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Show them the money

Moguls mull financial future, media marriages

NEW YORK — Pack a thousand high-powered entertainment, Internet and Wall Street types into one hotel ballroom and there’s bound to be an edge.

Read complete
coverage of
Variety/Schroders Big Picture conference.

Particularly on a day stock markets were as jumpy as a movie producer $10 million over budget on his first day of shooting.

In a fast-paced media world, broadcast vies with cable, cable slugs it out with satellite, TV and film have some big gripes with the Internet, investors want to know where to park their money — and they all want the FCC to back off.

Viacom topper Sumner Redstone took a pot shot at Chris-Craft’s Herb Siegel; Redstone and his new second-in-command, CBS Corp. CEO Mel Karmazin, exchanged friendly jibes; Miramax’s Harvey Weinstein faced off with ICM’s Jeffrey Berg; and Walt Disney’s Michael Eisner chided Universal Pictures for declining to release “Jurassic Park” footage for his keynote presentation at Tuesday’s Variety/Schroders Big Picture conference at New York’s Grand Hyatt.


Disney chairman and CEO Michael Eisner lashes out at Internet thieves and pirates during Big Picture conference in New York. (See related story)

The one common denominator: Everyone is dancing, partnering up and peering nervously into a mysterious future of dramatically different business models across the board.

It’s a future in which “bigger is not necessarily better, but it’s better than smaller,” Redstone said.

Still, a mood of cautious optimism reigned as the 10th annual conference — and Variety’s last one with Shroders — had a distinct “we’re all in this together” feel.

Participants did impart some good news:

  • TV networks and movie studios, derided for years by Wall Street as marginal businesses and money pits, are on the rise.

Schroder analyst David Londoner said the three big networks are looking at a record year this year with combined profits of $1 billion — they’ve never earned more than $700 million between them, he said. As affiliate station compensation all but disappears in coming years, growth is likely to continue, he added.

On the rebound

At the studios, a dramatic 45% dip in profits a year ago — from $2 billion to $1.1 billion at the six majors — will be followed by a rebound of 40%-60% this year, Londoner predicted.

“The studios saw the handwriting on the wall — and they reacted,” he said, and noted that for the first time since the early 1980s, film costs, both negative costs and print and ad expenses, are trending down.

  • Advertising revenue is no longer cyclical, per Redstone. That’s good news for ad-based businesses like TV and radio that have tended to fly then crash in tandem with the larger economic picture. Competition is fierce and keeps the ads rolling in, with new Internet entrants constantly enlarging the pie.

“If our sales people sell 10% more each year, our revenue grows 10% regardless of the macro economy,” Karmazin added.

Fragmented

Yet Karmazin thinks the Internet nowadays is way too fragmented to be an efficient ad tool.

And while competition is fierce, there may well be room for everyone. “Cable has been competing with satellite for six years, and every single quarter we’ve grown our business,” said Brian Roberts, president of cabler Comcast Corp. Take DirecTV, he said. “They’re pushing us, we’re pushing them, and it seems like the consumer has the room to support both.”

  • A solid business currently, with an eye to the future, is your best chance for a strong company down the line.

Redstone said Viacom and CBS agreed to merge because the fit is perfect — now. “We don’t have to get esoteric about what’s going to happen in the next 20 years to see the combination is a good fit.”

Roberts feels the same about Comcast and cable. “We’re in a solid business,” he said. He expects more subscribers and more interactivity in five to 10 years, but no rude surprises.

The model is a dramatically different one from the plethora of loss-making Internet companies surviving now solely on expectations of what they might deliver in the future.

Content counts

Even panelists during an Internet session moderated by Tom Brokaw said they think the online companies most likely to survive are ones with deep-pocketed parent companies, preferably ones with content.

  • Content remains crucial. That’s despite the fact that home movies, not studio fare, are the most-watched form of streaming video on the Internet, per a number of panelists. Content and brands are two things the old media have a lock on — the key is leveraging your strengths, said News Corp. president and chief operating officer Peter Chernin.

As AOL and Time Warner merge, and CBS and Viacom hook up, News Corp.’s response, he said, is “to accelerate our attempt to become the global distribution company.” A cornerstone of that strategy is to spin its worldwide satellite businesses, which currently lack a U.S. presence, into a separate public company.

Chernin said that’s not a problem. In such a co-dependent world, the company is pretty much assured of U.S. distribution since other content providers — with more U.S. presence — depend on News Corp.’s distribution overseas.

DirecTV deal?

Still, he acknowledged that a U.S. satellite piece would be nice. That has fueled speculation News Corp. might be looking to buy DirecTV. Chernin and DirecTV topper Eddy Hartenstein were chummy at the conference, but cagey when questioned about a possible deal.

Hartenstein called DirecTV’s future course “up for grabs” but indicated that News Corp. wasn’t the only option.

Rumors, in fact, have had News Corp. looking to take over DirecTV parent, giant automaker General Motors. (Chernin joked News Corp. really wants Cadillac for very employee.)

NBC president Robert Wright said he doesn’t see a merger for his network anytime in the near future, since parent General Electric can’t stomach the accounting penalties and the hit to earnings that media and entertainment companies commonly accept when they grow their business by acquisition.

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