ABC Seeks Right Formula to Put It Back on Top

In 1977, two high-ranking executives of American Broadcasting Cos., Frederick S. Pierce and Anthony D. Thomopolous, made a covert late-night visit to a psychic about the fate of ABC’s programming. The psychic was subsequently put under contract to ABC from 1978 to 1980, and reported solely to Pierce on the chances of pilots, scripts and programs that ABC was considering.

There were hoots of ridicule from critics and the show business community when news of the psychic surfaced, but ABC was then so strong it seemingly always had the last laugh.

Then the top-rated network , ABC’s momentum seemed unstoppable. Its audience characteristics, or demographics were also the strongest of all three networks, especially among the young urban families who draw the highest prices from advertisers. Thanks to those demographics, even after ABC dropped to second place in the ratings in 1980, it maintained its status as the world’s single-largest advertising medium.

Pierce, who joined ABC 29 years ago as a research analyst and worked his way up through the advertising sales department, became president of the corporation in 1983. At the same time, Thomopolous was named president of ABC’s broadcast group, which oversees all radio and TV operations, including the Los Angeles-based entertainment division.

If the psychic were still on ABC’s payroll, perhaps she might have predicted a series of catastrophes this season that apparently caught the network unaware.

Almost as soon as the prime-time season began last September, ABC fell to third place in the national ratings for the first time in 10 years. Since last year at this time, its rating has dropped from 17 points to 14.9 points. (Each point represents 1% of the 84.9 million U.S. households with television.)

Most of ABC’s new programs this season have failed, and even some of its popular holdovers are in a ratings decline. As a result, National Broadcasting Co., which was the third-place network for nine years, easily overtook ABC in the ratings and at times this season has seriously challenged first-ranked CBS Inc.

Unfortunately for ABC, its ratings problem isn’t confined to prime time. In daytime programming, where popular soap operas such as “General Hospital” kept ABC in first place since 1977, the network has fallen to second behind CBS in the ratings. The only programming area in which ABC is still No. 1 is early morning, where ABC’s “Good Morning, America” is still first. Even that show’s ratings have declined somewhat, however.

Despite its triumphant years in the late 1970s, when it became the top-rated network for the first time in its history, ABC is best schooled in adversity. When Leonard Goldenson, who is still ABC’s chairman, took over the fledgling TV network in 1953, CBS and NBC were already well-established. ABC struggled for almost 20 years to become competitive.

In the process, it became highly innovative. In the 1950s, ABC was the first network to sign an extensive production deal with a major movie studio, Warner Bros.; before then, most studios had balked at producing programs for television. In the 1960s, it was the first network to negotiate advertising sales on the basis of demographics. And in the 1970s, it revolutionized daytime soap operas with slicker production and topical plot lines. It also was the first to capitalize on so-called “long-form” programming such as mini-series, beginning in the mid-1970s with “Rich Man, Poor Man” and “Roots.”

To critics, in fact, ABC has long represented the best and worst of TV programming. On the one hand, it pioneered in so-called “jiggle” programming, with lightweight programs such as “Charlie’s Angels” and “Three’s Company” in the late 1970s.

On the other hand, it became known for tackling serious topics in quality productions that were praised by critics and broadly embraced by the public, such as “Friendly Fire” and more recently, “The Day After.” which were praised by critics and broadly embraced by the public.

But, surprisingly, ABC aired no mini-series and none of the blockbuster-type movies for which it is known in the first part of the current television season. Partly because of the lack of such “event” programming, the network was trounced in the ratings by such competition as NBC’s made-for-TV movie “The Burning Bed” and the NBC mini-series “Fatal Vision.”

NBC, which now holds first place in the key demographics of men and women aged 18-to-49, has made its improvements in prime time ratings mostly at ABC’s expense. “There has been a significant swing from ABC to NBC in teen-agers, young children, and very young adults,” said David Poltrack, vice president of research for the CBS broadcast group. CBS has kept its top-rated status by programming for an older and more rural-suburban audience, leaving ABC and NBC to compete for young urban families.

“It’s possible,” Pierce says, “that (ABC’s problems) can be reversed quickly. Only the good Lord knows.”

