HOLLYWOOD — Rumors swirl as to whether or not Oprah Winfrey will renew her contract with King World; the company’s stock drops ever so slightly. Analysts and columnists pick up on it and start reminding folks that the “Oprah Winfrey Show” contributes about 50% of the company’s operating profit.

Reverse scenario. David Letterman vaults NBC for CBS, and the Eye network’s stock jumps.

That one person with one show could have such an impact on a company’s fortunes has to be frightening to those who spend their days trying to figure out who will rise and fall in the 500-channel universe.

Although the fates of Winfrey, Letterman — or Roseanne Arnold, for that matter — may seem like small potatoes in building the information highway, they are part of the ongoing debate over whether it will be better to own product or control the distribution.

The debate is not just about the power of personalities to play such a crucial role in the fortunes of a company. When Bell Atlantic and Tele-Communications Inc. called off their merger two weeks ago, they blamed rate regulations. But it was not just the cable operating biz Bell Atlantic walked away from. The telco also passed on a chance to own software in the form of 17 cable networks, including CNN and TNT.

Telephone companies are split over how to proceed. Nynex, through its investment in Viacom, now has a piece of Paramount to call its own. Southwestern Bell merged with Cox Cable, whose parent company owns program supplier Rysher Communications. Meanwhile, telcos Ameritech and PacTel have so far decided to go it alone, without software partners.

Industry analysts are also split over whether it’s better to put all of one’s eggs into one basket. While all say those with software have nothing to fear, they don’t all see a need for telcos to jump into that biz. “The way Disney and News Corp. are playing this is the least risky way,” Oppenheimer & Co. analyst Jessica Reif says of the wait-and-see attitude of those two companies. “Who knows when this stuff gets launched? Look at Time Warner’s decision to delay its Orlando video-on-demand test by six months.”

Still, Reif questions Nynex’s investment. “Paramount does not do a thing for Nynex. First establish the distribution. Ownership of programming helps, but I don’t understand the logic of Nynex-Paramount.”

Paine Webber analyst Chris Dixon says content is king but that it’s better to acquire than build. “Barry Diller has the expertise; he decided to acquire rather than start from scratch.”

There are no rules against telcos owning programming. The hitch is that if the current piece of information superhighway legislation under debate on Capitol Hill passes, telcos will be required to “establish channel capacity for all bona fide requests.” In other words, they can’t shut out non-telco distributors.

Analysts point to US West’s $ 2.5 billion dollar investment in Time Warner as a clever strategy. Only a sliver of assets had to be sold to make the deal regulatory-safe and US West owns 25.51% of Time Warner Entertainment.

The only possible drawback is that now US West, as a part owner of a programmer, must open its lines to all, perhaps at the expense of Time Warner product.

Programmers not in the hardware business say the difference in doing business in the future is that there will be two entertainment wires into the home — one from a telco and one from a cable. If that happens, then owners of software will be safe.

“Ten years ago the constraint was getting on a network affiliate. Today it is getting on cable systems. Those constraints will evaporate. What that means is, programmers will have direct access to audience rather than a middle man who charges a toll,” says Jeff Epstein, chief financial officer at King World.

That is certainly the way the FCC and the government want it to work. But where is the guarantee? Who is to say what the final road map will look like? One of News Corp. chairman Rupert Murdoch’s biggest fears is a superhighway with Time Warner’s Gerald Levin and TCI’s John Malone as the toll operators.

“If you were the monopoly, that is where the power was; they extracted good deals from the programmers and charged consumers like mad,” reminds Tom Wolzien, video media analyst for Sanford C. Bernstein & Co.

But two wires will shift that balance of power “to people who can play the two against each other,” Wolzien adds. Until it’s known how many wires will go into the home and how many people own them, programmers are guaranteed nothing.

Which is probably how it should be. A copyright — or legal monopoly, as King World’s Epstein puts it — is only valuable if someone wants the copyrighted product.

And as one high-level network exec warns: “People are making a bad mistake to think everything will have value in a 500-channel world. The opposite will be true. When there are alternatives, no one will find the mediocre.”

So what do you do if you have shows whose fate hangs on contract negotiations? “The answer is to have eight hits,” says King World’s Epstein.

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