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United underwhelms

Analysts ponder profit of Prevue-TV Guide merger

NEW YORK — News Corp. chairman Rupert Murdoch got plenty of applause from Wall Street for his $2 billion sale of TV Guide last week but investors seemed to question Friday whether the deal was so good for the buyer, United Video Satellite Group, and the group’s parent, Tele-Communications Inc.

While News Corp. stock jumped a total of $2.18 Thursday and Friday to finish the week at $25.68, United Video stock fell 12¢ Friday to finish at $38.37, up just $1.38 on the two days and still well below a high it reached just a month ago of $44.12.

Analysts say News Corp. got a good price for TV Guide, given its declining circulation and profits. In contrast, “I am not overwhelmed by it from United Video’s side,” said Lehman Bros. analyst Larry Petrella.

“I would say the benefits of the transaction are more apparent in the near term to News Corp. than they might be for United,” said Cowen & Co. analyst Gary Farber.

‘Forward-looking’ Malone

United is an offshoot of cable giant TCI, and few on Wall Street are willing to bet against TCI chairman John Malone, who has negotiated many partnerships with News chairman Rupert Murdoch. News Corp. of course will jointly control United with TCI, so Murdoch retains a big interest in TV Guide.

Petrella emphasizes that “Malone is very forward-looking” but that it is hard to evaluate the deal from United’s perspective given the uncertainties.

United chairman Gary Howard told reporters on a conference call Thursday that the TV Guide name is “a very powerful brand name (with) extraordinary reach.” The company plans to rename its Prevue Channel, which offers TV listings on cable systems, the TV Guide Channel and to develop its international presence by putting the channel on News’ international satellite services like BSkyB.

Revenue generation gap?

The big uncertainty is whether the revenues to be generated from the electronic listing can replace those from the print publication, as the value of the print listings declines in coming years.

Operating income from the Prevue Channel has doubled in the past two years, but it is still dwarfed by TV Guide’s profits. United Video’s SEC filings show that Prevue Networks generated operating profits of $13.8 million last year, up from $5 million in 1995.

In contrast, TV Guide’s operating profit is currently running about $175 million a year, News execs told analysts. That’s down from a peak of $200 million in 1988, while the magazine’s circulation has dropped 23% in the past 11 years.

Understanding complexities

Media Group Research president Mark Riely is optimistic about the acquisition’s potential and said the lack of reaction from Wall Street was “a question of people trying to understand the complexities of the deal.”

TV Guide’s name and better distribution of the electronic listings service will help it “capture a lot of incremental revenue from people who haven’t used print,” particularly given the international expansion opportunities, he said.

Riely notes that United will be competing with interactive listings guides developed by operators like Gemstar and possibly the software giant Microsoft Corp., so TV Guide’s brand name will be important.

He said the cost savings should be immediate, given the labor-intensive nature of the work done in collecting the listings information by both Prevue and TV Guide.

United listings

TCI and News have tried in the past to develop an electronic listings guide using the TV Guide brand name, without success. United president Peter Boylan acknowledged those past efforts (one of which went under the name TV Guide On Screen) last week but insisted “this is a very different situation where we are really combining these organizations where there is total alignment.

“We will obviously integrate the brands so we have one platform to provide to viewers and advertisers,” Boylan said.

“Clearly you have to wait and see what shakes out. I think no company could ring more out of TV Guide than United Video,” says Riely.

Feeding the uncertainty, however, is expectations that TCI will continue to do deals around United Video. The company has several other businesses that are expected to be gradually sold, such as Superstar/Netlink, which markets entertainment programs to consumers who own old-style satellite dishes.

Analysts predict TCI and News will do more deals around these other assets.

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