Casting a Worried Eye on a Troubled CBS : Television: Sale rumors only add to the woes of a network struggling to overcome programming, distribution and other problems.

In the high-stakes chess match to come up with the best fall television schedule, and the biggest ratings and profits prize, all eyes are focused this week on the moves made by CBS, which fell from first to third place last season.

Network executives probably contemplated the moves by their competitors during a cram weekend strategy session. But even with new shows that attract the 18-to-49-year-old crowd advertisers crave, the network may not easily reverse fortunes that slid in the first quarter by an astonishing 68%, to earnings of $21.9 million.

CBS’ problems, after all, are not limited to prime time but extend to news, sports and the lineup of local CBS stations. Just this weekend, in the latest sign of trouble, the network removed Connie Chung as anchor of its “CBS Evening News.”

But the biggest question remains who will own the network six months from now. A bigger CBS mystery than “Murder, She Wrote” is whether Chairman and Chief Executive Laurence Tisch will sell his 20% stake or relinquish operating control to a partner in a merger.

“CBS has got more problems than any one company ought to have to deal with at the same time,” one industry executive said. “The problems all interlock and magnify each other. It’s tough enough to fix prime time without having problems with distribution. And the biggest problem they face is this: While they’re trying to rebuild, everybody there is wondering when CBS will be sold.”

Neither Peter Lund, a longtime CBS executive who was recently appointed CBS president, nor Peter Tortorici, the head of entertainment, would comment for this article. But Tisch this month once again denied that year-old rumors that the network is for sale are true.

Investment bankers representing possible bidders say otherwise. “Everyone knows Larry has a price,” one of them said.

As a long-term investor, Tisch has no problem waiting, and he has already made a tidy profit for himself and for shareholders by cutting costs and pumping up the stock price. But bankers say the longer he waits, the less likely he is to get the $5-billion price tag he has put on the network.

According to some estimates, the value of CBS has dropped $1 billion after the network lost several strong stations and National Football League games to Fox last year and Tisch’s agreement to merge with Barry Diller’s QVC Inc. blew up last summer.

Now, with the U.S. economy sputtering, the value could erode further should the advertising market weaken, prompting speculation that Tisch might be motivated to merge or sell by year-end.

“He wants more than 10 times cash flow, and networks just don’t get those kinds of premiums,” one banker said. “It is worth maybe $4.6 billion, and that is based on an unusually strong advertising market.”

In the meantime, the prospect of a sale is eroding morale and productivity at the network. Though several of CBS’ 200 affiliates spoke highly of the new management team, some worry about a caretaker mentality. “People are preoccupied with whether they will have jobs next week, and what direction to take,” said Gary Schmedding of Lee Enterprises in Iowa, which has five CBS affiliates. “There’s no focus. I say, ‘Let’s make a sale and get on with the business of running a network.’ ”

With the Diller deal revealing Tisch’s apparent motives, several executives left, including the network’s popular president, Howard Stringer, whose charm helped counterbalance Tisch’s all-business demeanor.

Tisch’s being persuaded to spend $14 million a year to bring David Letterman to CBS to build up late-night ratings notwithstanding, many CBS executives are said to have become frustrated with Tisch’s emphasis on cost-cutting and his steadfast devotion to a “broadcast-only” strategy that avoided costly acquisitions but also left the network out of the expanding new-media and cable businesses--and even more vulnerable to the cycles of prime-time ratings. In contrast, NBC has the cable-news CNBC, and recently joined with Microsoft in a joint venture to provide on-line services.

“His lack of understanding set up many problems that exist today,” said James G. Babb, a former CBS affiliate board member and head of Outlet Communications in Cranston, R.I.

For example, Tisch’s attempt three years ago to reduce affiliate compensation for distributing network programming when CBS’ ratings were at their peak bred disloyalty and opened the door to raids such as the one waged by Fox Broadcasting last year, many affiliates say.

Tisch might also have headed off a raid by more aggressively buying CBS-affiliate stations, including those snapped up by Ronald O. Perelman’s New World Entertainment, which then struck a deal with Fox. Tisch further helped Rupert Murdoch’s cause, television executives say, by failing to give his managers the maneuvering room to win the National Football League bid.

Murdoch may have overpaid for football by some $400 million, but people inside CBS say the gain in male demographics and as a platform to promote other programs made it invaluable for CBS.

The defections to Fox are a critical factor in CBS’ ratings deterioration, and they have forced the network to take on weaker affiliates on the UHF dial in important markets such as Atlanta and Austin, Tex.

In an effort to prevent further station losses, CBS increased compensation and locked in 75% of its affiliates with long-term contracts from 5 to 10 years. It formed a partnership with Westinghouse’s Group W, picking up two former NBC affiliates in exchange for providing an outlet for Group W programming. But the distribution system is still delivering smaller audiences than affiliates would like. Analysts have criticized the CBS-owned stations over the years for not being as profitable as ABC or NBC stations.

In terms of its problems in prime time, CBS clearly is paying for having clung to what many in the industry see as an outdated strategy. Under Stringer, the network moved from third to first place over a five-year period by building a lineup of quality shows such as “Murphy Brown” that appealed to older viewers. But it failed to develop a fresh slate of shows as those aged and to embrace the younger viewers advertisers pay most dearly for.

Sunday and Monday nights on CBS remain strong, with “Cybill,” “Dave’s World” and “The Nanny” among the newer shows that are succeeding. But the new UPN Network’s launch of a Star Trek show ate into CBS audiences on Monday, and CBS’ popular “60 Minutes” suffered without a setup from football on Sunday.

Despite worries that the network has few “platforms”--shows that appeal to young viewers and that can be used to promote others in the same genre--advance handicapping by the advertising community of CBS’ fall offerings is that some of the shows appear promising. Some sources, however, say CBS executives are concerned about the depth of their development, given how many slots they have to fill.

Few in the industry count CBS out, reciting the conventional wisdom that underdog networks always climb back by virtue of having more time slots in their schedules to offer top writers and producers.

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Falling Share

Since the 1993-94 television season, when it led the major networks with a 23% share of prime-time viewers, CBS has slipped to 18%, last among the big three.

* 1993-94 SEASON

CBS: 23%

ABC: 20%

NBC: 18%

Fox: 11%

Other: 28%

* 1994-95 SEASON

CBS: 18%

ABC: 20%

NBC: 19%

Fox: 12%

Other: 31%

Researched by DAVID NEIMAN / Los Angeles Times

Source: Nielson Media Research