The Family Channel is about to become a Fox Kids production.
News Corp. confirmed Wednesday its long-anticipated acquisition of Family Channel’s parent company Intl. Family Entertainment for $1.9 billion — but the company pleasantly surprised Wall Street by revealing the deal would be done through News Corp.-Saban Entertainment’s jointly owned Fox Kids Worldwide.
News Corp. was known to be planning to put Fox Kids programming on the Family Channel’s daytime schedule if it won control of the company. But using Fox Kids Worldwide to acquire IFE minimizes the cost to News Corp. That cost has been a big issue on Wall Street in the wake of a spate of other acquisitions also under way by the media conglomerate.
News Corp. is putting only $250 million of its own money into the deal. Fox Kids is borrowing most of the purchase price from Citibank, News Corp. investor relations exec Bill Sorenson told Wall Street analysts Wednesday. News Corp. won’t be liable for that debt, Sorenson said.
“It’s a huge relief,” said Macquarie Equities analyst Alex Pollak, who added that investors had been concerned that News Corp. would pay for IFE by issuing stock. The only stock to be issued is going to IFE’s 22% shareholder Liberty Media, which is receiving preferred stock of Fox Kids.
As expected, other IFE shareholders, led by the Robertson family, will receive $35 a share in cash — about double what IFE stock was trading at when talks began earlier this year. IFE closed Wednesday up $1, to $31.87.
Approved by IFE’s board Wednesday, the deal closes a fierce bidding war between News Corp. and Walt Disney Co. for the company. News Corp. had a big ally in the war, as Liberty — an affiliate of cable giant Tele-Communications Inc. — made its preference for a sale to News Corp. clear, sources said.
Liberty had a right of first refusal on the stake held by the Robertson family, which put Liberty chairman John Malone in a powerful negotiating position. He is believed to have supported News Corp. as a quid pro quo on other deals, including News Corp.’s sale of its sat TV assets to Primestar Partners, also announced Wednesday.
With Family Channel in the News Corp. fold, the network will shift its programming focus to kids programming from 6 a.m. to 6 p.m., execs confirmed, while primetime will include family-targeted adult programming. The only question is timing of the programming change, and IFE execs differed with News Corp. execs concerning that point.
Mel Woods, president and chief operating officer at Fox Kids Worldwide and Saban Entertainment, said Family’s program slate will be largely wiped clean with the closing of the News Corp. deal, expected in 30 days to 60 days.
But IFE CEO Tim Robertson — who News Corp. sources said was “anticipated” to stay on as CEO of the company — said he had been led to believe that the 6 a.m. to 6 p.m. children’s block from Fox Kids is unlikely to be put into place before fall 1998, despite the temptation to tap the vast Saban Entertainment library earlier.
“Fall ’97 will absolutely remain intact,” Robertson said. “We’re not looking at any changes at all till ’98. It will take us at least a year to put together any realistic kids schedule, particularly with the way advertising cycles work.
“Most of the kids ad money has already been spent for next season, and it behooves us to time the launch to coincide with our having some advertisers aboard,” he added.
People close to IFE noted, however, that the Robertsons recognized they were selling their stake and would no longer have as much control. Sources confirmed that News Corp. said during the negotiations that the schedule wouldn’t be changed until next year.
The only constant on the schedule will be Pat Robertson’s “700 Club,” which will continue to air at 11 p.m. weeknights and from 10-11:30 a.m. Sorenson told Wall Street analysts News Corp. wanted to keep the program on the air “as a strong incentive for many local cable operators to continue to carry the service,” although most Wall Streeters believe keeping the show on the air was a condition of the sale imposed by the Robertsons.
With Fox Kids and Saban assets, Woods said, “We’ve got a large library of close to 5,000 half-hours,” pointing out that the product instantly can be plugged into Family’s lineup.
“We’ll utilize (Saban’s) library, the Fox library, the MTM library and original programming,” Woods said, with “an emphasis on original made-for-Family Channel movies in the evening.” Those made-fors could then be exported overseas, he said.
For News Corp., the strategy “is increasingly starting to look like a Viacom or a Time Warner with significant cable network muscle,” NatWest Securities analyst Gary Farber said. “This is what the company is all about, distribution. Because they’ve got the platform, they can afford to invest in the programming.”
For IFE shareholders, the $35-a-share pricetag amounts to a good deal, Farber said. It represents 16 times Family Channel’s cash flow and 20 times IFE’s. The new Fox Kids will have a total of about $170 million in annual earnings before interest, taxes, depreciation and amortization after the IFE deal — just enough to service the debt taken on in the deal.
The IFE deal scuttles a planned public offering of Fox Kids and Saban assets that called for a profit-sharing arrangement for Fox’s broadcast affiliates, who fear cannibalization of their kid audiences from any Fox Kids cable programming, particularly in competing after-school, early morning or Saturday timeslots.
The profit participation now is off the table, and “no formal arrangements have been made,” Woods said, stressing that in “an ongoing dialogue with affiliates, something will be worked out.”
To make room for the 12-hour daily kids push, Family Channel will be forced to unload the vast majority of its current lineup of gameshows, the daily chatfest “Home & Family” and off-net product such as “Father Dowling Mysteries,” “The Waltons,” “Rescue 911,” “Hawaii Five-O” and “Highway to Heaven.”
However, Robertson maintained that the channel wants to keep “Home & Family” in production and insert it in the schedule somewhere after the children’s slate is in place. The hope is to package it for an early fringe or primetime slot.
Robertson also stressed that with regard to the channel’s gameshows (including “The New Let’s Make a Deal,” which premieres this fall), he hopes to adapt a few of the concepts to “be more friendly to kids and be able to run during the daytime block.” However, it’s difficult to fathom ways to make “The New Shop ‘Til You Drop” and “Shopping Spree” more kid-friendly.
In primetime, the only sure things come fall ’98 are likely to be “The 700 Club” and the off-net dramas “Dr. Quinn, Medicine Woman” and “Murder, She Wrote,” both of which have been purchased for runs beginning third-quarter ’98. And original film production will be stepped up.
Robertson also went out of his way Wednesday to give a vote of confidence to Gus Lucas, the channel’s senior VP of programming.
“We’re absolutely committed to Gus Lucas remaining in charge of programming for the Family Channel,” Robertson said. “He’s done a terrific job and has been one of the real assets to this channel’s success.”
However, the fate of other Family Channel executives — including Robertson himself — is far from clear. Reaction to the merger inside the Family Channel’s offices in Virginia Beach and Los Angeles was a mix of apprehension and dread.
One industry insider said he doesn’t believe there will be a Family Channel staff bloodbath but suspects more of “a slow attrition” in the ranks.
“I’m sure there will be some kind of exodus with Haim Saban running things,” the insider said. “A lot of (employees) will want to run away.”
It’s expected that the first to go will be the dozen or so staffers still working in MTM TV Distribution, whose programming is expected to be absorbed by Twentieth TV.
Robertson would say only, “No decision has been made. We’re going to have to take a hard look at it. There is very often a real value to having an independent brand in the marketplace that’s not affiliated with a competitor.”