CBS Expects Its 1st Loss in Decades : Media: A slump in ad revenue and costly sports deals are blamed. The company says it must make drastic changes in the way it does business.

CBS Inc., facing a slump in advertising and astronomical costs from sports contracts, said Monday that it expects to lose money in the fourth quarter and must drastically change the way it conducts business.

The announcement is the strongest statement to date of the slowdown in advertising revenues and the effect it is having on the television business. All three networks, burdened by enormous fixed programming costs, are bracing themselves for another round of layoffs and cutbacks in operating expenses.

CBS said it projects 1991 earnings will be below those of 1990 “as the consequence of both the worsening economic climate” and rising costs for entertainment and sports programs.

Even more ominously, CBS revealed that the CBS Television Network is expected to lose money in 1991. CBS Inc. also owns radio and TV stations, which are still expected to be profitable next year.

Although in some recent years profits at the network have dipped into the low tens of millions of dollars, next year would be the first time in decades that the network actually lost money.

A senior CBS executive said the network would “break even” in 1990. But that is a considerable setback because analysts earlier had estimated that the network would earn a $75-million to $100-million profit. Revenue at the network is expected to top $2.3 billion for the year.

Ironically, CBS’ new financial setbacks come just as the network is beginning to make headway in the ratings. Still a distant third among target 18- to 49-year-old viewers, CBS nonetheless has advanced into second place during the first two months of the season.

The bleak financial outlook has forced CBS to reduce the amount of money it pays to more than 200 affiliates to carry network programming. The practice of paying affiliates to carry programming dates back to the early days of radio and now represents a significant outlay for each of the networks.

CBS pays about $160 million annually in affiliate compensation, compared to about $130 million for NBC and $110 million for ABC.

Affiliates were scheduled to meet with CBS executives Monday afternoon in New York. During that meeting they were to be briefed by Chief Financial Officer Peter Keegan about the dimension of the losses facing the network.

Reductions in compensation payments, however, could lead to an increase in affiliates dropping CBS programs in favor of more profitable syndicated shows. In recent years CBS has been bumped to weaker affiliates in Rochester, N.Y.; Louisville, Ky., and Knoxville, Tenn., because rival networks were willing to pay more money.

CBS officials said the amount to be cut from affiliate compensation has yet to be determined. But one knowledgeable executive said CBS Inc. Chief Executive Laurence A. Tisch was seeking to bring CBS at least in parity with NBC, which would mean about a $30-million reduction.

“We want to make it clear this is not just a baseball problem,” said Anthony C. Malara, president of CBS affiliate relations. “The network is operating with a substantial number of fixed costs. This is an industrywide problem.”

But while the other networks have refused many expensive sports deals, CBS willingly committed itself to more than $3.6 billion in sports contracts for the National Football League, Major League Baseball and the winter Olympic Games in 1992 and 1994.

CBS said its losses from a new, four-year $1-billion baseball contract were “higher than anticipated” because of abbreviated four-game contests in the American League championship series and the World Series. Previously, CBS pegged those losses at “under $100 million” for the recently concluded first year of the contract, which occurred in the third quarter.

But CBS said that, even without baseball, the soft advertising marketplace alone would have triggered a loss at the network in the fourth quarter, signaling the ad economy is even weaker than some had earlier believed.

At a meeting with Wall Street analysts last week, Capital Cities/ABC Inc. Chief Executive Daniel B. Burke said fourth-quarter advertising revenues among the three networks would record “slow growth, if any.”

During the fourth quarter of 1989, advertising at the three networks totaled $2.1 billion, up a weak 2.9% from the year before, according to the Broadcast Cable Financial Management Assn. When inflation is calculated, however, there has been a decline in real ad dollars.

One small measure that CBS is undertaking to cut costs is to move its annual affiliates convention to New York from Los Angeles. The annual extravaganza, which can cost as much as $3 million for a three-day bash of canapes and stars at the Century Plaza Hotel, will now be pared down and run “more businesslike,” Malara said.

Last week, CBS News also eliminated about 50 positions from its 1,100-member staff.

Similar measures are being taken at the other networks as advertising growth slows to a trickle. ABC has canceled its annual management conference in Phoenix and is cutting personnel at its overseas news bureaus. It also has scuttled a planned overnight news service to affiliates.

NBC also is considering moving its affiliates convention to New York. But, noted one NBC executive, “this is not going to save the republic.” NBC, which has seen its revenues fall several hundred million since 1988, is coming under pressure from parent General Electric Co. to maintain its profit margins, which are expected to shrink this year for the first time since GE bought the network in 1986.

The CBS disclosure of a fourth-quarter loss stunned Wall Street since it means that the company will lose money even after posting more than $100 million from interest income on about $3 billion in cash. In New York Stock Exchange composite trading, CBS shares lost $4 Monday to close at $159.75.

CBS Net Income The Last Five Years And The Last Eight Quarters *includes one-time gain of $866.6 million from the sale of CBS records CBS Share Prices Monday: $159.75, down $4.00