Company Town : Why the Deal-Making Fervor Fizzled

After launching a series of discussions that could have transformed the entertainment landscape, the industry has recently adopted a new and different slogan: “Let’s Not Make a Deal . . . at Least Not Right Away.”

All the heady talk of network reconfigurations, public offerings and even the sale of one entertainment conglomerate has faded faster than a low-rated series. That includes discussions on NBC and CBS described as “heated” only months ago. Expectations have also dimmed on the studio front, where some had looked for the Japanese owners to make a move.

“There was a lot of talk, but everything fizzled,” said one deal maker. “It’s quiet.”

Industry sources blame the rancid deal environment on everything from inflated network values to nettlesome government regulations and complex cross-ownerships. Time Warner Inc.’s talks with NBC, for example, were partly undone by federal roadblocks. Even with a more business-friendly GOP poised to take over Congress, no one sees an immediate resurgence.

Most of the current deal discussions are more modest. Three companies, including Time Warner, are said to be engaged in talks with Cablevision Industries Inc. Viacom Inc. is also said to be exploring ways to unload its cable TV systems and some of its stations. And Tele-Communications Inc. and Comcast Corp. are still seeking federal approval for their $1.42-billion purchase of QVC Inc., the home shopping channel.

The environment for media and entertainment deals caught fire last year, with Viacom and QVC’s $10-billion battle for Paramount Communications. Other agreements that would have hastened the arrival of the information superhighway, such as the merger of TCI and Bell Atlantic Corp., later collapsed. But the momentum picked up again this summer, with QVC Chairman Barry Diller’s merger deal with CBS and the news that Time Warner, Walt Disney Co., Turner Broadcasting, ITT, Dow Jones and MCA were eyeing General Electric Co.’s NBC.

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The ballyhooed CBS-QVC deal died when unexpected competition for QVC emerged. Chairman Laurence A. Tisch denies that he’s interested in doing another deal, despite periodic reports that a bid could be mounted by Diller or New World Chairman Ronald Perelman. Instead, sources say Tisch is more interested in finding a new manager for the troubled network.

Deal discussions involving NBC are also on the back burner. Sources say Disney Chairman Michael D. Eisner was unwilling to pay GE’s asking price of more than $5 billion. Time Warner and other suitors were also said to be put off by GE’s expectations, as well as regulatory issues.

One would-be buyer who remains in the game is cable mogul Ted Turner, but sources say he’s still frustrated by complications involving his partners, Time Warner and TCI. Disney is also said to be poised for another network bid if and when prices become more reasonable. And Viacom could always enter the fray.

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“The sellers had a variety of motivations and expectations, and the buyers came in with a different set of motivations and expectations,” said analyst Jeffrey Logsdon of Seidler Cos. in Los Angeles. “In the case of GE and NBC, one perception on Wall Street was that they would get out if they could get their investment back. But then the station ownership and advertising environment got better, their cash flow ballooned and the price went up.”

Another executive put it more directly: “The reason the networks haven’t been sold is simple: They’re overpriced.”

On the Hollywood front it’s a different story. Sony of America is said to still be looking for a minority investor in Sony Pictures Entertainment. The hang-up, sources say, is that no one wants a passive position in the troubled company. Sony has tabled one-time consideration of a public stock offering in its U.S. entertainment operations, according to executives.

Matsushita Electric Industrial Co. was also said to be considering a U.S. share offering in MCA Inc. earlier this year. Then came word that that Japanese conglomerate might unload MCA altogether, partly to resolve a widening rift with MCA Chairman Lew R. Wasserman and President Sidney J. Sheinberg. Matsushita denied the report, though some expect the new team of Jeffrey Katzenberg, Steven Spielberg and David Geffen to eventually lead a bid.

Merrill Lynch analyst Harold Vogel is skeptical of many of the deals that were once highly touted. “The well has run dry,” he says. “All the possible alliances have been explored and abandoned.”

But Porter Bibb, managing director of Ladenburg Tahlmann & Co. in New York, sees merely a lull in the storm. Speaking about the sales of NBC and CBS, he said: “They’re both going to happen, just not today. What we’re seeing now is a case where the media-driven public perceptions have gotten ahead of the transactions.”

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Publish or perish: PolyGram Music Publishing Group is getting more aggressive when it comes to promoting its artists. Publishing Group President David Simone hosted a party Wednesday night at the trendy Westside restaurant Cicada, and three of its artists performed live.

Watching Jules Shear, Brian McKnight and Eddie Chacon entertain the crowd was another well-known music figure: Bernie Taupin. The writer of countless hit songs with Elton John wasn’t looking for exposure. He is an owner of Cicada.

Inside Hollywood

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