A MARRIAGE IS BLESSED

For 10 months the three men circled like prizefighters, lovers or vultures. Then last week the Federal Trade Commission finally blessed a compromise version of Time Warner’s $6.54 billion acquisition of Turner Broadcasting. And so, early this fall, a deal is expected to be cut between Time Warner chairman Gerald M. Levin, TBS founder Ted Turner and Tele-Communications Inc. president John Malone: the unsteady father, the unruly son and the unholy ghost.

The new merger will restore Time Warner’s mantle as the world’s largest media company. Time Warner will be an $11.5 billion behemoth controlling a vast array of content, including Warner Bros. movies and TV shows, Warner Music, cable channels (such as HBO) and magazines (like this one), as well as Turner’s cable channels (including CNN, TBS and the Cartoon Network) and mini-movie studios. As the country’s second largest cable provider, Time Warner also owns the delivery truck for much of this content.

It’s the FTC’s job, of course, to be suspicious of precisely the sort of vertical integration Time Warner hopes to achieve. The commission was particularly obsessed by TCI chieftain Malone, who controls 22% of TBS and therefore wields veto power over its acquisition. Together, TCI and Time Warner control 40% of the U.S. cable market, and the FTC dearly wanted to limit Malone’s influence. In response, the infamously brilliant strategist, not a man renowned for his negotiating generosity, clinched the deal by suggesting the creation of a spinoff company comprising up to 14.9% of Time Warner shares–a company that he would not control.

What’s in it for him? Malone is said to be eager to cash out his Turner stake, possibly even ready to sell TCI outright to News Corp. chairman Rupert Murdoch, ever ravenous for new distribution lines. Just last week Murdoch buffed up his portfolio with a $2.5 billion purchase of the 10-affiliate-strong New World Communications Group, and there could be a tidy little Turner windfall awaiting him too. The FTC deal requires Time Warner to carry a second news channel on its systems to complement CNN; don’t be surprised to find the infant Fox News Channel, and not the more formidable MSNBC, in your cable listings sometime next year.

As for Ted Turner, the merger liberates his lofty ambition from the shackles of cash-strapped circumstance. After years spent as a relative small-timer, the mercurial entrepreneur finds himself vice chairman of Time Warner, at the center of the world’s largest programming engine.

Time Warner CEO Levin, meanwhile, having pulled off his dream deal, now has a firmer grip on his job, which had been considered tenuous while the merger was pending. Levin’s reign has been marked by corporate turmoil, chaos in the Warner Music division and slower than promised reduction of Time Warner’s $15 billion debt. The acquisition increases that figure to $17.2 billion, but increased cash flow will ease the debt service. Now Levin has to prove that his strategic vision can generate returns for the shareholders, who, since he took over in January 1993, have watched Time Warner’s stock rise a mere 11.7% while the Dow rocketed up 67%.

Levin’s grand theory–one shared by his megamedia peers–is that in the coming radically deregulated era, production married to distribution will allow a company to create, seamlessly, new products for the digital age. As the dial evolves into hundreds of channels and on-demand services, the cable business has regressed to brutal trench warfare over ever slimmer slivers of market share; the game is to control maximum channels in order to ensure a sufficient outlet for ever growing streams of new and recycled programming. Thus Disney buys Capital Cities/ABC; Viacom buys Paramount and launches UPN; and so on through the merger-mad ’90s. “The best way to beat back competition,” says Gary Arlen, founder of the research firm Arlen Communications, based in Bethesda, Maryland, “is to have your own content and make sure your vertical integration gets the FTC’s approval.” For Levin, it’s so far, so good.

–Reported by John F. Dickerson/ Washington and Stacy Perman/New York