of Time-Life Books, an extension of Time's already profitable book publishing operation. Time's new management initiated explosive growth. Time continued to expand overseas offices throughout the decade, and in 1962 Time acquired textbook publisher Silver Burdett Co. in a $6 million stock swap. In 1964 Hedley Donovan was appointed to succeed Luce as editor-in-chief. In January of 1968 Time bought book publisher Little, Brown and Company for $17 million worth of Time stock. In 1966 Time initiated the General Learning Corporation, a joint venture with General Electric designed to sell a variety of learning tools; it was sold in 1974 at a loss.
Luce died on February 28, 1967. Even after his death, Luce's influence was felt at the company where separation of editorial and publishing interests was considered sacrosanct. Time's new leadership continued to guide the company profitably. In October 1970 the company announced plans to sell its broadcast properties to concentrate solely on cable television--a segment of the electronic media in which it already had amassed a considerable interest. By that time, Time had created East Texas Pulp and Paper Company, a joint enterprise with the Houston Oil Company, as its own source of paper. It also had erected a new Manhattan skyscraper at Rockefeller Center and successfully fended off competition from magazines such as Look and the Saturday Evening Post. In December 1972, however, Time announced it would cease publication of Life, which had faced soaring production costs, shrinking advertising sales and circulation, and postal rate increases. Life had lost $30 million between 1969 and 1972.
Throughout the 1960s and 1970s Time Inc. acquired a number of large and small enterprises in a continuing bid to diversify. Perhaps Time Inc.'s most costly and controversial acquisition at the time was its $129 million merger in 1973 with Temple Industries, Inc., a producer of lumber, plywood, and other building materials. Time took another step toward diversification in 1978 when it acquired Inland Container Corporation for $272 million.
In November of 1972 Time's J. Richard Munro, who eventually became Time Inc.'s chairman and chief executive officer, launched the pay-TV service Home Box Office (HBO) through the Time subsidiary Sterling Information Services, Ltd. HBO was one of Time's few commercial successes. Even after Time-Life Films was phased out in the early 1980s, HBO continued to finance major films, as well as invest in a movie distribution company and join Columbia Pictures and CBS in a studio venture.
HBO, coupled with two new publications--Money, launched in 1972, and People, launched in 1974--emerged as Time's new profit centers during the 1970s and 1980s. Nicholas J. Nicholas, Jr., who had risen through Time's corporate finance ranks and would later become its president and chief operating officer in 1986, recommended that Time divest its sluggish forest-products interests to concentrate on its video and print businesses, where future growth would be focused. Consequently, Temple-Inland was formed and spun off to Time shareholders in 1983. Time Inc. was left to focus on its seven magazines and their foreign-language equivalents; American Television and Communications Corporation, one of the country's largest cable companies, which is 82 percent-owned by Time Inc.; HBO and Cinemax (begun in 1980), two of the country's most successful pay TV services; and Time-Life Books.
Time added four new magazine titles in 1988, bringing its total number of published magazines to 24. It paid $185 million for a 50-percent interest in Whittle Communications, which provided satellite public affairs and news programming directly to classrooms. It was involved in international publishing ventures with foreign-based companies such as Hachette, Arnoldo Mondadori, and Seibu. Time's growth continued through the 1980s, culminating in the 1989 agreement to acquire Warner Communications Inc. for $14 billion, creating the world's largest entertainment and media concern. Time itself had become an attractive takeover target in an era of unprecedented leveraging and hostile bids, and thus had accepted Warner's invitation to merge.
The proposed Time-Warner combination was nearly thwarted by an unsolicited takeover bid for Time from Paramount of $175 cash per share, or $10.7 billion. The raid proved unsuccessful and cost Paramount $80 million. It also required Time to rework the logistics of its merger with Warner, burdening itself with $12 billion in debt. Time and Warner engaged in a swap of each other's stock early in the merger process in an additional defensive move.
Although strategically driven, not all of Time Inc.'s board members, especially Henry Luce III and Arthur Temple, were convinced that the merger was a wise course of action. Munro and Nicholas engaged in one-on-one consultation with each director to secure unanimous approval for the January 1990 transaction. The merger created a vertically integrated company.
