Time Warner Inc. and Ted Turner's Turner Broadcasting System agreed yesterday to join forces in a $7.5 billion merger, the latest in a string that is transforming ownership and management of the media and entertainment industries.

As the largest media company in the world, Time Warner-Turner would jointly shape images and information that touch virtually every American and a growing portion of the world: news from Cable News Network and Time magazine; movies and TV shows from Warner Bros. and two Turner-owned studios; animated cartoons; and the cable systems and cable networks that deliver them.

If completed, the Time Warner-Turner union would be the third huge merger in seven weeks, following Walt Disney Co.'s $19 billion takeover of Capital Cities/ABC Inc. and Westinghouse Electric Corp.'s $5.4 billion buyout of CBS Inc. this summer.

The Time Warner and Turner merger is arguably the most complex and far-reaching of all of the summer's deals. It brings not just the two companies into alliance, but involves three other big telecommunications firms that now own chunks of TBS and Time Warner.

These include Tele-Communications Inc. (TCI), Time Warner's only larger rival in the cable business and holder of 21 percent of Turner's stock; US West Corp., a Denver-based regional phone company that has a $2.5 billion investment in a Time Warner partnership; and Seagram Co., the new owner of the MCA entertainment conglomerate that also owns almost 15 percent of Time Warner.

Yesterday, the deal already was being challenged. US West filed suit to block it on grounds of breach of contract, while two consumer organizations argued to the Justice Department that it would concentrate an already concentrated industry and raise prices.

"We fear that . . . {the linked ownership} will thwart the development and expansion of widespread communications competition, and will lead to higher cable and telephone prices," the Consumers Union and Consumer Federation of America said in a joint letter to Anne K. Bingaman, the Justice Department's top antitrust attorney.

Time Warner Chairman Gerald M. Levin said yesterday that cable TV rates would not rise "irresponsibly" as a result of the merger, nor would the deal harm the large and growing telecommunications market.

Because of this chain of overlapping ownership, antitrust regulators in Washington are likely to look closely at how this merger affects not only the marketplace but the marketplace of ideas, industry analysts said.

Officials of the Federal Trade Commission and the Justice Department -- the two overseers of antitrust law -- will meet next week to decide which agency will review the merger.

"We have to ask ourselves not just if it passes muster in an economic antitrust case but if it passes muster in First Amendment terms," said a senior official, who asked to remain anonymous. "It may fall on the safe side of the line in the market, but {the government} might challenge it" if it presents too much control over public opinion and speech.

A Time Warner executive said yesterday his company did not expect major problems from Washington.

Investors appeared to like the deal. Time Warner stock rose 87 1/2 cents to close at $40.62 1/2. Turner A stock was up 12 1/2 cents to close at $28.87 1/2, while TCI's was up 12 1/2 cents to close at $18.75.

Levin and Turner, who would become vice chairman mof Time Warner, hailed the companies' agreement in New York yesterday with much the same rhetoric used by executives who crafted the earlier deals. The addition of Turner's programming, they said, would complement Time Warner's existing strengths in production and distribution.

Some analysts questioned that logic. "I'm not anti-merger," said Eli Noam, a Columbia University professor of finance and economics, "but these are basically old-fashioned empire-building deals," driven more by ego than strategic foresight.

"Hollywood is not a factory," he added. "It's a place where reputation, stars, personalities and creativity play important roles. These are things that can't always be controlled."

Turner and Levin appeared relieved, rather than exultant, after weeks of tough negotiations with TCI's powerful chief, John C. Malone, whose company's stake in Turner gave it effective veto power over a deal.

With his wife, Jane Fonda, sitting in attendance at a press conference in New York, Turner noted that his company has long been an underdog among established media giants. During the past 25 years, the flamboyant, outspoken Turner transformed his ownership of a small Atlanta TV station into an international empire that now includes six cable networks, the Atlanta Braves baseball and Atlanta Hawks basketball teams and the Hanna-Barbera cartoon studio.

"You only live once," Turner said, "and I want to feel like I have some muscle on my bones."

Levin broached the merger to Turner just after news of the Disney-ABC deal broke in early August. Traveling to Turner's ranch in Montana to discuss his proposal, Levin recalled that he was picked up at the airport by Fonda.