But knowledgeable TV professionals doubt it. ABC built its prime-time strength in the late 1970s on so-called “Kiddie Coms,” or youth-oriented comedies such as “Happy Days,” followed later in the evening by adult-oriented dramas such as “Charlie’s Angels.” Shows built on those formulas no longer work as well, but ABC has yet to come up with a successful replacement strategy.

The failure of most of ABC’s new programs this season “may mean that the ABC style of programming is out of fashion with the viewer,” said Paul Isaacson, executive vice president of network television for Young & Rubicam, another New York-based ad agency.

And Isaacson doesn’t expect a turnaround from ABC in the second half of the season, which ends in May. “I think they’ll be lucky to stop the bleeding,” he said.

Wall Street analysts who follow the broadcast business are predicting that because of ABC’s programming problems, the CBS broadcast group will earn more than the ABC broadcast group during the coming year, thus evicting ABC from its perch as the most profitable of the three networks, a title ABC has held since 1977.

In fact, Wall Street was growing hostile toward ABC even before the current television season began last fall. Although the company is expected to report record revenues and profits for 1984, its earnings growth is slower by far than CBS’, analysts say, and to a lesser degree slower than NBC’s, primarily because of ABC’s heavy expenditures in the area of sports and cable programming.

For example, the company spent nearly a quarter of a billion dollars last year to acquire ESPN, the cable-TV sports network that has yet to show a profit. And at the same time, it took a write-down of $15 million to close Telefirst, its Chicago experiment in pay TV, which had operating losses of closer to $30 million, analysts say, in its few months of existence.

The acquisition of ESPN, together with ABC’s one-third stake in two other cable networks, Lifetime and Arts & Entertainment, makes ABC the largest program supplier to the cable industry, Pierce claims.

That is in line with his goal to make ABC less dependent on its broadcast businesses for revenue. By 1990, Pierce says, he hopes that the company’s publishing and video divisions will together contribute about one-third of the corporation’s revenues.

But meanwhile both divisions play minor roles. ABC Publishing has increased its pretax earnings to $29.2 million from $4.3 million since 1981. At the same time, Video Enterprises has absorbed more than $300 million of the company’s capital since 1981 while accumulating losses of about $130 million.

Michael P. Mallardi, ABC’s chief financial officer, defends the company’s cable ventures. “These things do not get thrown on the table and become successful overnight, but we think that by 1986 and from that point on, it (the video division) is going to be a very successful business.”

Alan Cole-Ford, a cable industry analyst with Carmel, Calif.-based Paul Kagan & Associates, adds, “There’s no question they could have been luckier, and there’s probably substantial reason to believe they could have been smarter in the new media ventures.”

May Be Proved Right However, he adds that, “I wouldn’t be surprised if three years from now, ABC is pretty loudly hailed for the soundness of its adventures in ESPN.”

Meanwhile, ABC also appears to be sticking to its costly commitment to being the network most associated with sports, despite a recently released five-year study by the New York-based Batten, Barton, Durstine & Osborn ad agency, which showed that ratings for network sports events are steadily declining while costs keep escalating, partly because of competition from cable.

For example, ABC’s “Monday Night Football,” once a top ratings attraction in prime time, has lost 10 rating points since 1981. That drop is a major part of ABC’s overall shrunken audience, and that decline has caused the network to offer millions of dollars in free advertising time to advertisers who were promised larger audiences.

“Theirs is a very difficult program format to make profitable in the sense that they’re always bidding for rights to sports and they’re bidding against others, like (cable entrepreneur Ted) Turner and USA (Network, owned by Time Inc.),” said analyst Mark Reily, who follows the broadcast industry for the Wall Street investment firm of F. Eberstadt & Co.

Despite its commitment to cable, the troubled broadcast network is by far ABC’s most important asset. It contributes more than half the revenues in the ABC broadcast group, which in turn accounts for about 86% of the revenues of its corporate parent. Reily estimates that for 1984, ABC broadcast group will report pretax profits of $434 million on revenues of $3.32 billion. The parent corporation is expected to have after-tax net profits $195 million and revenues of $3.7 billion.

Since most TV advertising is sold well in advance, the full effect of this season on ABC has yet to hit its bottom line. “They are going to be hurting more (later this year),” Reily said.

In fact, “1985 could be a make or break-apart year for ABC,” in the opinion of analyst Rich MacDonald, who follows the broadcasting industry for First Boston Corp. He believes that the company is a tempting takeover target.

