In the original structuring of the deal, Tele-Communications Inc., the nation's largest operator of cable TV systems and a major TBS stockholder, was to get 9% of Time Warner. Those were going to be shares placed in a trust to be voted by Time Warner Chairman Gerald Levin.
In the agreement with the FTC, TCI has agreed that its Time Warner shares will be a permanently non-voting stake, according to a Time Warner insider. John Malone, TCI's president and CEO, told Advertising Age a few months ago that making the shares non-voting was an option "written into the original deal with Time Warner. We anticipated that the FTC might want that."
Also, as previously reported by Advertising Age, Time Warner agreed not to discriminate against other programmers when buying programming for Time Warner Cable, the nation's second largest cable operator. Time Warner Cable is reportedly on the verge of a major deal to carry News Corp.'s upcoming all-news channel. By purchasing TBS, Time Warner also becomes the sole owner of CNN.
The third major deal-point with the FTC, the insider said, was that TCI agreed to give up a preferential 20-year deal it had made with Time Warner to carry a number of TBS services on TCI cable systems.
Following is a conversation Advertising Age had with Mr. Malone in January about this last issue, wherein he said the agreement to carry the TBS services was actually made to satisfy the concerns of Mr. Levin.
John Malone: All [the long-term carriage deal provides] is an agreement that we will continue to carry the Turner services pretty much as we carry them now at a price that will be determined by the market in the future.
AA: As we understand it, your deal is that if the market pays X for the Turner services, then you get a discount to that market rate.
Mr. Malone: Yeah. But it's roughly the same percentage discount that we get now, and right now we have the right to say no on any increases. In other words, right now, we sign a five-year deal and it says if we have x, y or z million customers, then we pay, instead of 25 cents [per subscriber], 22 cents. Or whatever. And frankly, Jerry Levin wanted this deal more than we did. He wanted to be sure that TCI would continue to carry these channels and not give him a real hard time on pricing.
AA: So what is in the Time Warner/TBS deal for TCI? You're giving up a powerful board position with veto power.
Mr. Malone: You have to look at it purely as a financial transaction. As a financial transaction what we're doing is converting, on a tax efficient basis, from our Turner holding, at one price, into Time Warner at a favorable exchange ratio. We're trading 15 multiple Turner stock for 10 multiple Time Warner stock. And we just happen to think that Time Warner plus Turner is a very good investment. This is a way for us to change from one form of investing to another form, in a way that we think improves the long-term economics. People have thought that we have more influence over Turner than we really have. Sitting on his board and having certain special voting rights hasn't done a whole bunch for us financially. I think it's helped Ted more than it's helped us, because we've been able to keep Ted out of trouble.