Warner Communications Inc.

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Warner Communications Inc.

75 Rockefeller Plaza
New York, New York 10019
U.S.A.
(212) 484-8000

Wholly owned subsidiary of Time Warner Inc.
Incorporated: 1923 as Warner Brothers
Employees: 15,000
Sales: $4.2 billion

The Warner brothers—Jack, Albert (Abe), Harry, and Sam—were sons of Polish immigrants who arrived in the United States in the late 19th century. Their father, Benjamin Warner, made a living in the United States as an itinerant merchant. The family eventually settled in Youngstown, Ohio, where Sam Warner got a job operating a movie projector at a nickelodeon. When the nickelodeon went out of business, Sam persuaded his father to buy the projector, and the family started a traveling show. The brothers soon rented space in New Castle, Pennsylvania and opened a theater—with chairs borrowed from a funeral parlor.

The Warners’ success in the theater business soon led them into producing and distributing motion pictures. With an ever-expanding base of operations, the men decided to establish a permanent headquarters in New York City. But they were unable to make as many films as they wanted because of a lack of space and the poor weather there, so they decided to move the company’s production facilities to Los Angeles. Harry was president and Abe was treasurer, while Jack and Sam assumed responsibility for running the studio in Burbank, California and making films. By 1917, the Warners were producing a string of slapstick comedies.

But Warner Brothers also earned a reputation for making films that confronted social and political problems. Two of its earliest releases were Open Your Eyes, a semidocumentary on syphilis made in 1919, and another called Why Girls Leave Home. Other movies were made in the same vein, and each of them increased the reputation of the Warner Brothers as moviemakers.

When Warner Brothers released The Jazz Singer in 1927, it made movie history. Though the film was not the very first to use dialogue, it has gone down in history as the first “talkie,” since it was the first talking film to reach a wide audience. Sam Warner had conceived the Vitaphone sound system used in the film, but he did not live to see the fruits of his labor; he died of a stroke 24 hours before The Jazz Singer premiered, but talkies were soon the rage across the country.

With Sam gone, Jack assumed complete control of the studio’s production facilities and put Warner Brothers at the forefront of the movie industry during Hollywood’s golden age, in the 1930s and 1940s. The company was one of the five big film studios of the time (along with MGM, 20th Century Fox, Paramount, and RKO) turning out some 50 movies a year for distribution it its own theaters.

By 1930, the company owned nearly a fourth of all the movie theaters in the United States. During the 1930s, revenues from films began to skyrocket as Warner Brothers introduced Rin-Tin-Tin and Bugs Bunny along with film biographies of prominent figures like Louis Pasteur and Florence Nightingale. Errol Flynn, too, became a household name during this time as a star in Warner movies like The Adventures of Robin Hood and Captain Blood.

Warner Brothers became known as the quintessential “factory” studio from the mid-1930s through the late 1940s. Remakes were an important part of the assembly line approach to the production and distribution of movies. Successful plots, characters, and incidents were used again and again, sometimes transposed from one genre to another—and sometimes not.

But despite this factory approach, many film historians maintain that Warner Brothers was the preeminent film studio in Hollywood during the 1940s. The company was showing some of the best movies ever made in its expanding chain of theaters. Humphrey Bogart classics like Casablanca, The Maltese Falcon, The Big Sleep, and The Treasure of the Sierra Madre were all Warner releases of the period. The company also maintained a prestigious stable of movie stars and directors, including Bette Davis, Edward G. Robinson, Olivia de Havilland, Claude Rains, John Barrymore, Lauren Bacall, James Cagney, Doris Day, Al Jolson, Frank Capra, John Huston, and Ernst Lubitsch.

The production of A Streetcar Named Desire in 1950 was a harbinger of the coming bad times for Warner. Neither Elia Kazan, the director, nor the stars, Vivien Leigh and Marlon Brando, were on standing contract with the company. Even worse, the photography director, the art director, the costume designer, and the composer were not Warner employees either. All were hired from outside the studio for that one film. As the assembly line, in which films were designed as vehicles for stars and executed by full-time employees, gave way in the 1950s to films crafted one by one, Warners began to suffer.

The company was affected not only by the rise of independent productions, but also by the advent of television and new postwar recreational patterns. Movie attendance dropped as the number of TVs in the United States rose dramatically. In addition, in 1949 a government antitrust action forced Warner Brothers, like all the other big film companies, to give up its theater chain. As a result, Warner suffered a severe financial and artistic decline throughout the 1950s.

