Warner Bros. becomes target of cost cutting.

The new, lean era that Ted Turner is bringing to Time Warner Inc. is descending on Burbank.

Film and TV studio Warner Bros., which has had a reputation for lavish spending despite its parent company's heavy debt load, is slashing annual budgets of some of its operating units by as much as 10 percent, according to a source inside the studio.

The source said that most of the cuts are expected to come through operating efficiencies rather than layoffs.

Warner Bros. spokeswoman Barbara Brogliatti acknowledged that certain budget cuts are being made, but noted that there would be no large-scale layoffs. She generally downplayed the significance of the cuts.

"One particular department may in fact have been asked to (make the 10-percent cut), but it doesn't mean everyone has," she said. "There is no overall company mandate to do that - which doesn't mean we're not under an operating efficiency review. We are, it's that time of year."

This year's production slate at the studio will be unaffected by any cuts, she added. The new cost-cutting efforts are mainly focused on identifying unnecessary expenses.

"People automatically associate this kind of thing with bodies (i.e. staff cuts), but it doesn't necessarily work that way in production," Brogliatti said. "There are layoffs every day here; I mean, it's a huge company. But nothing out of the ordinary is happening."

All divisions of Time Warner are under a companywide mandate to cut operating expenses from 3 to 5 percent over the next three years, as part of an effort to shore up its lagging stock price and pay down debt generated with its October 1996 acquisition of Turner Broadcasting System Inc.

"We have a corporation-wide cost management program going on right now, and it focuses on non-personnel-related staff cuts," said Time Warner spokesman Ed Adler. The record division layoffs were individual moves by the labels themselves and not part of a corporate mandate, he added.

Time Warner is laboring under a $17.5 billion debt load following its purchase of Turner Broadcasting, whose former chief Ted Turner - now Time Warner's vice chairman and largest stockholder - is said to be on a crusade to cut costs at the newly combined company.

Executive perks are said to be of particular concern to Turner, who directed the company to hire a management consulting firm last fall to probe for unnecessary expenses.

Former Time Warner Chairman Steve Ross, who died in 1992 after a long bout with prostate cancer, had a reputation for spending lavishly on expensive perks. Ross bought villas in Colorado and Acapulco that have been used to lure rock and film stars, as well as corporate executives, to the company.

Some of those extravagances, including at least three corporate aircraft, already have been sold. But few industry observers expect Warner Bros. ever to be operated in as austere a fashion as Turner's former divisions.

"(Ted Turner's) influence is certainly being felt, but you're not going to see (Warner Bros. heads Robert) Daly and (Terry) Semel cave in and turn the place into a little Turner operation," said research director Arthur Rockwell with Yaeger Capital Markets.

"This (extravagance) is all a reaction to the cult of Steve Ross, and you're not going to change that overnight. Nor should you, for that matter," he said.

Analysts expect Time Warner to pay off much of its debt by selling off the company's various cable television holdings. In January, Time Warner sold off its 59 percent stake in L.A.-based E! Entertainment Television network for $312 million.

The acquisition of Turner Broadcasting has also led to the shuttering of some divisions - such as Turner Pictures, formerly headquartered in Century City.

More cuts are expected.

On March 5, Time Warner's two Burbank-based record labels, Warner Bros. Records and Reprise Records., eliminated about 90 jobs, or 16 percent of their combined work force. That doesn't count the reported 24 staff positions the labels eliminated through attrition in the last six months.

Time Warner's local record labels are expected to cut underperforming bands from their rosters, in addition to the layoffs. Asked how the staff cuts are affecting business at the labels, Warner Bros. Records spokesman Bob Merlis quipped, "We still get an hour for lunch."

Two of Time Warner's other giant record labels, Elektra Entertainment and Atlantic Group (both based in New York), reportedly laid off more than 100 employees and cut dozens of artists last year.

Other local Time Warner divisions include production companies New Line Cinema Inc. and Castle Rock Entertainment, formerly parts of the Turner empire. Castle Rock is in the process of cutting staff, less because of the Time Warner mandate than because various redundant positions are being eliminated as it is assimilated into Warner Bros. as operating divisions.

"No one has asked us to simply take a percentage of manpower and cut it. We're just trying to restructure the company financially," said Castle Rock Chairman and Chief Executive Alan Horn, who declined to reveal how many positions have been or will be cut. Castle Rock, based in Beverly Hills, currently employs 150 workers, Horn said.

A New Line spokesman said there have been no staff cuts at the company in recent months, and none are planned.

It's unclear whether the budget cuts will affect Warner Bros.' plan to expand its Burbank studio facilities. Burbank city officials approved a 20-year master plan in 1995 that calls for Warner Bros. to build 3.3 million square feet of additional office and production space at its two studio lots on Warner Boulevard and Oak Street.

Officials with Warner's studio facilities and real estate divisions did not return calls from the Business Journal.

Anatomy of a Merger

Sept 12, 1996: Federal Trade Commission gives preliminary approval to the $7.5 billion acquisition of Turner Broadcasting Inc. by Time Warner Inc.

Oct 10, 1996: Shareholders from both companies approve the deal. About 1,000 employees from Turner's various divisions are laid off following the acquisition.

Nov. 14, 1996: Time Warner officials announce that Turner's film and distribution arm, Turner Pictures, will be closed.

Feb. 28, 1997: Time Warner officials send a memo to all operating divisions ordering 3 to 5 percent budget cuts over the next three years. Time Warner's stock price jumps heady $1.50 a share the next day.

March 5, 1997: Warner Bros. Records Chairman Russ Thyret tells staff at Warner Bros. and Reprise Records that 90 positions are being eliminated.