SLOW FADE IN THE STUDIOS : With Disney’s purchase of a TV network, programmers are now poised to be masters of the pop-culture universe. So long, New York. Hello, Burbank.

Last week, a great American institution faced its Yorktown. Once the dominant force in the U.S. media, the New York-based television networks have had their world turned upside down, with potentially huge implications for the future of culture-based industries and for Southern California.

By far the most critical development was Walt Disney Co.’s acquisition of broadcast behemoth Capital Cities/ABC. In one fell swoop, control of the nation’s No. 1 television network shifted to--of all places--Burbank, where Disney, probably the most productive studio empire in the world, is based. Last week’s other major change in media ownership, Westinghouse Electric Corp.’s purchase of CBS Inc., was greeted with less enthusiasm by analysts and investors largely because the new combination lacks the creative assets and Hollywood connections enjoyed by Disney.

Indeed, the growing importance of the production side of the entertainment business--essentially, access to the huge content-producing agglomeration of Hollywood--suggests a potentially crucial shift in media power away from the New York networks to the L.A.-area studios. Already, one major network, the Fox Broadcasting Co., and two fledgling ones, the United Paramount Network and WB Network, have been built on a studio foundation, not on traditional broadcasting activities.

“I think this is good news for Los Angeles,” observes Dennis C. Stanfill, former President of both 20th-Century Fox and MGM. “We have an aggressive shift in the balance of power with the rise of [the] studios, nationally and internationally.”

In many ways, the studio comeback reverses the great network boom started by William S. Paley, who took over a failing radio network in 1928 at a time when Hollywood’s studios were riding high. Fortune magazine dismissed the string of 22 stations bought by Paley as “that miserable radio venture.” Studio chieftains William Fox and Adolph Zukor--then the kings of the fledgling mass-entertainment business--also viewed Paley’s “network” as little more than an upstart, although Zukor later made a key investment in the infant CBS.

Yet, it was Paley--and the founders of the other two New York-based broadcast networks--who eventually gained the upper hand by grasping the dynamics of mass marketing and the importance of national transmission of radio and TV signals. As a result, the popular-culture industries began to tilt, in the 1950s, toward the New York-based networks, particularly after television began edging out feature films as the nation’s primary entertainment.

But by the 1960s, the media patterns evident today began to coalesce. Slowly, TV production turned west, as the networks began to exploit Hollywood’s unrivaled understanding of what appeals to mid-America tastes. Equally critical was Hollywood’s unmatched skills at animation, concentrated in such technically superb companies as Disney, Warners and Hanna-Barbera.

By the late 1970s, the die was cast. Television’s content was mostly created by L.A.-based studios and independent production companies. Led by Universal and Disney, the big studios also expanded aggressively into theme parks and movie-themed merchandise. More recently, they have focused on other rapidly growing markets--cable, satellite, and multimedia.

Meantime, the networks, circumscribed by FCC rules and regulations, concentrated on their traditional transmission, distribution and financial businesses, conceding creative capability and artistic decision-making to Hollywood. “The networks as they have evolved--or I should say, failed to evolve--have lost strength [and] position,” says Stanfill. “Fundamentally, Hollywood kept the strength to create product.”

Perhaps even more critical, Stanfill believes, has been the networks’ failure, with the exception of Ted Turner’s CNN, to exploit fast-growing entertainment markets overseas. Mickey Mouse, Donald Duck, even Bart Simpson, have proved to be true cosmopolitans, far more marketable globally than the likes of network-news stars Peter Jennings, Dan Rather and Tom Brokaw.

For example, one-fourth of Disney’s revenues were generated overseas last year, three times greater than just a decade ago. By contrast, only 10% of Capital Cities/ABC revenues came from outside the United States. The movie industry, as a whole, is even more internationally minded: last year, half of all U.S. film revenues came from abroad, a percentage expected to surpass 70% by the year 2000.

Although conventional wisdom maintains that last week’s sales, coupled with speculation that General Electric may soon unload NBC, buttress the enduring importance of the traditional networks, the flurry of rumors of more acquisitions to come may well suggest that their financial worth has peaked. Certainly, the fact that investors paid nearly twice as much for MCA and Paramount than for CBS reflects how much the value of broadcast outlets have fallen relative to content-producing ones.

And with new transmission alternatives steadily gaining market share--from cable to fiber optics to satellites to the Internet--the relative importance of traditional broadcast bandwidths will likely fade. In the future, the new studio-centered entertainment combines may turn to buying, or at least gaining access to, these new transmission systems, which may themselves ultimately be owned by the likes of telephone companies, satellite-communication companies, cable firms or even software giants such as Microsoft.

For Southern California, with its strong economic and cultural ties to global markets, particularly in Asia and Latin America, tapping and developing them present a natural means to rebuild the regional economy. With ABC and Fox now run by residents of Southern California, the region could become not only the world’s leading producer of films and television shows, but also the capital of such ancillary products as theme parks, trademark merchandise, CD-ROMs and interactive games.

The stakes in the emerging media game are enormous. Indeed, the advantages of winning are evident in Burbank. By cultivating its main anchors--Disney and Warners--and scores of other, smaller speciality houses, the once dowdy little city of 98,000 has managed to both reinvent itself and rebuild its economy.

Even as its largest employer, Lockheed, was scaling down its operations, Burbank was aggressively marketing itself to the entertainment and communications industry. It boasted a Midwest-style cooperative, business-friendly climate for both large and small media companies. “This is small-town America in the middle of a big city,” says Robert M. Tague, the city’s community-development director and an architect of the Burbank strategy.

To preserve its small-town ambience, the city regularly sweeps its streets and whitewashes graffiti. It transformed its once desolate central business district--the much-maligned “beautiful downtown Burbank”--into a pleasant, mildly bustling shopping area.

The results have been spectacular. During the past two years, Disney and Warners alone each have added upward of half a million square feet of office space, including Disney’s new animation center. Another 750,000 square feet have been absorbed by at least 30 small production, post-production and other media-specialty companies. Future plans call for as many as 6 million more square feet just from Disney and Warners.

Mostly as a result of this expansion in media, Burbank’s unemployment rate--despite the loss of Lockheed--has remained two to three points below L.A. County’s. Today, it is estimated at under 5%. Sales revenues, much of it spent by workers in the media industry, grew last year by more than 9%, almost three times the rate for the county.

With the help of Disney and Warners, Burbank now stands to be the media capital of the world. That same opportunity now exists for the region as a whole. With the demise of the traditional networks, Los Angeles enjoys an unprecedented chance to follow Mickey Mouse into the conquest of world markets.*