TOKYO (AP) _ Toshiba Corp. and Japan’s biggest trading company will invest $1 billion in Time Warner Inc., under a cautious deal announced Tuesday that will mix Japanese electronics and Hollywood creativity without changing owners.
The U.S. media and entertainment giant will spin off three of its five divisions to create a new $20 billion company, Time Warner Entertainment, in which Time Warner will retain an 87.5 percent share. Its magazine and record businesses will not be affected.
The new company represents a ″global partnership″ among Toshiba’s consumer electronics - particularly high-definition television, Time Warner entertainment properties such as Warner Bros. movies and HBO cable TV, and Itoh’s world distribution network and satellite business, officials said.
Toshiba and C. Itoh are each to contribute $500 million for a 12.5 percent stake in the new company and a combined 50 percent interest in a subsidiary Japanese distribution company, Time Warner Entertainment Japan.
″Unlike the 100 percent foreign acquisitions of companies like Columbia Pictures, MCA, CBS Records and RCA Records, our new alliance sets up a partnership structure at the subsidiary level that ... maintains our commitment to American ownership and control of Time Warner Inc.,″ Time Warner’s chairman, Steven J. Ross, said in a statement from New York.
The Japanese minority stake also reflects growing Japanese doubts about swallowing U.S. entertainment companies whole, as well as the wisdom of completely merging software and hardware companies, analysts said.
In the last few years, Sony and Matsushita, two other consumer electronics giants, have acquired major U.S. film studios, causing both financial troubles and political frictions for the companies.
Time Warner will retain operating and creative control over the joint venture. But it allows Toshiba to gain insights into the latest entertainment software, just as Time Warner wants to keep abreast of the latest in videocassette players and other equipment for its films and TV programming.
″A new wave of software will bring about a revolution in hardware innovation,″ Toshiba’s president, Joichi Aoi, told a news conference. Toshiba wanted the deal, he said, ″to find out the direction of the market in the future.″
C. Itoh, a $151 billion trading giant that began negotiations a year ago with Ross, is a major partner in one of Japan’s satellite consortia, JCSAT. That offers Toshiba a way of combining Time Warner’s film library with its high-definition technology on new satellite channels.
″At the moment, it’s going to be an uphill battle to get people to buy HDTV. There’s not enough programming,″ said Barry Dargan, an analyst at the Tokyo office of James Capel, an investment firm. ″The thing to do is provide your own programming. And the main means of broadcasting will be satellite.″
For Time Warner, which had sought the venture, it was a chance to further reduce the $8.9 billion in debt left from its 1989 merger and to pursue Ross’ goal of a global reach, including into the lucrative Pacific Rim.
″It means powerful partners with cash. At the moment, Time Warner is sitting on a (film) library that’s underutilized″ but could feed into Toshiba’s strategy to market HDTV, Dargan said.
Ross said, ″Our alliance ... is the most productive and constructive way for companies of the future to grow globally while each maintains its national identity.″
The three divisions to be spun off are film, cable and cable programming. One possible reason the record division, Warner Music Group, was not included is that Toshiba already has a partnership with record producer EMI.
Aoi and the president of C. Itoh, Minoru Murofushi, told reporters they never considered more than the minority stake, in contrast to Sony and Matsushita’s deals.
Sony, which paid $3.4 billion for Columbia Pictures in 1989, has spent millions on high-priced executives and new films but failed to produce a profit so far.
Matsushita’s $6.6 billion purchase last fall of MCA, owner of Universal Studios, also has faced problems, partly because it’s been a weak year for Hollywood moviemaking in general.
In addition, both Sony and Matsushita have been hampered by perceptions that mighty Japanese electronics corporations, having defeated their now largely defunct U.S. rivals, are trying to take over Hollywood, the creative dynamo that provides much of the material their TVs, CDs and VCRs play.
Toshiba, smaller than Sony and Matsushita with $30 billion in annual sales, ″is being a little more pragmatic,″ said Mike Jeremy, a consumer electronics analyst for Baring Securities in Tokyo.