Harry Warner died in July, 1958 at the age of 76; his death seemed to symbolize the final passing of Warner Brothers’ greatness. From that time onward, Jack ruled the company. But the company continued its downhill slide. In the early 1960s, Jack produced Whatever Happened to Baby Jane? starring Joan Crawford and Bette Davis, both former Warner stars, in what Michael Freeland described in The Warner Brothers as “a magnum opus of bitchiness.” Later, in 1966, Jack seemed to recapture some of the Warner Brothers’ knack for hit movies with Elizabeth Taylor and Richard Burton in Who’s Afraid of Virginia Woolf?

But in 1966, Jack decided it was time for him to leave the company. He sold all his shares in the company to Seven Arts Productions, Ltd., for $32 million. The new management asked him to stay on as an independent producer, and he was given the honorary title of vice chairman of the board. But Seven Arts was not very interested in producing new movies; it was more interested in the money that lay in selling the television rights to Warner’s movie library. Frustrated by his lack of control and saddened by the death of his brother Abe in 1967, Jack Warner left the company’s Burbank studios in 1969. He died in 1978.

By 1969, Seven Arts movie production had virtually come to a standstill. The single bright spot for the company during this time was the purchase of Atlantic Records for $17 million in stock. Atlantic’s creator and president, Ahmet Ertegun, was responsible for encouraging the proliferation of rhythm and blues in the mid-1950s with his recordings of LaVern Baker and Clyde McPhatter. These artists, in turn, influenced the development of rock and roll.

A short time later, Warner Brothers-Seven Arts was bought by Steven Ross. Ross had spent the late 1950s and 1960s assembling a conglomerate that included a funeral business, a parking lot operation, a car-rental agency, and a building-maintenance company. When he purchased National Cleaning Contractors, Ross decided to name his firm Kinney National Services, and so Kinney became the parent company of Warner Brothers. But by 1971 Ross had sold most of its holdings; that year he changed the company’s name to Warner Communications.

Under Ross’s direction, Warner’s fortunes were revived. Woodstock was the company’s first big hit in years, and was quickly followed by a popular John Wayne movie, Chisum. These films provided Ross with the money he needed to produce two of the box-office smashes of the 1970s: All the President’s Men and The Exorcist. Ross then initiated a diversification program of acquisitions in the entertainment industry, including a toy company, a cable-television business, record companies, a paperback-book publisher, and a magazine-distribution system. The company finished the 1970s with the two most successful movies of 1979, Superman and Every Which Way But Loose. By 1980, Warner’s revenues had reached $2 billion.

The good times, however, did not last long. Warner had purchased Atari, the video-game and computer firm, in 1976 for the bargain price of $28 million. By 1980 Atari’s revenues reached $900 million and provided Warner with a large percentage of its earnings. But the video-game market plummeted unexpectedly three years later. The resulting decline in Warner’s stock price prompted a takeover attempt by an Australian media tycoon Rupert Murdoch.

Ross appealed to Herbert J. Siegel, chairman of Chris-Craft Industries, for assistance in warding off Murdoch’s attempt. In 1983 Siegel agreed to buy a 19% share in Warner, and soon increased it to 29%. But as Siegel became a member of the board of directors as his holdings increased, he and Ross began to disagree about the timing of asset sales and about what Siegel regarded as excessive overhead. Nevertheless, Atari was sold in the summer of 1984 for $240 million and the publishing division, which produces DC Comics and Mad Magazine, reached $16 million in operating profits by the end of 1984. But the company was still hurting from the Atari episode: in 1983 and 1984 Warner lost over a billion dollars after taxes and debt piled up to $841 million.

For the next two years, Warner underwent an extensive restructuring program. By 1986, the result was clear—company revenues had climbed to $2.8 billion. The turnaround was sparked by box office successes such as The Color Purple and Pale Rider, the company’s five-year licensing pact with Time Inc.’s Home Box Office (which gave HBO exclusive rights to all new Warner films and some library titles), recorded-music operations (with releases from Madonna, Paul Simon, Van Halen, Genesis, and other artists), and its cable-TV business, America’s sixth largest.

But the Ross-Siegel feud had become a familiar story to shareholders and media analysts. By the late 1980s the two communicated primarily through their attorneys. A particularly heated disagreement came in February, 1987 when the Warner board of directors gave Steven Ross a ten-year contract with a potential salary-and-bonus package of about $14 million a year. A furious Herb Siegel argued that no CEO was worth that kind of money; Ross’s flamboyant style aggravated the cost-conscious Siegel as well. Rumors that Ross planned to take the company private to rid himself of Siegel, which had begun to circulate soon after the Ross-Siegel rift had first occurred, became more widespread. While the company continued its glorious comeback, however, the soured alliance remained intact.

