NEW YORK — The theory du jour: By removing regulatory restraints on the Big Three networks, Washington is inadvertently encouraging a wave of network buyouts and mergers.
It’s intriguing as theories go, but there are many key players in the broadcast business who insist it ain’t gonna happen.
Investment capital is indeed flowing back into the marketplace, and bankers are lining up to marry ABC, CBS and NBC with a major studio or even with one of the seven Baby Bells.
But Richard Cotton, executive VP and general counsel of NBC; David Westin, president, production, ABC-TV; and Chase Carey, executive VP of Fox Inc., argue that even as some government barriers disappear, others will make successful mergers a maddeningly elusive proposition.
The industry is finally starting to focus on the latest turn of the Washington regulatory wheel that spun the Big Three back into the ripe-for-acquisition spotlight — the shattering of the financial interest and syndication rules no later than November 1995.
When those rules go away, the Big Three will be able to elbow their way into a whole new business: selling TV programs they own — both reruns and new syndicated series — station by station throughout the U.S.
Analysts long singled out finsyn as the most formidable barrier to a major studio’s buying ABC, CBS or NBC. The majors are all lucrative players in domestic syndication, and under the rules in place now, they’d have to jettison their domestic sales operations if they decided to merge with a network.
But except for Disney, all of the majors face daunting obstacles to buying a network. Running down the list, Cotton says Columbia TriStar and MCA Universal will not be setting off on a hunt for networks to buy because they’re both foreign-owned. By law, a foreign company cannot have a financial interest in TV stations in the U.S. (No major would purchase a network without its TV O&Os, which funnel huge revenues into the web coffers.)
And rather than going after an existing network, Time Warner and Viacom-Paramount are both signing up TV stations to become affiliates of potential fifth and sixth networks.
Cotton says neither was a candidate to buy a Big Three web because both own lots of highly profitable cable systems, some of them in markets where the networks own TV stations. Current cross-ownership rules would force Warner and Paramount to sell off either the TV stations or the cable systems, transactions that would make no sense financially.
The Turner Broadcasting System, which has made overtures to all three networks, would also run into the cross-ownership buzzsaw because John Malone’s Tele-Communications Inc., the largest cable operator in the U.S., owns 22.3% of Turner and Time Warner, the second largest cable operator, owns 18.8%.
Cotton also points out that both Warner and Paramount are heavily burdened by debt, and the cheapest of the networks, NBC, would cost a minimum of $ 4 billion.
Telephone companies would have the money to buy one of the Big Three, but “what the networks do is too far removed from the basic business of a telco,” says Jessica Reif, media analyst for Oppenheimer. “I don’t see any convergence between the two.”
Various analysts say the telcos have talked about buying a financial interest in a major studio or an independent production company to guarantee access by the telco to movies and TV series as it begins to send video signals to its customers. But according to the consensus, telco overtures to the networks are few and far between.
As noted, Disney is the one major studio not weighed down by all of the legal obstacles, although it would have to sell its Los Angeles TV station, KCAL, since all of the Big Three have O&Os in L.A.
But Westin says that unless Disney were ready to start the bidding at $ 11 billion or so, ABC would not see much advantage in merging with a company that’s heavily involved in the theatrical movie business.
Strongly implying that ABC has made a conscious decision not to get involved in theatrical movies because they’re honeycombed with risk, he says: “We own eight of the strongest TV stations in the country. The ABC-TV network is robust. And we own a third of Lifetime, a third of A&E and 80% of ESPN.”
Lifetime (with 57 million subscribers), A&E (56 million) and ESPN (62 million) are glowingly profitable cable networks, pocketing big bucks from advertising revenues and subscriber fees, the so-called dual revenue stream. By contrast, ad dollars are the sole source of revenue for the broadcast networks and their O&Os and affiliates.
And ABC is pushing itself into the TV production business more aggressively than its two network competitors, signing exclusive deals with such companies as Wind Dancer (“Home Improvement”) and Brillstein-Grey (“The Larry Sanders Show”).
The Wind Dancer deal, for example, covers a renewal of the No. 1-rated sitcom “Home Improvement” through the 1995-96 season and the guaranteed pickup by ABC of “Thunder Alley,” the Ed Asner comedy that premiered this month.
ABC and Wind Dancer will jointly own the two series, but they’ll pay Walt Disney’s worldwide-syndication division Buena Vista TV a distribution fee to sell the shows both domestically and in foreign markets.
Although Westin declines to disclose the distribution percentage, he says it’s well below the 35% fee that big syndicators like Buena Vista usually extract because ABC is shouldering all of Wind Dancer’s production and development costs.
The three networks are producing more of their primetime entertainment series in-house, clearly laying the groundwork for the new landscape that will emerge from the departure of finsyn.
But even the most pessimistic studio executive is not prophesying that the Big Three will end up producing and distributing their entire primetime schedules. If they need a model for success of a company that owns both a network and a domestic-syndication operation, they don’t have to look any further than Fox.
Because one of Fox’s main goals is “to produce and distribute as much software as possible to as many outlets as possible,” Carey, the Fox exec VP, says it still actively supplies TV series to all four networks, including “L.A. Law” (NBC), “Picket Fences” (CBS), “NYPD Blue” (ABC) and “The Simpsons” (Fox).
And Fox can distribute all of these shows in domestic syndication because it doesn’t fall under the Federal Communications Commission definition of a network , the chief requirement of which is to schedule more than 15 hours of primetime programming each week. (Fox programs exactly 15 hours.)
Greg Meidel, president of domestic sales for Fox’s syndication arm Twentieth TV, says the Big Three “are going to be in our business.” Recent rumors that ABC is in early merger talks with King World (“Oprah,””Wheel of Fortune,””Jeopardy”) reflect the theory that ABC plans to take full advantage of the demise of finsyn by creating a mechanism to produce and distribute firstrun syndicated series — and off-network series that ABC owns — for TV stations in the U.S.
A buyout of King World would make ABC an instant major player in U.S. syndication “without having to create a whole new company from scratch, with sales, business affairs, research, administration and all of the other overhead, ” says Meidel.
But militating against ABC’s setting up a full-fledged domestic syndication division, says Westin, is the “minefield” that could develop if the division bypassed an ABC affiliate and sold a hit series to that affiliate’s competitor in the market. Then there’s the opposite scenario: ABC’s syndie arm could end up selling a money-losing series to one or more of its affiliates.
“We have enough natural sources of tension with our affiliates,” says Westin, “without adding a whole new wellspring of potential problems.”