At the first annual shareholders meeting of Time Warner, in the spring of 1990, Munro did as expected and announced that he would step down as co-chairman and chief executive officer of Time Warner Inc., but would remain chairman of the board's executive committee. Nicholas assumed the co-chief executive title while retaining the job of president. The merger agreement called for Nicholas to succeed Time Warner chairman and co-chief executive Steven Ross as the company's sole chief executive in mid-1994.
Time Warner claimed that all of its media and entertainment franchises ranked first or second in their categories. Time Warner's cable pay-television services, HBO and Cinemax, posted record performances. Pay-TV revenues from HBO and programming continued to grow, increasing 7.6 percent in 1990. Time combined its Time-Life Books and Book-of-the-Month-Club operations. Its American Television and Communications Corporation achieved record revenues and earnings on four million basic cable and three million premium subscriptions. Time also sold off Scott, Foresman, its textbook publisher, in December 1989 for $455 million because it no longer fit into its core businesses.
In its first year as a merged entity, Time Warner created Time Warner Publishing to oversee all of the company's book and magazine publishing activities, which accounted for $3 billion of its annual combined revenues. The new unit launched such new magazines as Martha Stewart Living and acquired the 50-percent interest in Health that it did not already own. Time Warner made a small effort to begin tapping the synergies of their combined assets when, in February of 1990, Time launched Entertainment Weekly using Warner's tape and book subscription lists. Time Warner revealed plans to open a nationwide chain of retail stores, similar to those operated by The Walt Disney Company, to sell merchandise featuring Bugs Bunny and other Warner Brothers Looney Tunes characters, as well as other products related to the company's vast operations. Time Warner also began taking a more creative approach to cross marketing its products and publications. For instance, in November 1990 Time Warner signed an unprecedented agreement with Chrysler for advertising in seven of Time Warner's national magazines and its cable group, and to make product placements in selected Warner Brothers film releases.
To the surprise of many, within months of the merger, the highly leveraged Time Warner announced the acquisition of Lane Publishing Company, publisher of Sunset magazine, for $225 million--$80 million in cash and $145 million in preferred stock. In another surprising move, in April 1990 Time Warner offered to provide a $650 million bridge loan to Pathe Communications Company to help with its $1.4 billion acquisition of MGM/UA Communications Company in exchange for certain valuable MGM/UA assets, including the United Artists film library. However, Time Warner withdrew its offer, and Time Warner and Pathe eventually sued each other over the aborted agreement. In October of that year the companies opted to settle their differences out of court when Time Warner agreed to pay $125 million for the international home video rights to 1,700 titles in the United Artists and Pathe/Cannon film libraries for more than 12 years.
By late 1990, Time Warner was struggling to find ways to establish joint ventures with various international concerns. Such ventures would bring much needed new development funds into its operations while offering special expertise and foreign business connections. Management continued to promise shareholders a reduction and financial restructuring of Time Warner's $11.2 billion debt. With more than $2.5 billion in bank loans due in early 1993, one option the company had was to sell its partial stakes in businesses such as Atari, Hasbro, the Franklin Mint, Six Flags Corporation, the record clubs of Columbia House, Cineamerica theaters, and Turner Broadcasting System Inc. A weak economy in 1990 kept Time Warner from resorting to such a move as the sluggish marketplace made it impossible for them to command a premium for its business interests. Yet by the end of 1991, Time Warner's 22-percent ownership of Turner Broadcasting and its 14-percent ownership of Hasbro represented $1.6 billion of market value.
In the meantime, the company worked diligently to keep Wall Street at bay. Although initially supportive of the transaction, some Wall Street analysts soured on Time Warner six months after the merger. In May 1991 Time Warner announced an unorthodox rights offering. The company planned to issue 34.5 million shares at between $63 and $105 per share, priced according to the number of shareholders who participated. In July, following vigorous objections from the Securities and Exchange Commission and many powerful investors, Time Warner replaced the plan with a traditional $80-per-share offering. Citing the unexpected softness of media advertising, tight financing, and an uncertain economy, Time Warner officials conceded it would take them longer than expected to arrange the joint ventures and limited equity placements that would launch the merged company back into a development mode.
As a result of the $2.6 billion raised by the rights offering, which was completed in early August 1991, Time Warner's debt was significantly reduced to $8.7 billion at year's end. It helped demonstrate to potential partners that newly formed alliances would be based on long-term strategic goals.
