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Half of UPN to Viacom

NEW YORK – In a vote of confidence for the fledgling United Paramount Network, Viacom Inc. on Wednesday exercised its option to acquire 50% of UPN from BHC Communications, a unit of Chris-Craft Industries Inc.

Viacom paid $160 million for half-ownership of the netlet, which was created in January 1995 by BHC and Viacom’s Paramount Television Group. UPN currently has 152 affiliates covering approximately 92% of U.S. television households and airs programming on Monday, Tuesday and Wednesday evenings and Sunday mornings. The network is planning to expand to a fourth night shortly, and will add an afternoon teen block next fall.

As of Jan. 15, responsibility for managing Viacom’s investment in UPN will be assumed by Paramount Television Group chairman Kerry McKluggage. A Viacom spokeswoman said no decisions had been made regarding the management structure, or to whom UPN president and CEO Lucie Salhany will report.

Under the terms of its option, Viacom was required to notify BHC of its plans to exercise by Dec. 15 and to pay half of the capital invested in UPN to date. The disclosure of the purchase price for the 50% stake confirmed industry estimates that UPN has accumulated losses of $320 million since its inception.

The deal gives the parent of MTV, Nickelodeon and other cable networks a stake in a national broadcast network for the first time. Viacom joins an elite club of media giants consisting of ABC owner Walt Disney Co., Fox TV parent News Corp. and Time Warner Inc., parent of UPN’s rival weblet, the WB Network. (The owners of the two remaining nets both are industrial companies.)


The transaction partially relieves Chris-Craft of shouldering UPN’s losses, which UBS Securities analyst Ed Hatch estimated at $120 million this year. Sources say the losses, which last year cut sharply into Chris-Craft’s profits, are expected to continue for at least two or three more years. Chris-Craft shares closed up $1.25 Wednesday, at $41.50. Viacom’s class B shares were down 20.3¢, at $37.172.

Although Viacom’s stock did not rise on the news that it was acquiring a 50% stake in UPN, analysts said the media conglomerate was paying a bargain price. Chris Dixon, an analyst with PaineWebber Inc., said the market value of a 50% stake in UPN is about $750 million, based on the valuations recently floated for USA Networks, which is jointly owned by Viacom and MCA Inc.

“Along with the November sweeps, this confirms the viability of the weblets,” Dixon said. “It demonstrates the value of a branded network in the multichannel world.”

Viacom’s decision to become a partner in UPN had been expected since Viacom chairman Sumner Redstone publicly expressed pleasure with the netlet’s progress. During his testimony in the MCA-USA Networks trial, Redstone angrily denied that he had in 1995 discussed ways to “get around” its UPN obligations in order to buy another network, such as CBS.

“Since its launch, the United Paramount Network has exceeded our expectations and delivered on its promise to bring original programming that creates real value for its affiliate stations,” Redstone said in a statement. “We are pleased to become partners with Chris-Craft, and look forward to applying the creative and programming talents of Paramount Television and the entire Viacom organization to build on the success UPN has already achieved.”

Sitcoms boost numbers

After shifting from male action dramas to more ethnic comedy fare, UPN’s season-to-date average is up 3% over its 1995 average at this point to a still meager 3.4 rating, and a 5 share. Despite low ratings compared with the Big Three, Par sources say the network affiliation is a benefit to the UPN station affils, and the Paramount Stations Group has been steadily swapping its non-UPN affiliates for major-market UPN outlets.

The Paramount Stations Group currently owns and operates 11 TV stations, nine of which are UPN affiliates, reaching approximately 19% of the U.S. Moreover, UPN now gives Paramount a more direct potential distribution outlet for many of its network series. Par has a stake in four of UPN’s nine primetime programs, all of which have been renewed.

UPN now will be jointly operated by Viacom and BHC, which operates eight TV stations, six of which are UPN affiliates. During the early stages of UPN’s formation, a four-member operating committee was formed, consisting of executives from Chris-Craft and Viacom. Sources said a similar structure likely will be put into place.

Quick moves forecast

While Redstone publicly has praised the growth of UPN, Wall Street analysts said they expected Viacom to move quickly to beef up UPN’s marketing and advertising sales efforts. UPN’s Salhany said Viacom’s move would have no immediate effect on UPN other than to “give us a little more freedom to accelerate and expand.”

While Salhany is said to be closely allied to Chris-Craft/United president Evan Thompson, it’s unclear how the new reporting structure will affect her, if at all. Salhany said rumors of a dispute with Par, which were fueled in part by UPN’s cancellation of some Par series last season, are “only in the minds of our competitors.”

“There was much negative ado about nothing,” Salhany said. “This is all positive.”

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