"I hope you're not going to make Ted upset," Fonda told him, according to Levin. "I said, No, I think he's going to love this.' " By the time dessert was served that night, Turner agreed to the outlines of a merger, Levin said.

Turner and Levin are longtime associates; Time Warner has owned about 18 percent of TBS since 1987, when the cable industry bailed out a faltering TBS.

Turner's personal stock holdings in TBS would be worth about $2.3 billion on paper once TBS shareholders exchanged each TBS share for three-quarters of a share in Time Warner. TCI's rate will be eight-tenths of a share, one of several concessions made to Malone for his agreement to give up his veto over TBS's affairs.

Turner himself would end up owning 10 percent of Time Warner, and TCI would hold 9 percent, although about half of this stake would be placed in a voting trust administered by Levin to satisfy federal rules limiting concentration in the cable TV business. Between them, TCI and Time Warner serve about 42 percent of all households with cable.

Not all investors are happy with the deal. US West, which owns part of a partnership with Time Warner, went to court in Delaware yesterday seeking an injunction to block the merger.

US West has contended for weeks that Time Warner's discussions with Turner breach Time Warner's obligations to its partnership with US West, known as Time Warner Entertainment (TWE). TWE owns Time Warner's cable, HBO and Warner Bros. divisions, and US West said owning Turner now presents Time Warner executives with a conflict of interest.

Levin said yesterday that Time Warner was not legally obligated to seek US West's blessing for the Turner merger, and analysts were unsure what effect the lawsuit would have on completion of the deal. Many predicted that Time Warner would settle by compensating US West in some fashion. The dispute points up the complexity of managing so diverse an enterprise as Time Warner. That job will fall to Levin, the former rabbinical student who climbed up through Time Inc.'s video division and is credited with making HBO a success by distributing it via satellite in the mid-1970s. He emerged on top after the boardroom shuffling that followed Time Inc.'s merger with Warner Communications in 1989.

Critics of the company say Levin will have a hard time keeping the company on course -- and his job intact -- with a board that will now include Turner, and with Malone a major shareholder.

And another potential challenger for Levin: Edgar Bronfman Jr., chief executive of Time Warner shareholder Seagram Co. Bronfman hasn't commented publicly on the deal, but analysts believe that he is upset with the terms. CAPTION: PLAYERS IN THE DEAL

A combined Time Warner-Turner company would have had revenue of just over $18.7 billion last year. Here is what each brings to the proposed merger. Time Warner * Headquarters: New York * Chairman and CEO: Gerald M. Levin * Operations include: Publishing: Time, People, Sports Illustrated, Fortune and other magazines; Book-of-the-Month Club; Little, Brown and Co. and Warner Books Music: Warner Bros. Records, Atlantic Recording Corp., Elektra Entertainment Programming: Warner Bros. films; Warner Bros. Television; WB television network. Cable: Nation's second-largest cable TV system group with about 11 million subscribers. Owns 18 percent stake in Turner Broadcasting System. * 1994 earnings: Lost $91 million * 1994 revenue: $15.91 billion TURNER BROADCASTING * Headquarters: Atlanta * Chairman and president: Ted Turner (will become vice chairman of Time Warner * Operations include: * Cable Networks: TBS Superstation, Cable News Network, CNN Headline News, CNN International, Cartoon Network, Turner Classic Movies, Turner Network Television. Entertainment: Castle Rock Entertainment, Hanna-Barbera Cartoons Inc., New Line Cinema, Turner Entertainment Co. Sports: Atlanta Hawks basketball, Atlanta Braves baseball, Goodwill Games, World Championship Wrestling * 1994 earnings: $21 million * 1994 revenue: $2.81 billion Vested interests * US West: Holds a $2.5 billion stake in Time Warner's entertainment division and is challenging the merger, saying it presents a conflict of interest. * Tele-Communications Inc.: Owns 21 percent of Turner Broadcasting. CEO John Malone won several key concessions in exchange for his approval of the deal. SOURCE: News reports CAPTION: Ted Turner,left, and Time Warner Chairman Gerald Levin celebrate their deal. CAPTION: LEVIN CAPTION: TURNER