Is Spelling’s Price Too Rich for TV Bidders?

Aaron Spelling is in the Guinness Book of World Records as the most prolific TV series producer of all time, with 2,642.5 hours under his belt in 1993, before “Melrose Place” even aired and while “Beverly Hills 90210” was hitting its prime. He is such a force in television, in fact, that on Hollywood billboards pitching his latest prime-time soap about Southern belles, his name is almost as bold as the show’s title, “Savannah.”

Yet at a time when media properties are fetching ever-higher prices, snapped up in a fury as newcomers enter the business and old ones gird for competition, Viacom Inc. seems to be having trouble unloading Spelling Entertainment Group Inc., which was put on the auction block in August because it duplicated the television and film operations of the company’s Paramount Pictures studio.

Least of the problems is Spelling, who at age 70, may be past his creative peak and has a contract that expires in April. After all, he has little to do with operating the company even though his name is on the door, instead consumed by his role as a producer.

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Rather, the process has sputtered, sources said, because of the uncertain value of the Spelling library and the tiny pool of buyers willing to spend what they see as an extraordinary amount of cash for old hits and new ones of limited shelf life. Viacom had expected Spelling, acquired in the 1994 purchase of Blockbuster Entertainment Corp., to bring in the neighborhood of $1.5 billion--a steep premium to the market value--to help pay down the debt from its Paramount and Blockbuster purchases.

But some investment bankers and analysts now doubt that a deal will close by the end of the month as hoped. None of the two or three bidders--PolyGram Filmed Entertainment, General Electric Co.’s NBC and CBS among the most frequently named--is believed to have come close to Viacom’s asking price.

“Bidders are floating in and out of this like the tide,” said Jeffrey Logsdon, an analyst at Seidler Cos. in Los Angeles. “None of them wants to get into the bidding war they know [Viacom Chairman] Sumner [Redstone] wants to create.”

Wall Street in the meantime has taken the inertia as a sign of lacking interest. The Spelling stock, which still trades independently from its parent, has dropped from a high of almost $14 a share late last year, to $11.125 on the New York Stock Exchange, back to its range before Viacom announced plans to sell.

A 32% drop in net income recently reported by Spelling for 1995 was also discouraging--though it resulted mainly from troubles at the Virgin Interactive unit, which is not even a part of the sale.

Some sources are now betting that Redstone keeps Spelling for himself. “It’s grossly overpriced,” said Arthur Rockwell, an analyst at Yaeger Capital Markets in Los Angeles. “Rather than take a slap in the face on this, he’ll pull it off the market.”

According to some sources, Viacom, with the stock dropping, could buy relatively cheaply the 22% of Spelling it does not own--and maybe without inspiring the wrath of minority shareholders who could have accused the company of an inside deal if bids hadn’t been sought.

“Sumner is not an easy seller,” said one source close to Viacom. “He thinks he can pull off another bidding war like he did with Madison Square Garden. But there, he was dealing with sports teams, which are more of an emotional purchase. TV shows just aren’t the same.”

None of the expected bidders are uninitiated newcomers to the world of entertainment--making them less likely to pay a bold premium to enter the field, as ITT Corp. did with its $1-billion offer for Madison Square Garden in mid-1994. Wall Street had valued the property, which owns the New York Knickerbockers and the New York Rangers sports teams, at $600 million.

At current market prices, Wall Street values Spelling at just below $1 billion, despite its having what some analysts believe is the third-largest film and TV libraries, after Disney’s and Warner Bros. That figure, however, includes Virgin Interactive, a valuable part of the company and one that analysts said may be worth about a third of the total asset.

Apart from Virgin, the most sought-after piece of the company is Worldvision, the TV distribution arm that accounts for more than half of Spelling’s $664 million in revenue. It includes the old libraries of the NBC network, including series such as “Little House on the Prairie,” “The Streets of San Francisco” and “The Fugitive”; titles such as “Love Boat” and “Charlie’s Angels” from Spelling; and newer output from Big Ticket, which in its first year has produced several shows, including the late-night comedy “Night Stand With Dick Dietrick,” and what could be a hit for the United Paramount Network, “Moesha,” starring pop star Brandy.

In Worldvision and in another division for film, Republic Entertainment, potential bidders such as Disney and other studios saw a library with enough bulk to feed several cable channels. But as one studio executive said: “Studios already have huge libraries that are underutilized. Why would they spend $1 billion for Spelling?”

And many sources said the newer series in the library that are most useful to cable networks are Spelling soap operas with shorter shelf lives here and limited appeal overseas. Spelling, in fact, draws higher licensing fees from the networks today because his series don’t have lucrative afterlives.

Though bidders seem to have balked at the $1.5-billion price, some Wall Street sources said that at 17 times cash flow it is not out of sync with prices paid for similar properties. Pearson paid in the neighborhood of 16 times cash flow for Australia’s Grundy Worldwide, and Hallmark Cards Inc. paid much more for RHI Entertainment, the producer of the “Lonesome Dove” miniseries. Turner Broadcasting System paid in the high teens for New Line Cinema and the MGM library, which almost cost Chairman Ted Turner the company in the mid-1980s but provided the basis for several cable channels.

“When you buy catalogs, you have to stick with it for a long time to see any payoff,” Logsdon said. “Now Ted Turner looks like a genius, but for the first five years, he looked like a fool.”

PolyGram has huge ambitions in the entertainment industry, seeking to stand on par with the major studio in a few years. It lacks both active TV production and a substantial library. But Logsdon believes that NBC craves Spelling even more than PolyGram, which he said is moving cautiously because of mixed success with its first dabbling in television, its purchase of the ITC library in 1995.

Unlike Fox and, most recently, CBS and ABC, he said, NBC lacks a TV distribution and production arm and could squeeze more mileage out of Spelling’s licensing and merchandising division.

Though NBC executives privately said the price is too rich, there are few other promising ways for the network to quickly catapult itself into a business that is second nature to its new rival, Walt Disney Co., which now owns ABC.

NBC’s lack of distribution and production has fueled rumors recently that it was in talks to buy a piece of the successful independent producer, Carsey-Werner Co., which produces “Roseanne,” “3rd Rock From the Sun” and “Cybill” and now is building its own syndication arm.

Still, some sources inside NBC believe it might be cheaper to start from scratch than to buy Spelling.

CBS also may have some interest in Spelling. In January, CBS bought Maxxam Entertainment, installing two seasoned syndications executives and their operation into new parent Westinghouse Electric Corp.’s minimal production arm and the network’s own successful CBS Productions.

Sources said CBS could use the Spelling library to help fill its void in cable. And while Maxxam has focused primarily on the domestic market, Worldvision could bring an international reach.

Still, the wily Redstone could yet pony up $250 million or so for the piece of Spelling he doesn’t own, collapse it into Paramount, and take the heat from Wall Street, which has already pounded Viacom’s stock for the underperformance of Blockbuster.