NEWS ANALYSIS : Paramount Could Prove Bargain in Right Hands : Acquisitions: Key is exploiting entertainment assets in era of new technology. Ted Turner is model of success.

In the late 1980s, Hollywood and Wall Street labeled cable mogul Ted Turner a fool who had overpaid for Metro-Goldwyn-Mayer’s library of films that included such classics as “The Wizard of Oz” and “Gone With the Wind.”

Today Turner is widely regarded as a visionary, after using the $1.2-billion deal as a linchpin to build lucrative cable channels that generate hundreds of millions of dollars a year. Some even consider the MGM library a steal.

It may be helpful to keep that in mind as the frenetic $10-billion bidding war for Paramount Communications lurches toward a climax over the next 11 days, amid criticism that rival suitors QVC Network and Viacom Inc. are offering too much. Observers say Paramount may look like a Blue Light Special within five years, if the victor skillfully exploits the company’s movie, publishing, TV and sports assets in the technological new world.

With the ballyhooed information superhighway taking shape amid promises that TV viewers will have access to hundreds of channels, the demand for movies and TV programs is expected to grow exponentially--making vast film libraries such as Paramount’s even more valuable.

“I’d say, yes, they are overpaying today,” said one top Hollywood executive who asked not to be named. “But my gut tells me I’ll be saying ‘no’ tomorrow.”

Paramount’s board is expected to meet Friday to assess the final bids and make a recommendation to shareholders. But based on Wall Street’s reaction Wednesday, Viacom will be the victor. “The market has spoken,” said one major investor.

There were also rumors Wednesday that BellSouth Corp. will try to boost QVC’s stock price --and thus the value of its bid--by buying QVC stock on the open market. BellSouth, QVC’s main financial backer in the Paramount bidding, had no immediate comment, but two Wall Street sources said they believed the regional phone company would have to obtain a federal judge’s permission before making such a move--unlikely to happen before Feb. 14--when Paramount shareholders must pledge their shares to either Viacom or QVC.

As the bidding has dragged on over five months, shareholders have learned that putting a price tag on any company these days is nearly impossible, with the technology revolution driving values into outer space.

The trend began 20 years ago, when the proliferation of home videocassette recorders, specialty cable channels and foreign TV channels began to add billions of dollars to the value of films that otherwise would have gathered dust after their box office and broadcast TV runs.

A film such as Walt Disney’s 1940 animated classic “Pinocchio” used to sit in a vault, trotted out every five to seven years to play again in theaters. But Disney has reaped about $125 million in revenue selling “Pinocchio” videocassettes over the past 11 months.

Other recent studio deals--such as Japanese manufacturing giant Matsushita’s $6.6-billion purchase of MCA Inc. in 1990--also look like bargains now.

Analysts estimate that the New York-based company’s current value is $8 billion to $9 billion. Its biggest asset, Paramount Pictures studio, is said to be worth $2.5 billion to $3.5 billion, and Paramount’s 50% share of the USA cable network is valued at $450 million to $600 million. Its huge Paramount Publishing unit is put in the neighborhood of $2.5 billion.

Yet many of those estimates are based on the current rather than potential value, with the key factor being the amount of cash the company generates. Most often, a multiple of that cash flow is used to make overall value estimates, often using previous sales as a guide.

Estimates also vary widely on specific assets. Seidler Cos. analyst Jeffrey Logsdon, for instance, values Paramount’s five theme parks at $500 million. Some other analysts value the parks slightly higher, at nearly $550 million, but some entertainment executives believe they are worth less than $500 million because most are in areas with harsh climates.

But those estimates pale next to the $750-million value placed on the parks by Viacom and its proposed merger partner, Blockbuster Entertainment.

Valuing entertainment assets is also tricky because no one knows how much revenue a slate of films and television shows will generate. That was clear on Wednesday, when Paramount disclosed that it will lose from $35 million to $40 million in the financial quarter ended Jan. 31, in part because its holiday films failed to deliver as expected.

The company cited “Addams Family Values,” a sequel Paramount had counted on to be a hit but that will result in an “unexpected write-down.” In addition, the company said it lost $18 million on its 50% share in the USA Network, blamed largely on the unexpectedly dismal ratings for the syndication debut of “Major Dad.”

By contrast, some assets may prove more valuable than expected. Paramount’s Star Trek franchise, worth little in the 1970s, was resuscitated by a hit feature film in 1979, resulting in a successful string of sequels and merchandise sales that have brought the studio more than $1 billion.

Now Paramount is making sure the franchise lives long and prospers by passing the baton to a younger cast in “Star Trek: The Next Generation” and “Star Trek: Deep Space Nine.” Yet another spinoff, “Star Trek: Voyager,” is planned. A “Next Generation” feature film is in the works, which, if successful, could result in hundreds of millions of dollars in revenue from sequels, the sale of Star Trek toys and the development of video games.

Much of Paramount’s value also hinges on who ends up at the helm. Most observers give Viacom the edge in assets--such as its Showtime and MTV networks and its successful television syndication business. But they give the nod to QVC Chairman Barry Diller when it comes to the vision and creativity needed to take advantage of new technologies. “It’s worth something to one person, and something else to another. It’s worth what you can make of it,” said one studio chief.

To calculate the value of the competing Paramount bids, Wall Street is trying to forecast the price of Viacom or QVC stock immediately after a victory in the Paramount auction.

On Tuesday, Viacom increased the value of the securities it is offering for 49.9% of Paramount shares (cash would be used to buy the remainder) and improved the terms of the partial guarantee it is offering in the event Viacom stock trades lower than expected a year or two after the merger.

QVC, for its part, reconfigured its bid to boost its cash component by $750 million but did not effectively increase its overall value. For that reason, Wall Street arbitrager Curtis Schenker said, “I can’t imagine that the board is not going to endorse Viacom.”

Schenker, the managing partner of Scoggin Capital Management, added: “To us it is very clear that Viacom is a superior bid . . . having protection on the back end is very important.”

S. G. Warburg analyst Lisbeth Barron calculated that the bids are worth $82 to $83 a share, or about $10.1 billion to $10.2 billion.

On a daily stock price basis, however, the value of the bids reflects a greater disparity because the perceived winner’s stock declines, due to the impact of absorbing a new company and assuming more debt. Based on Wednesday’s prices, Barron estimated QVC’s bid was $87.26 and Viacom’s bid was about $84.23 per share, or $10.3 billion to $10.7 billion.

Paramount fell $1.875 to $78, while QVC jumped $2 to close at $46.75. Viacom A fell $1.125 to $37.875, just above its 52-week low of $37.125, while Viacom B fell 62.5 cents to $33.50--setting a new 52-week low. Blockbuster fell 75 cents to close at $26.875; BellSouth declined 75 cents to $59.