MCA Write-Off May Signal Independent TV Shakeout

The financial travails of non-network television stations sent a shock wave through the entertainment industry Friday, as major TV programmer MCA Inc. said it would take a $50-million charge that could wipe out its operating profit for the final quarter of last year.

MCA, parent of the Universal Studios complex and one of the largest distributors of TV programs, said “unprecedented financial difficulties” of many stations had forced it to increase reserves for questionable debts and to cut forecasts of its future earnings from sales of programs. MCA syndicates reruns of such popular shows as “Gimme a Break” and “Magnum P.I.”

Meanwhile, Wall Street’s concern over the slumping television market helped set off a wave of selling in shares of Lorimar-Telepictures, another top provider of TV programs to non-network, or independent, stations. The frenzy of selling forced a temporary halt in trading, and Lorimar’s stock ended the day at $16.625, off $1.375 on record volume of more than 2 million shares.

Lorimar, based in Culver City, said late Friday that it also plans to take a charge against its fiscal third quarter earnings, but Lorimar Senior Vice President Arthur Loomis declined to disclose the amount “because we don’t know yet.” He said, however, that it would be less than the $50 million taken by MCA.

“This isn’t the last of the fallout,” said John Tinker, an analyst with Bear, Stearns & Co. The television industry “is going to be coping with this for a long time.”

The developments were the latest signs of a crisis that emerged last month with the bankruptcy filing by Grant Broadcasting System, a three-station independent chain that owes $200 million to program suppliers, including MCA and Lorimar. Grant, only last year the toast of its industry, was dragged under by a fatal combination of weak advertising demand, rocketing programming costs and mounting competition.

Advertising has slumped recently, especially for broadcasters, because of their high air-time prices, mergers that have reduced competition in some big industries, and declining inflation, which has squeezed corporate budgets.

More Filings Likely

Since it sought court protection under Chapter 11 of the U.S. Bankruptcy Code, a handful of other stations have followed suit, and more such filings are expected in the next 18 months. As some stations have foundered and others have weakened, demand for television programming has plummeted.

But most of Hollywood’s other big studios insisted Friday that they do not have problems of the magnitude acknowledged by MCA and Lorimar.

Barry Diller, chairman and chief executive of 20th Century Fox Film Corp., said his company has already taken some charges, amounting to “less than $5 million.”

Diller pointed out that the independent stations’ financial squeeze “is a development that we greatly anticipated.” The escalating price of programming was one of the most compelling reasons for an affiliated Fox company’s purchase of seven TV stations in the past year, and the creation of Fox Broadcasting, which will supply prime-time programming.

“Our stations have been very judicious in their buying, thankfully,” Diller added.

Some of the studios avoided the bidding process that lured new station owners to vie for “hot” programs. Warner Bros., for example, sold its programming largely through negotiations with long-time customers who may prove more financially stable, some industry executives suggested.

No Impact Seen

“We do not expect it to have any material effect on fourth quarter earnings,” Warner Bros. Chairman and Chief Executive Robert Daly said.

Walt Disney Co., which began selling its programs in the syndication market less than two years ago, does not anticipate taking charges in “any quarter,” according to Chairman and Chief Executive Michael D. Eisner. “All of our contracts are strong and fine.”

The largest syndicator of TV programs, Columbia/Embassy Television, has increased its reserves for bad debts “marginally,” said Gary Lieberthal, chairman and chief executive of the Coca-Cola subsidiary. “We are doing nothing Herculean or significant.”

Just last Wednesday, Orion Pictures Corp. announced it would take a $2.25-million charge against its quarterly earnings, due in part to the questionable debts of Grant Broadcasting.

Industry watchers predict that the shakeout among independent stations may be most threatening to smaller program distribution companies. Typically, such distributors borrow heavily to finance the production of a small number of shows, betting that they can recoup their investment when the show is syndicated for reruns.

Wide Disaster Feared

If the show does not bring the expected return in bidding among television stations, the small companies--of which there are dozens in Southern California--face financial disaster. “This TV shakeout may also be a shakeout of production companies,” said one such programming executive, who asked to remain unidentified.

Bear, Stearns’ Tinker predicted that many large programmers may delay taking charges against profits, although they are also vulnerable to the problem. “MCA is a conservatively financed, up-front company, but many others may try to hold out, hoping they’ll have a hit show that will save them from the problem,” he said.

He added that eventually, however, many leading companies would be forced to reduce expected returns from the shows.

Even if syndication companies have not done a large amount of business with the troubled stations, the industry shakeout will affect all players by reducing competition and thus dropping prices for programs, analysts said.

In an interview, Harold M. Haas, MCA’s chief financial officer, said the charge was “our recognition that the industry is really going through some changes.” He said most of the $50-million charge was not in reserves to cover bad debts, but rather represented the company’s recognition that it will not earn what it expected from the many shows it expects to sell into syndication.

May Get Better Result

“It may turn out that we do better with these shows over the long run, but we’re making this move based on what we see out there in the market today,” he said.

MCA said that although tax reductions will give it a net profit in the quarter ended Dec. 31, the charge will “substantially or totally” eliminate profits from operations.

Analysts estimated that the charge could result in a decline of about 15% in the 1986 annual profits of MCA, which last year earned $150 million on revenues of $2.01 billion.

The heavy action in Lorimar stock was begun after a securities analyst recommended that her clients, who said she feared the effects of bad debts from Grant and other bankrupt broadcasters, sell the shares. Mara Balsbaugh of Smith Barney Harris Upham in New York also said she was worried about the “strategic direction” of the company’s management, which she said could penalize earnings in the coming fiscal year.

Analysts said other program distributors owed large sums by smaller independent stations include Lorimar and Viacom International, which has a large collection of older television shows that are heavily bought by such stations. Executives of Viacom could not be immediately reached for comment.

Effect to Be Modest

Gulf & Western Industries, parent of Paramount Pictures, said that it expects “no major adjustments” to its balance sheets due to the industry’s problems. The New York-based conglomerate said it expects that it will be able to resell programs held by troubled stations to other broadcasters.

But Gulf & Western spokesman Jerry Sherman added that problems at specific stations “have resulted in a modest increase in our bad-debt reserve.” He declined to say how much more the company is placing in reserve.

In a separate illustration of the changing television market, NBC said Friday that it will purchase CBS affiliate WTJV-TV in Miami from Wometco Broadcasting for $270 million. The sum was $170 million less than the amount originally sought by Wometco.

The acquisition will bring to seven the number of stations owned and operated by NBC. The station will continue to carry CBS network programming until January, 1989, under a current contract.

Paul Richter reported from New York and Kathyrn Harris from Los Angeles.