But as Levin begins his third year at the helm, the picture isn’t as cheery as it seems. Levin, who declined to be interviewed. has been trying to focus attention on sexy new ventures like interactive TV, studio stores and an upstart TV network. But Wall Street is more interested in and concerned about his continuing appetite for cable systems. Many analysts frown on cable because regulators have forced rate cuts and competition looms from the telephone companies. As a result, Time Warner’s stock is about $10 lower than its peak over the past year.
Now, in what may be his most crucial year yet. Levin must prove that his big bet on cable can produce a big payoff. A veteran of the former Time Inc., Levin helped negotiate its merger in 1989 with Warner Communications, headed by the late Steve Ross. The deal created an entertainment and cable giant that includes HBO, the Warner Bros. studio. Warner music and a magazine empire. But Ross’s death left Levin presiding over a company bogged down with debt. And he has confronted a stream of negative head-lines triggered by everything from boardroom purges to the controversy over rap singer Ice-T’s “Cop Killer” recording.
Now firmly in charge of the company’s fortunes, Levin hopes he can strike gold by rapidly expanding Time Warner’s cable operations to offer phone service as well. As cable and phone lines are upgraded with fiber optics and other wizardry, each of those pipelines into the home will I be capable of delivering both phone and TV programming. The key is buying the delivery systems. Already the second-largest player in this game, behind John Malone’s Tele-Commiunications Inc., Time Warner bolstered its position in recent months with deals that increased its cable customers from 7.4 million to a total of 10 million. The deals also helped concentrate the company’s subscribers in and near big lines, which will allow it to offer phone calls efficiently.
Eventually, Levin wants the cable systems to provide interactive TV and other snazzy offerings. But a Time Warner experiment in providing such services in Orlando. Fla., is off to a slow start, so more conventional phone business will come first. And Time Warner figures the strategy has a better chance of working now that the Republicans control Congress; it’s betting the GOP will help cable get around state regulators who control entry into local phone markets.
But the acquisition binge has a downside. Time Warner is still stuck with a whopping $15 billion debt load, and each new cable deal now raises questions about how the company will pay it down. Standard & Poor’s has already said it might cut Time Warner’s debt rating, which would make borrowing to finance new business more expensive.
While the market as a whole remains wary of Time Warner, it still has the confidence of some important investors. Star money manager Mario Gabelli, who owns 3.5 million Time Warner shares, has purchased at least 300,000 since December. And Time Warner insiders say that Seagram’s Bronfmari, who has frightened the company by amassing a big stake since 1993. was an early advocate of bulking up on cable operations. A Seagram spokesman says only that Bronfman and Levin are meeting more frequently.
To help win skeptical investors over to his vision for the company, Levin is bringing a new president. Richard Parsons, aboard this week. Parsons, a highly regarded banker, will spend part of his time courting Wall Street. He’ll also figure out ways to simplify the company’s financial structure. In another move to scrub his image with Wall Street, Levin is gradually distancing himself from Oded (Ed) Aboodi, the longtime and controversial outside adviser whom Steve Ross brought to the company. Aboodi was investigated by the Securities and Exchange Commission for allegedly using inside information to trade in Time Warner’s shares. Last year he settled the case by paying a big fine, but didn’t admit any wrongdoing. Levin stuck with him then, but NEWSWEEK has learned that he has asked Aboodi to move his offices from Time Warner’s headquarters. Aboodi continues as an adviser.
Will Levin’s moves pay off? They well may, if Wall Street likes the returns in the cable business and sees that Parsons can handle the debt. But if Levin’s great cable gamble doesn’t produce results and the stock price continues to languish, big investors like Gabelli may start looking around for someone – perhaps Seagram’s Bronfman to bail them out.