In contrast to Ross’s flashiness, Warner Communications maintained some of the most conservative business practices in the media industry. Chief Financial Officer Bert Wasserman maintained tight control over Warner’s books. Unlike other large entertainment companies, Warner set aside reserves on its motion pictures prior to release. The company did not predict syndication on its television programs, but tried to recoup the entire cost of production through network licensing fees; if a program did achieve syndication, the resulting revenues transferred quickly to the bottom line. Wasserman’s conservative practices gave Warner a degree of breathing room to execute its high-risk operations.

In February, 1986 the company bought the other half of Warner Amex Cable from American Express for $393 million. Within two years, largely as a result of deregulation in the cable industry, the subsidiary was valued at between $2.5 billion and $3 billion; it had been an incredible buy. Box office hits such as Goonies, The Color Purple, National Lampoon’s European Vacation, and two of the Police Academy movies gave the motion picture unit a solid performance. The expansion of ancillary markets like syndication and cable also provided strong earnings.

The Warner Records unit became the biggest label in the United States in the mid-1980s with stars like Prince, Madonna, Genesis, and Van Halen bringing in huge sums. Although CBS Records was still number one in total sales worldwide, Warner had the “hottest” stars—a crucial factor in the image-conscious music business. Strong music sales continued throughout the later 1980s and in 1989 Warner’s record group became the world’s largest.

In 1988 Warner began negotiations that culminated in its January, 1989 purchase of Lorimar Telepictures for $600 million in stock. Itself the result of a 1986 merger, Lorimar Telepictures was one of Hollywood’s most successful producers of television programming. Lorimar had produced such hits as “The Waltons,” “Eight is Enough,” “Dallas,” and its spinoffs “Falcon Crest” and “Knots Landing,” among others, and Telepictures was responsible for the immensely popular ’^People’s Court,” and a number of animated programs, including “Thundercats.” After the 1986 merger of Lorimar and Telepictures, the new Lorimar Telepictures had gone on a buying spree, purchasing a diverse group of enterprises including ad agencies, publishing businesses, and TV stations. In 1986, the company bought the 44-acre lot of the legendary MGM Studios in Culver City, California from Ted Turner for $118 million and renamed the studio Lorimar Studios.

While the company’s television production unit was at the top of the industry, Lorimar’s film production and distribution unit was not as successful—it had yet to score a hit by 1989. Warner’s acquisition gave Lorimar Telepictures much needed liquidity. The deal was typical of the mergers sweeping Hollywood in the late 1980s as entertainment companies looked for strength in increased size.

Although the Lorimar acquisition was big, it paled in comparison to Warner’s next move. In March, 1989, Warner proposed a merger with the publishing and cable-TV giant Time Inc. to create the world’s largest media conglomerate, sending shock waves through the industry. The two companies planned at first to merge by swapping stock. But in June, 1989, Paramount Communications Inc. (formerly Gulf & Western) threw a wrench into these plans when it bid $10.7 billion ($175 per share) for Time. Time rejected the bid and agreed to purchase Warner for $14 billion ($70 per share). Paramount sweetened its bid to $200 per share and took Time to court to keep it from buying Warner. But in July, 1989 a Delaware court put an end to Paramount’s ambitions when it approved Time’s purchase of Warner.

The new Time Warner is a colossal entity. Once integrated, the new company will be the nation’s number-two cable TV operator in addition to controlling the largest pay service, HBO; the company’s publishing group will include magazines as diverse as Mad and Time in addition to several major book publishing concerns; and Warner Brothers Pictures and the Warner record group, both leaders in their fields.

As media companies throughout the world grow larger, the Time Warner merger offers the opportunity for secure growth; the companies’ operations are indeed complementary. As the largest media company in the United States and the world, Time Warner’s future looks bright.

Principal Subsidiaries

Warner Bros. Inc.; W Cinemas Holdings Inc.; WCI/GFI Inc.; Warner Bros. Records Inc.; WEA International Inc.; Warner Special Products Inc.; WEA Manufacturing Inc.; Warner/Chappell Music, Inc.; Warner Cable Operating Inc.; Warner Cable Communications Inc.; Warner Publishing Inc.; Warner Communications (UK) Holdings; Warner Communications Investors, Inc.; WCI Commercial Corp.; WCI Entertainment Pioneer Inc.; WCI—FMC Venture Corp.; WCI Theater Inc.; WNM Ventures Inc.