COMPANY TOWN : Prime-Time Targets : Studios Covet Networks as a Source of Rerun Riches

Fox Inc. already has one. Paramount Communications is building one. Time Warner is building one and interested in buying one.

Broadcast networks, laughed off as dinosaurs in the age of cable and emerging multimedia technology, are hot properties again in the 1990s. In a remarkable turnaround that’s at least partly due to the major studios’ drive to guarantee air time for their shows, network broadcasting has made a stunning resurgence, although its long-term prognosis remains shaky.

Nowhere, perhaps, is the change in conventional wisdom better illustrated than in Time Warner Inc.’s negotiations to acquire the broadcasting and cable interests of NBC. Time Warner once looked down its nose at broadcasting, betting that cable and pay TV services such as HBO would be the high-growth enterprises of the future.

But new federal regulations allowing the networks to produce their own shows have raised fears that the traditional producers--notably the major Hollywood studios owned by companies such as Time Warner--will be crowded out. Since those companies receive lucrative fees from TV production and syndication, many are now committed to controlling both ends of the pipeline.

“November, 1995, is the triple-witching hour,” says Los Angeles entertainment attorney Ken Ziffren. “At that point, massive deregulation can kick in, where basically there will be no rules as we know them today that restrict the networks” from owning their own shows.

On Thursday, there was no word of any movement in the Time Warner-NBC merger talks, said to be progressing at a leisurely pace. If the two sides overcome stiff regulatory hurdles on cable issues and strike a deal, analysts agree, it will put pressure on other networks and studios to consider merging or forming strategic joint ventures. As television becomes the chief entertainment medium around the world, control of its content becomes the key economic issue.

Time Warner’s Warner Bros. unit, the leading supplier of prime-time network programs, with 8 1/2 hours of shows sold for the fall, could be hit especially hard by such changes.

The need to be sure of an outlet for programming points up even more how studios such as MCA, Sony and Disney will be exposed unless they forge their own ventures or mergers. Although foreign companies are barred from owning TV stations, they are allowed to own TV networks.

“Warner Bros. is the largest producer of TV programming in the world,” said one investor who owns stakes in several media companies. “But unless they vertically integrate, they will be out of the (TV) production business.” The same holds true for the others, he said.

The rights to a hit TV program can be more profitable than a blockbuster motion picture and more lucrative than selling advertising time on network TV shows. Hit comedies such as “The Cosby Show” generated nearly $900 million in rerun profits. By comparison, the combined profits of ABC, CBS and NBC were about $664 million last year.

“The networks are really looking at two businesses now,” said Grant Tinker, former chairman of NBC. “The old one--revenues from advertising--and the new one--revenues from programs. There’s a lot of money in software.”

The prospect of losing revenue has studio executives in a deep funk. In recent years, they have watched the networks produce more and more of their news and entertainment in-house rather than commissioning outside suppliers. For the 1994-95 season, 24% of the networks’ prime-time schedule will be produced in-house, compared to 15% for the 1992-93 season.

“The networks, in terms of gross production dollars a few years out, will probably be the equivalent of a medium-size studio,” predicted David Londoner of Wertheim Schroder in New York. “At $500 million per network, that’s a significant market decrease for the studios.”

Hollywood studios now must elbow the networks--their biggest customers--for “shelf space” on network program schedules. The goal for a show’s producer, whether studio or network, is 75 episodes--the minimum required for reruns in syndication. And producers need many shots at getting on the schedule, since most new shows fail.

The latest reasons for network popularity are a far cry from those of years ago. Networks were hot properties in the 1960s, ‘70s and early ‘80s, when they commanded 90% of the TV audience and advertising revenues were skyrocketing at a double-digit clip.

CBS’ highly rated coverage of the past season’s Winter Olympics alerted some people to the value of networks, but the bigger impact came from a bitter, decade-long Washington lobbying campaign by ABC, CBS and NBC for the rights to produce and own more of the shows they air. That battle pitted the three networks--Fox technically does not qualify as a network--against the major studios. While the rule change allows the networks to get deeper into the programming business, it also allows the studios to poach on the networks’ turf.

Both Paramount and Warner Bros. are hoping to start a “fifth network” in January, with two nights of programming. The keystone of the United Paramount Network--a joint venture with TV station group Chris-Craft--is “Star Trek: Voyager,” the third spinoff of the “Star Trek” series, which is produced by Paramount. Three of the four comedies slated for the WB Television Network are also under the Warner Bros. TV banner.

The studios’ networks are “a backlash to the networks having made it clear they are going to own and produce more of their own shows,” said Alan Berger, head of the TV department at ICM. “The studios don’t want to be beholden to the networks any longer.”

But one analyst notes that in the renewed rush to embrace the broadcast networks, people are forgetting that the business is “highly cyclical”--dependent both on ratings and the economy. And when the ratings are in the trough--as inevitably happens in a hit-driven business--and the economy is in a downturn, the combination can be financially disastrous.

“The pretty nasty part will come in the next recession when we find out we have too many networks,” said Harold Vogel of Merrill Lynch. “A few years ago, there were three networks and only enough advertising to support two. What happens when there are five networks and only enough advertising to support three? Someone is really going to be suffering at that point, and none too happy.”

Jockeying for Air Space

Time Warner’s merger talks with NBC reflect the new reality in television, in which major entertainment companies want to be able to guarantee air space for their programs. In addition to the NBC talks, Time Warner is working to build its own WBTV Network. Paramount is also committed to creating a new network. Here are the network connections and some major shows of the six top entertainment companies. *Company: Time Warner Network: WB TV Network Prime-time network hours: 8.5 Major shows: “Murphy Brown” (CBS), “Full House” (ABC) Company: Paramount Network: United Paramount Network Prime-time network hours: 1.0 Major Shows: “Frasier” (NBC), “Wings” (NBC) Company: Fox Network: Fox Broadcasting Co. Prime-time network hours: 4.5 Major Shows: “The Simpsons” (Fox), “Picket Fences” (CBS) Company: Disney Network: Denies rumored talks with CBS. Prime-time network hours: 3.5 Major Shows: “Home Improvement” (ABC),”Blossom” Company: MCA Network: No affiliation Prime-time network hours: 8.0 Major Shows: “Coach” (ABC), “Northern Exposure” (CBS) Company: Sony Network: No affiliation Prime-time network hours: 5.5 Major Shows: “Mad About You” (NBC), “Married With Children” (Fox) Source: Warner Bros.