Whittle to Sell Channel One : Media: K-III Communications plans to buy firm’s educational network for nearly $300 million, executives say.
Whittle Communications, in a move that all but ends entrepreneur Christopher Whittle’s dream of building a new kind of media empire, is close to selling the Whittle Educational Network to publishing giant K-III Communications Corp. for nearly $300 million, executives close to the negotiations confirmed Tuesday.
The sale is the latest and most dramatic downshift yet for Knoxville, Tenn.-based Whittle, which had embarked on an ambitious series of ventures in the 1980s aimed at pioneering new strategies for advertisers.
Whittle Educational Network’s principal asset is Channel One, a highly controversial 12-minute newscast that is delivered by satellite to 12,000 high schools around the country--and that carries two minutes of commercials from fast-food companies and personal-hygiene marketers.
K-III, which is controlled by the leveraged-buyout firm Kohlberg Kravis Roberts & Co., hopes to use the electronic “pipeline” Whittle has built to deliver other programming it already owns or is in the process of developing. The impending sale was first reported Monday in the Wall Street Journal.
Channel One, which has revenue of about $100 million and is believed to be profitable, is Whittle’s biggest asset. Its sale represents a major setback for Whittle, who has seen his empire virtually disintegrate over the past year as advertisers rejected some of his grand visions.
Throughout the late 1980s and early ‘90s, Whittle tried to create a media empire by launching a series of so-called place-based advertising ventures targeted to consumers outside the home. The concept was promising enough--and super-salesman Whittle persuasive enough--that Time Warner Inc., Philips and Associated Newspapers took equity interests in his company.
But now Whittle is left with only a professional women’s baseball team, a handful of professional publications and a company that distributes sample products to college students--one of his original businesses. He also remains head of a separate venture, the Edison Project, which aims to build a chain of for-profit schools.
Even Whittle’s famed Colonial-style headquarters in Knoxville, built at a reported cost of $50 million and featuring offices that boast of wood paneling and roll-top desks, may be sold to the federal government, which wants to convert it into a courthouse. About 250 of Whittle’s 600 employees work there. Last year, the company had more than 1,100 employees.
“They were the first and probably will be the last” to embark simultaneously on so many new advertising projects, said Erica Gruen, senior vice president at Saatchi & Saatchi in New York. “I doubt anybody will want to try all these new ventures again.”
The premise behind Whittle’s projects was that traditional broadcast television was losing its grip on the mass audience and that new avenues had to be opened to reach the increasingly kinetic consumers.
Among Whittle’s first ventures was Special Reports, a series of videos and magazines delivered into physicians’ waiting rooms, and a division that published advertiser-sponsored books. Both ventures were shut down earlier this year.
In addition, Whittle last week announced that it was scrubbing Medical News Network, a costly news service that was tested in 5,000 doctors’ offices and had been set for a national rollout this fall. Whittle had planned to spend as much as $200 million on MNN but was unable to attract long-term drug company sponsorship in the face of the uncertainty created by the health care debate.
Although ventures such as Special Reports made a quick splash, the follow-through frequently hit snags.
For example, Whittle’s razzle-dazzle presentations were often made to the chief executives of prospective sponsors, bypassing the normal chain of command in the media-buying business. The result was that he frequently alienated junior executives assigned to the accounts.
Moreover, media buyers were frustrated by what they saw as a lack of independently verifiable information regarding the numbers of viewers and readers for Whittle’s videos and publications. On top of that, although Whittle promised advertisers exclusive exposure, he ultimately could not guarantee that other magazines and publications were not making their way into doctors’ offices.
Although many of Whittle’s projects did not pan out as envisioned, Channel One nonetheless has built a valuable satellite conduit into many of the nation’s schools at a time when cable operators and local phone companies want to wire them for the so-called information highway.
Channel One has been fiercely opposed by many educators, who despise the idea of advertising in the classroom and resent the requirement that all schools receiving the Channel One equipment force all students to watch the program.
But merging Whittle’s technical infrastructure--it installed 12,000 satellite dishes at secondary schools and gave them 350,000 TV sets--with K-III’s role as “content supplier” appears to make sense.
K-III already publishes several magazines aimed at teen-agers, including Seventeen and Weekly Reader, as well as general-interest titles such as New York magazine and Premiere.
But the New York-based publisher is expanding into related businesses. K-III acquired the Katherine Gibbs Schools and also owns a company that distributes CD-ROMs to the educational market and publishes the Funk & Wagnalls encyclopedia. A source close to K-III says it could use Whittle’s system to deliver this and other content to the schools.
Whittle had been negotiating to sell a stake in Channel One to the merchant banking arm of Goldman, Sachs & Co. when it received a substantially better offer for the entire business from K-III. Whittle is expected to use the proceeds from the sale to pay back investors and costs incurred in the failed start-up of MNN.
The push to sell Channel One, however, was said to come from Whittle Chief Executive Donald Johnstone, a former Philips executive who joined Whittle after Philips increased its stake.
Although Whittle would continue to run Channel One for K-III, several experts who follow his activities expect that he will devote more time to the Edison Project.
The privately held company, which was established in 1986, was once a phenom of the media world, but it has now been virtually liquidated. Here’s what happened.
* Special Report Network: The network, launched in 1988, consisted of glossy magazines--and later videodiscs--for display in doctors’ offices. Though it grew to include more than 32,000 waiting rooms, high costs forced its shutdown in February.
* Medical News Network: An interactive TV service for doctors that was launched on a test basis 18 months ago. The project was canceled last week after major advertisers--mostly drug companies--refused to make long-term commitments.
* Channel One: Controversial service offers advertiser-supported newscasts to about 12,000 schools. Sold to K-III Communications Corp. on Tuesday for a reported $300 million.
* Edison Project: Ambitious plan to create a for-profit private-school network has floundered for lack of funds. Christopher Whittle remains chairman of the project, which is not part of Whittle Communications.
Sources: Folio magazine; wire reports; company reports
Researched by ADAM S. BAUMAN / Los Angeles Times
Profile: Christopher Whittle
* Age: 46
* Residence: Knoxville, Tenn.
* Education: Received bachelor’s in American studies from the University of Tennessee.
* Career Highlights: Chairman of Whittle Communications, which he founded in 1986. Previously involved in a publication called 13-30 between 1983 and 1986. Co-recipient of Advertising Week magazine’s 1983 award as magazine entrepreneur of the year. Was publisher of Esquire magazine from 1979 to 1986. Began publishing career in 1971 by selling advertising in Nutshell campus magazine.