Whittle Bets on Future of Its Electronic Media : Communications: The company has uprooted itself from its print beginnings 25 years ago.

Christopher Whittle reaped millions of advertising dollars and won a reputation as a media innovator by giving companies dozens of new ways to connect with appealing audiences over the past two decades.

He developed magazines for medical waiting rooms and beauty shops, posters for school corridors and veterinarians offices and books for corporate chieftains--and sold advertising to companies who coveted those readers.

But the once widely diversified Whittle Communications has undergone a wrenching change in the past two years that uprooted it from print media and implanted it in the electronic age.

Whittle, who helped create the Knoxville, Tenn.-based company nearly 25 years ago, has lived up to his name--belatedly by some accounts--by pruning a far-flung group of more than 30 different operations to three core businesses.

The chairman, now 46, and his partners are placing bets for the company’s future on the Channel One news program for schools, the Medical News Network system for physicians and the Edison school management project.

The transformation came at personal cost. More than 250 employees have been dismissed in the past two years as revenue growth slowed and then declined partly due to restructuring moves.

Whittle contends the three newly designated core businesses could generate more than $1.75 billion a year in business some day.

But associates say Whittle is a perennial optimist. They say he thought the old business could become a billion-dollar operation. Those were days when the company was posting double-digit percentage revenue gains each year, recruiting an all-star cast of managers and courting powerful new financial partners.

The heady growth ended three years ago just north of $200 million.

Revenue climbed 23% to $201 million in the fiscal year ended June 30, 1991. It edged up 6% to a record $207 million the next year.

Early in the record revenue year, Whittle agreed to sell a one-third stake to the investment firm Forstmann Little & Co. for $350 million, but the deal soon collapsed when Forstmann disputed Whittle’s revenue forecasts.

In fiscal 1993, Whittle revenue fell 5.8% to $195 million, the first yearly decline since the company was incorporated in 1970.

Whittle expects another decline this fiscal year mainly due to the closing in March of the Special Report Network, which delivered a one-hour TV show, a magazine, posters and brochures to more than 24,000 medical waiting rooms.

Nonetheless, he said the underlying revenue trend is good. Electronic media now accounts for more than 80% of total revenue and is growing. Revenue from magazines, posters and sampling programs has shrunk so low that any further declines won’t be as big a drag on overall revenue trends.

Whittle Communications is privately held and therefore not required to file public financial reports, and Whittle declined to disclose earnings figures.

In an interview, Whittle said he underestimated how TV and other electronic media would divert advertising and talent from his print properties.

For example, Whittle collected $10 million in ad revenue in 1988 from Connections, posters hung in school corridors with stories and space for ads.

He expected Connections would complement the TV service for schools, Channel One, introduced nationally in 1990. But he found advertisers lost interest in posters once Channel One was available.

“Channel One drove over Connections like a truck. It obliterated it,” Whittle said.

Channel One also attracted print staffers who wanted to be where pioneering work was done. “We had a wholesale desertion of talented people from print to the electronic forms,” he said.

Medical News Network, delivered via satellite and computer terminals to doctor’s offices, did the same to the book division, which Whittle is closing.

The drug companies that sponsored Grand Rounds Press, one of three ad-filled book series from Whittle, prefer the electronic system over books for reaching doctors, Whittle said.

But technology and the talent flow don’t explain the revenue slowdown.

Ad spending growth generally slowed in the early 1990s. Whittle’s critics say the company hurt itself with its early sales tactics and questionable audience research.

When it launched Special Report Network for medical waiting rooms in 1988, Whittle bypassed advertising agencies and dealt directly with top company executives in signing the initial multiyear ad contracts.

Ad agency executives remember that when asked several years later for advice on whether the money was well spent and if contracts should be renewed.

“There was an early arrogance regarding the agency community that (was) difficult to overcome,” said Betsy Frank, who evaluates media for the agency Saatchi & Saatchi.

She said many ad buyers were dissatisfied with the audience research. Whittle said audience measurement was improved continuously and not a reason for closing Special Report. He blamed high costs of delivering the program, prospects of more losses and staff defections to Medical News Network.

Company insiders said there were other problems. It cost plenty to build a college-like corporate complex in Knoxville and hire high-profile executives.

“They have enormous potential there that was unfortunately limited by the overhead they were dragging around,” said Gerry Hogan, who left after 18 months at Whittle to head Home Shopping Network in early 1992.

He said the recent restructuring moves by his old company “are directionally correct to get Whittle going again.”

Others say Whittle’s involvement in developing the Edison Project to operate schools more effectively and profitably distracted him from the media business in the early ‘90s, leaving the company to try questionable projects.

Whittle said his attention to Edison development will prove profitable for his investment partners. But he conceded the company missed Nicholas Glover’s guidance after Glover left as chief executive in 1989. Glover returned in 1991.

Don Johnstone, chief executive of Philips Consumer Electronics Co., was recently named chief executive in a move to strengthen financial leadership.

Philips’ Dutch parent owns 33% of Whittle as does Time Warner Inc., which wants to sell its stake. Associated Newspaper Holdings of Britain owns 22%, Whittle himself has 7% and key executives own the rest.

Philips, Associated Newspapers and Whittle himself own the Edison project.

The public may eventually get a chance to buy a piece of Channel One, Medical News Network and Edison.

Critics still say Channel One exploits students for profit, that health-care reform could cut drug makers’ ability to finance MNN, and that school management is an unproven business fraught with political dangers.

But Whittle, who became a multimillionaire by selling part of his company to outsiders, said that focusing on potentially big operations rather than smaller projects is the right move.

“Every one of these businesses has greater capacity than the businesses we had in 1988,” he said.