Two’s viable for Viacom

FCC expected to OK ownership of both CBS and UPN

Next stop, FCC. Viacom, soon to be the proud parent of two full-blown TV networks, UPN and CBS, must convince regulators to change the rules and let it keep both nets.

It will succeed, predicted Washington, Wall Street and industry players on Monday.

Viacom is taking over UPN after its partner, TV station owner BHC Communications Inc. — majority owned by Chris-Craft — agreed reluctantly and under court order Monday to sell Viacom its 50% stake for $5 million.

Viacom has told the commission that if its planned merger with CBS means it can’t keep UPN, too, and it can’t sell the 5-year-old network, it may be forced to shut it down.

That’s something the FCC doesn’t want on its head — especially as UPN has more minority talent and minority viewers than the other broadcast nets. A group of actors from UPN shows has even lobbied the commission alongside Viacom and CBS to let the merged company keep it.

“I think it’s more inclined than not to do away with the rule” as it now stands, broadcasting analyst Victor Miller of Bear Stearns said. The FCC may issue a waiver first as it takes time to rethink and rewrite its regulations — at least when it comes to fledgling networks like UPN and WB. A combination among ABC, NBC, CBS or Fox might be another matter.

Viacom has also argued that the explosion of cable and the Internet continues to create new-media voices, making network concentration less worrisome.

UPN spells relief

A UPN wholly owned by Viacom makes those at the weblet smile. UPN topper Dean Valentine said network execs were breathing a sigh of relief now that the ownership issue has been cleared up. “We’re glad we’re moving on,” Valentine said. “It’s no fun being in the middle of a lawsuit.”

“Any time you have two parents fighting with each other and now they won’t be, that’s a good thing,” added chief operating officer Adam Ware.

One of the divorcing parents, Chris-Craft topper Herb Siegel, expressed disappointment over the court’s decision but said, “We believe that UPN and our shareholders will now best be served by ending any further uncertainty through our sale to Viacom.”

He added, “We want to see UPN continue its recent ratings surge in the upcoming fall season and look forward to continuing our support of the network as its anchor affiliate group.”

No white knight

The legal tiff started last month when Viacom triggered a “buy-sell” provision in the UPN contract, putting a lowball pricetag of $5 million on half the net. The move was Viacom’s attempt to clarify UPN’s ownership structure ahead of its merger with CBS — scheduled to close sometime in April.

Chris-Craft, through BHC, sued to block the buy-sell and the merger. And it tried to find a white knight that could step in and help it fund the newly hot but money-losing net — something it clearly wouldn’t want to run solo. The company failed on both counts and conceded gracefully, wishing UPN and Viacom “continued success.”

That Chris-Craft wasn’t able to find anyone to step in as a partner in UPN when it could have brought in the net for $5 million doesn’t bode well for an outright UPN sale should Viacom be forced to undertake one. That adds weight to the company’s assertion that it may have to shutter the net if the FCC doesn’t bend.

Viacom and Chris-Craft together have invested about $900 million in the weblet to date. Its losses average about $160 million year.

Viacom chief Sumner Redstone said he’s “pleased that UPN will now be a wholly owned part of the Viacom family.”

As for Chris-Craft, it’s left with a squad of TV stations, mostly UPN affiliates in major markets. Many on Wall Street see the company being sold outright, mostly likely to Viacom/CBS. That was tried before and talks failed, but the last word has yet to be heard on that.

Should such a merger occur, Viacom/CBS and Chris-Craft would have duopolies — own two stations — in a number of markets: New York, Los Angeles, San Francisco, Minneapolis and, possibly, Salt Lake City.

Is the price right?

The hurdle, as always, is likely to be price. CBS CEO Mel Karmazin had wanted to pay in the low $80 range per share of Chris-Craft, according to some Wall Streeters, while Siegel was asking for $95-$100.

The other issue is how UPN will look if it stays within a combined Viacom/CBS. Viacom’s cable empire would happily share product with UPN affils, and CBS shows could do double duty as well, some speculated.

Valentine had another take: Karmazin’s “strategy is to create as many different kinds of opportunities for advertisers as possible,” he said. “In Viacom’s assets, we are the one and only way to reach young men. I think we have a role to play in terms of the audience we’re reaching.”

Viacom’s stock closed down 62¢ at $55.87; Chris-Craft closed down 56¢ at $65.69.

(Michael Schneider in Los Angeles and Christopher Stern in Washington, D.C., contributed to this report.)

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