Tisch May Be Good for What Is Ailing CBS
So Laurence Tisch, 63, a man with a reputation as one of America’s smartest businessmen, is in command at CBS Inc., the company that owns the CBS television network.
But from many reports of his power tussle with CBS’ now-resigned Chairman Thomas Wyman, you would have to wonder why a shrewd investor like Tisch--who is CBS’ largest shareholder--would bother. Profits have been declining at CBS, as they have elsewhere in the television business. Advertisers are resisting the high costs of TV programming, and competition from cable and independent stations is beginning to bite. Is Tisch, who has brought back CBS’ 84-year-old founder William S. Paley as chairman, engaging in philanthropy?
No, he is pursuing opportunity, just as Chairman Thomas Murphy and Omaha investor Warren Buffett are doing at Capital Cities/ABC and Chairman John Welch of General Electric is doing at NBC, which GE acquired with RCA. What all those guys are reputed to have in common--especially Tisch, Buffett and Murphy, who admire each other’s acumen and swap investment insights--is an eye for asset value and business opportunity.
And the television business probably has more of both these days than almost any business around.
First and most obvious are opportunities to cut costs and restore profitability. Reformers won’t have to search far for the fat. Forbes magazine reported recently that a TV episode costing $150,000 with union crews could be shot by non-union crews for $89,000. And that didn’t include bloated fees for directors and managers. Significantly, Cap Cities and GE have appointed tough cost-cutting executives to head ABC and NBC. Watch for Tisch to do likewise at CBS.
But future opportunities are the real attraction for Tisch and the others. The Federal Communications Commission has already increased the number of TV stations a broadcasting company can own, and by 1990 all restrictions will be lifted. The FCC’s intent was to open opportunity for such interests as Ted Turner and Rupert Murdoch to grow and compete with the networks. And that is happening. But the networks are also allowed to expand, and are doing so.
Getting Back to Production
Moreover, by 1990 the networks will be able to get back into production of their own shows. It’s not so much the producing as the owning of shows that is attractive there. Think of the value of “M.A.S.H.” or “I Love Lucy” or Jackie Gleason’s “The Honeymooners.” Sold and seen again and again. How valuable is a product that can be shown new to succeeding generations? A good TV show is not a product, like a car or a suit of clothes. It’s the ever-filling bowl. And to top it all, this wonder business is being sold at a discount.
How can that be, when CBS stock--buoyed by takeover fever--has doubled in a year? To understand, you have to look at CBS Inc., which had $4.7 billion in revenue last year, the way you might look at your home the day after your neighbors got a high price for theirs. That’s precisely the way Tisch and the money crowd look at assets--they use analogy.
For example, because WOR-TV, a low-ranked independent station in the New York market, sold in February for $387 million, the money men reason that CBS could sell WCBS-TV, the New York leader, for $800 million. Or because General Electric sold RCA’s record company at a price indicating a value of $400 million, the money crowd figures CBS Records, the world leader, could be sold for almost $1 billion.
Ultimately, by such reasoning, the money men figure that Tisch has bought effective control of assets worth $250 a share for a price of $127 a share. Does that mean that Tisch is going to sell CBS stations? Or CBS Records? Not at all. It only means he’s a canny buyer.
The fact is, Tisch is a long-term investor and owner, as he has proven at CNA Insurance, which he acquired in 1974 and has built successfully. The word is, he has bought control of CBS for his family and that of his brother, Preston Robert, with whom he has built Loews Corp. into a successful conglomerate.
Finally, a thought for a business in transition: Many otherwise sensible people are saying that the current change of network ownership means Wall Street is getting hold of “the people’s airwaves"--as the Federal Communications Act of 1934 describes the business. But Wall Street and broadcasting have been together since David Sarnoff manned an early transmitter.
Bill Paley built CBS into an enormously profitable business, just as Sarnoff built NBC (and RCA) and Leonard Goldenson built ABC.
Yet all three did a reasonably good job of serving the public interest. And there is no reason to believe that Laurence Tisch--or Murphy, Buffett and Welch--are any less responsible, or able. Fact is, the network business appears to be passing into strong hands.