Entertainment Upheaval : Prime-Time Players : NEXT TO GO? : Might NBC Make a Mega-Deal of Its Own? Speculation Runs Rife

By SALLIE HOFMEISTER

Aug. 3, 1995 12 AM PT

TIMES STAFF WRITER

NBC became more valuable and more vulnerable this week as the other two big television networks agreed to be sold.

Based on the sale prices placed on rivals CBS Inc. and Capital Cities/ABC Inc., the National Broadcasting Co. now contends it is worth in the neighborhood of $10 billion, maybe even $11 billion. That’s substantially higher than the $6 billion that its owner, General Electric Co., struggled to get when it shopped the second-largest network to potential buyers such as Time Warner Inc., Turner Broadcasting Systems and Walt Disney Co. last year.

Although GE did not show its hand Wednesday, the entertainment industry was abuzz with speculation that NBC might soon make a deal with Turner, Time Warner or possibly others. At the same time, some analysts were continuing to predict that another bidder will step forward for CBS, taking it out of Westinghouse Electric Corp.’s hands.

As for NBC, analysts say its value is closer to $8 billion now--more because of the changing landscape in the entertainment industry than the economics of television.

“Everyone has recognized the strategic value of the networks,” said Michael Garin, head of media and communications investment banking at Furman Selz in New York. “To that value has been added a scarcity premium because two of the three networks have now been spoken for.”

In the last six months, GE has indicated that NBC is no longer for sale. But the network is now under greater pressure than ever to pick a studio partner and to improve its distribution reach.

The $19-billion pact Disney sealed with Cap Cities on Monday would create an entertainment powerhouse, combining the top television networks with a premier movie studio, theme park operator and marketing machine. And Westinghouse’s pairing with CBS would give that company the widest television station reach--turning up the heat on NBC to improve its own coverage.

In fact, NBC’s broadcast group will soon grow from six to 10 stations, reaching about 24% of the nation’s viewers. On Wednesday, it won a victory in its $396-million hostile bid for four stations owned by Outlet Communications Inc. when the Delaware Chancery Court ruled that the transaction was better for shareholders than a rival offer.

But “the stations aren’t as important for NBC as buying or allying with a studio,” said Bishop Cheen, a senior analyst at Paul Kagan Associates in Carmel. “NBC needs a date.”

The studios have just as much an interest in being courted. Federal rules that have kept networks from owning and selling into syndication the TV shows they air are being phased out this fall. TV studios such as Warner Bros. and Sony’s Columbia TriStar Television could find fewer time slots on the prime-time schedule available if ABC gives preferential treatment to shows created by its new owner, Disney.

As a result, the phones at NBC have been lighting up since Monday’s announcement, with studio heads wanting to talk.

“NBC is in a strong position at a time of tremendous turmoil,” said Donald W. Ohlmeyer, president of NBC West Coast.

Robert C. Wright, president and chief executive of NBC Inc., has said in the past that NBC would be interested in a strategic partner, but some analysts say General Electric could well be ready to make a purchase. Among the factors that may have turned it from a seller to a buyer is a turnaround in the advertising market and in the network’s ratings, which climbed from a distant third to a surging second last season. (NBC’s operating profit was $500 million last year, almost double that of the year before.)

GE has little debt and several billion dollars in cash on its books. And as Ohlmeyer points out, “we have GE Capital, one of the largest banks in the world.”

NBC’s first choice as a merger partner has been Turner Broadcasting, which is valued at between $8 billion and $9 billion. It would give the network a movie studio and cable assets such as Cable News Network, TBS and TNT, which could be packaged with its own mix of networks, including CNBC, America’s Talking and interests in 17 other channels.

What is more, $200 million a year in savings could be wrung from combining the company’s news-gathering operations.

The companies have had ongoing talks since last summer, and GE apparently tried to buy founder Ted Turner’s 25% stake in the past six months. But few investment bankers believe a deal can be struck because Turner has been unwilling to relinquish control.