By October 1991 Time Warner had formed a strategic alliance at the subsidiary level with its first two partners, Toshiba Corporation and C. Itoh & Co. Ltd., who agreed to invest $500 million each for a 6.25 percent stake. The agreement maintained American ownership and control. It excluded Time Warner's publishing, journalism, music, and certain other assets and called for a limited partnership, Time Warner Entertainment, which included Warner Bros. Pictures, Home Box Office, and Time Warner Cable. It was capitalized at $20 billion.
Time Inc. boasted 40 percent of the magazine industry's 1991 profits and one-third of its revenues while taking a one-time $60-million charge to cover restructuring. According to the Publisher's Information Bureau, People, Sports Illustrated, and Time weeklies led in 1991 advertising revenues. Advertising clients were offered one-stop shopping through a cross-media package that united Time Inc.'s magazine franchises with Time Warner's video, cable, programming, and book entities. Book division profits were down in 1991, despite the presence of Warner Books' best seller Scarlett and Little, Brown's Waldo series.
More than half of the Warner Music Group's 1991 revenues came from outside the United States. In February the group bought 50 percent of Columbia House, the music and video club operator, and invested in label start-ups. Laser-disc manufacturing was added.
Warner Bros. Feature Film Division finished first in 1991 domestic box-office share. A series of partnerships were created to broaden the range of motion-picture products and international distribution. In January 1991 Warner Bros. and three European companies signed a $600-million financing, production, and distribution deal.
A new operating group, Time Warner Telecommunications, was formed in late 1991 to take advantage of the next generation of mobile voice telephone services. Quantum, a 150-channel, interactive cable service, was launched in Queens, New York, in December of 1991. Coaxial and fiber-optic cable was joined to create a two-way digital pathway into homes that allowed viewers to control what they saw and when they saw it.
Time Warner Cable had been comprised of wholly owned Warner Cable and 82-percent-owned American Television and Communications Corp. In February 1992, to help form Time Warner Entertainment, Time Warner signed a merger agreement to purchase the 18 percent of American Television and Communications that previously had been publicly owned. Viacom International Inc., a Time Warner competitor, ended its three-year, $2.4 billion antitrust lawsuit against the media giant in mid-1992. Time Warner reached a settlement with Viacom that called for greater cooperation between the two companies.
For 1991, earnings before operating results were $2.26 billion on revenues of $12.02 billion. A net loss of $99 million for the year marked an improvement from the $227 million in losses posted in 1990. In April 1992 a $1.1 billion long-term senior debt-financing lengthened the maturity of Time Warner debt.
Principal Subsidiaries: American Family Publishers; American Television and Communications Corporation; Astroworld/Waterworld; Book of the Month Club; cable system joint ventures (50%); Cinamerica Theatres, L.P. (50%); Comedy Partners (50%); E! Entertainment Television, Inc. (44%); Hankook Ilbo Time-Life Ltd; Home Box Office Inc.; Ivy Hill Corporation; Little, Brown & Co (Canada) Ltd; Little, Brown & Co; MacDonald & Co. (Publishers) Ltd; President Inc.; Six Flags Corporation (50%); Six Flags Great Adventure; Six Flags Great America Inc.; Six Flags Magic Mountain Inc.; Six Flags Over Georgia; Six Flags Over Mid-America Inc.; Six Flags Over Texas; The Columbia House Company partnerships (50%); The Time Inc Magazine Co.; The Time Warner Cable Group; Time Canada Ltd.; Time Life International do Brazil Ltda; Time Publishing Ventures Inc.; Time Warner Enterprises; Time Warner Publishing Inc.; Time Warner Trade Publishing; Time-Life Books BV; Time-Life Inc.; Time-Life International BV; Time-Life International de Mexico SA de CV; Time-Life International GmbH; Time-Life International Ltd.; Time-Life International SA; Time-Life International SrL; Time-Life Libraries Inc.; Turner Broadcasting Systems, Inc. (22%); Warner Cable; Warner Communications Inc.; Warner Music Group Inc.; Warner Music International (Europe) Ltd.; Warner Publishing Inc.; Warner Special Products; Warner/Chappell Music Inc.; WEA Corp.; WEA Intl Inc.; WEA Manufacturing; Whittle Communications L.P. (37%).
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