At a current price of $63.25 per share, ABC’s stock does not reflect the value of the network, its five television stations and other company assets, he said, assessing ABC’s “break-up value”--or the amount it could earn today if its assets were sold off-- at $150 a share.

Takeover Rumors No suitors have surfaced, but last September, heavy trading of ABC stock and takeover rumors drove the price per share up to a high for the year of $77.125. Although the stock has now settled back, transfers of major blocks of the stock resumed again in December.

When asked about the latest flurry of trading, Pierce said, “There’s no evidence of any particular group (behind it) to our knowledge.”

Some critics say ABC’s problems can be traced to a so-called “brain drain,” because many talented executives in the entertainment industry formerly worked at ABC and left. Pierce responded that “It’s actually flattering that a lot of people running studios around Hollywood have had their training at ABC. It creates a better relationship.”

ABC alumni include Barry Diller, the newly appointed chairman of 20th Century Fox Film Corp. and before that chairman of Paramount Pictures Corp.; Michael Eisner, a top Paramount executive who recently became chairman of Walt Disney Productions; and NBC Entertainment President Brandon Tartikoff.

‘Boys’ Club’ Mentality Others also complain of a “boys’ club” mentality at the company, suggesting that the entrenched management has made it difficult for newcomers and women to move up.

To be sure, ABC has, over the years, had more women in vice president positions than the other networks, but none has ever gone beyond that level.

Esther Shapiro, a former ABC vice president for novels and miniseries who, with her husband Richard, went on to create ABC’s wildly successful “Dynasty” series, suggests that ABC’s failure to appoint women to top positions within the corporation is a key part of management’s problem.

“When I was going to leave . . . they offered me more money, but they didn’t offer me a presidency,” Shapiro said. “There isn’t too much incentive to go on making everybody a success and helping them get Emmies if you’re not ultimately going to have total control of it.”

Thomopolous and Pierce both defended ABC’s record of hiring and promoting women executives.

“From a positive point of view, we’re the only network that has had women in positions of power like that,” Thomopolous said. Both he and Pierce noted that women vice presidents currently head miniseries, prime-time program development, corporate communications, daytime programming and talent.

And Pierce said there will be no changes in management of ABC’s entertainment group, headed by president Lewis H. Erlicht, despite the current problems.

“We had a setback,” Erlicht said in an interview. According to Erlicht, ABC is in a weakened condition partly because its once-strong comedies were geared to younger children who, it was believed, controlled television viewing in early prime time. But that has changed, he said, in part because many households now have more than one television set, permitting more than one generation in a family to control the viewing.

Erlicht said NBC’s family-oriented “Bill Cosby Show,” which has become the biggest hit among new shows this season, is “relateable” to all generations, and “that’s what we’re adapting to.” Among the comedies ABC is now developing is a pilot called “Full House,” which, like the Cosby show, is built around a black family.

Next month, ABC will introduce “Magruder & Loud,” a series about a husband-and-wife team working as police officers. According to ABC’s vice president in charge of sales, Jake Keever, the show is “more like some of the NBC shows, like ‘Hill Street Blues’ .”

“I think ABC got a little bit comfortable with prime time,” Reily said. “They went back to the same program suppliers, mainly (producer) Aaron Spelling, and relied on the same slick production material that they’ve been successful with, and that’s worn thin. If the audience sees enough of a certain kind of series, clones of that aren’t as interesting as they used to be.”

Highest-Priced Time As ratings for ABC’s series have dropped in recent years, ABC has been able to maintain its status as the network with the highest-priced advertising time thanks primarily to “event” programming, such as miniseries and made-for-TV movies.

So observers were baffled this season by ABC’s explanation that it had no such projects ready to air last fall. A Spelling mini-series, “Hollywood Wives,” had been planned for fall, Pierce said, but “We thought it was better to get it right than ready.”

That mini-series will now be shown later this year, as well as “Lace II” and “Scandal Sheet,” among others. Some have criticized those shows as lesser quality than such past ABC productions as “Something About Amelia” and “The Day After.”

According to Shapiro, ABC has lost a freewheeling spirit in programming development that the network had a few years ago. Now, she said, the executives have “more passion about the reaction to the material than the material itself. We end up with projects that everybody’s saying, ‘Well the demographics fit this, and that’s why we did this,’ and it doesn’t work.”