A more likely match, and one that came within inches of reality last December, would be between NBC and Time Warner. Time Warner would do for NBC what Disney does for ABC. Time Warner is the second-largest movie studio after Disney, and it is bigger in television production. Whereas Disney has struggled in music, Time Warner holds the worldwide lead. It has the nation’s best brand names in publishing, owns interests in theme parks and is the second-largest cable system operator. (Current laws prohibit joint ownership of cable and broadcast interests, but Congress is considering easing those rules.)

The two companies had hammered out a joint venture deal last year under which Time Warner would have an interest in NBC and a guaranteed number of time periods on the network, sources said. In exchange, GE would have a draw on Time Warner’s catalogue of assets. But according to one investment bank, GE got cold feet, uncertain about the possible hostile intentions of Seagram Co., which had accumulated 15% of Time Warner, and the company’s continuing high debt. Seagram has since bought MCA Inc.

What about the WB Network that Time Warner is trying to grow from seed? Sources say it would be folded into NBC or spun off to Viacom Inc. to be merged with the United Paramount Network.

Some Hollywood executives said Time Warner may have other plans. The merger frenzy, they said, could bring a meeting of the minds between Ted Turner and Time Warner, which owns a 19% stake in his company. Turner has long lusted after a network, but Time Warner has refused to let him buy one. Time Warner Chairman Gerald Levin could get a network by letting Turner make a counter-bid for CBS.

Chairman Laurence A. Tisch has refused to take anything but $5 billion in cash for CBS, but he has fewer options now that he has put the network in play.

Turner, with the blessing of Time Warner and the backing of his other major shareholder, Tele-Communications Inc., could make a stock-and-cash bid and beat Westinghouse in a shareholder vote.

According to one scenario, Time Warner would exert control by demanding that Turner turn day-to-day operations of CBS over to Robert Daly, who ran CBS Entertainment before becoming head of the Warner Bros. studio 15 years ago.

Other scenarios have proliferated this week after Monday’s merger announcement, the second-largest in U.S. history. One idea making the rounds has Sony Corp. selling its entire entertainment division--music, television and movies--to NBC.

Or media mogul Barry Diller, whose deal to merge his home shopping company with CBS last summer collapsed, might buy CBS with his friend Edgar Bronfman Jr., who runs Seagram.

Or Turner and Bronfman could together make a run for CBS.

Meanwhile, NBC figures it has time to strategize. “When the music stops, you better have a partner, but the music is still playing, but maybe not as loudly,” Ohlmeyer said.

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The Good, the Bad, the Networks

In the frenetic scramble to top each other in the ratings, the four largest television networks--ABC, NBC, Fox and CBS--have planned their fall schedules to appeal to younger audiences and thus to woo advertisers most interested in the 18-to-49 age group. A look at the strengths and weaknesses of each network:

ABC

Strengths

* Currently No. 1 in prime-time ratings

* Best station group--including good affiliates in major markets

* Will be vertically integrated pending company’s acquisition by Disney

* No. 1 in news

* Created strong personalities through its shows, including “Roseanne” and “Ellen.”

* Successful with teens, especially with Friday night lineup

* Strong in sports

Weaknesses

* Received only 39 Emmy nominations for past season’s shows, coming in behind HBO, which received 47 nominations. Nominees included “Home Improvement” and “NYPD Blue.”

FOX

Strengths

* Vertically integrated--owns both a studio and a network

* Strong relationship with young adults who loyally follow shows, including “Melrose Place” and “Beverly Hills 90210”

* Strong children’s franchise based on shows such as “Mighty Morphin Power Rangers”

* Scored a coup when it bought rights to broadcast NFL games last year

Weaknesses

* Weak distribution system--holds relatively more UHF stations and fewer VHF stations, which are more powerful

* Programs seven fewer hours of prime time a week than its rivals

NBC

Strengths

* Strong station group