Is a CBS-Sony Alliance Still a Possibility With Jordan’s Retirement?

For several months, outgoing CBS Chairman Michael Jordan and Sony Pictures Entertainment Chairman Howard Stringer had discussed a possible alliance between the two companies.

Now, with the announcement last week of Jordan’s early retirement, the question is whether his successor and CBS’ largest shareholder, Mel Karmazin, will keep those talks alive. Sources say he opposed the idea, which is curious considering he was shopping the network and dreaming up strategies aimed at reducing its losses.

On the surface, a Sony-CBS alliance makes some sense. Sony, unlike Disney, Fox, Paramount and Warner Bros., is one of the few Hollywood studios that doesn’t own a broadcast outlet, meaning it has less leverage than it used to for getting its movies and television shows on the air. Of the networks, only CBS and NBC remain unaffiliated with a studio--making it ever more difficult for them to secure top programming at a time when all networks are desperate for hits.

Both Sony, which is owned by the Japanese electronics giant, and Universal Studios, controlled by the Canadian beverage company Seagram, are prevented by federal law from owning more than a 25% interest in any U.S. TV station. There’s no prohibition against foreign companies owning U.S. networks, but it’s the stations owned by the major networks that generate most, if not all, of the profits.

CBS could lose $100 million or more this year on the network side, which would be offset by the strength of the radio and TV station group.

Sony figured out a way to get around the foreign-ownership restrictions. The studio recently bought 50% of Spanish-language broadcaster Telemundo’s network while taking just under 25% of its station group. Industry analysts suggest that Sony might follow the Telemundo model in structuring a deal with CBS.

Neither CBS nor Sony officials would comment on speculation about talks.

Sources said Stringer, the former president of CBS, had been pushing to make a deal with the network and that talks with Jordan had heated up in recent weeks. The discussions apparently grew out of months of conversations between Stringer and Jordan involving Sony’s plan to underwrite CBS’ launch of high-definition television. Sony is providing cameras and production equipment for several programs, including some NFL games, to be shot in the HDTV format.

Sources say Karmazin, CBS’ chief operating officer, was cool to Jordan and Stringer’s idea of Sony buying the CBS network, but his objection might have stemmed from mounting friction with Jordan rather than from any deal itself. Sources say that with Jordan stepping out of the picture, Karmazin might now pick up the ball.

After all, Karmazin has been the biggest proponent inside CBS for selling or leasing the network to a programmer to get the money-losing operation off CBS’ balance sheet. He has had conversations with, among others, USA Networks Chairman Barry Diller, Time Warner and Viacom. Wall Street sources said Karmazin was hoping to sell the network for about $5 billion, widely regarded as a ridiculously inflated price. Westinghouse Electric Corp. bought CBS’ network and its profitable radio and station group for $5.4 billion in 1995.

Sources say Diller was only interested in taking the network if CBS’ stations agreed to pay USA for the use of programming. Rather than paying stations compensation to carry network programming, Diller wanted the CBS stations to pay USA $175 million for providing it. That would have been a first for a major network.

Last week, in an interview about Jordan’s retirement, Karmazin suggested that such a deal would be crazy: “I could easily give the network away as a gift this weekend if I wanted to. I’m going to a bar mitzvah party.”

Publicly, Karmazin has been adamant about his support of the network business. He lobbied hard in recent months to get regulators to allow broadcasters to own more than one network to spread out overhead costs.

Last week, Karmazin said his company is not interested in turning over its network “to a Diller or a Sony” and that there is no evidence yet that networks owned by studios--i.e., ABC and Fox--have any advantage over those that aren’t.

So far this season, the CBS network has maintained its audience, while ABC, NBC and Fox have all experienced declines. CBS’ recent momentum may have dampened Karmazin’s desire to unload the network.

Analysts believe Sony should make some kind of move into domestic television distribution. The company has contemplated a public offering of its entertainment assets for at least three years, which might make it possible to get around the foreign-ownership rules.

Sony, whose long cold streak in movies was greatly relieved last year by such hits as “Jerry Maguire,” “My Best Friend’s Wedding” and “Air Force One,” was waiting for sustained quarterly profit. But some argue that the studio missed the market’s peak and is now distracted by problems in Asia that have dragged down the world economy.

Sony’s core electronics business has been pummeled. Sources say Sony is more eager than ever to expand on the content side in television as well as on the Internet to compensate for problems on the hardware side.

Sony’s TV business--one of its best-performing units--is in jeopardy because of the company’s lack of distribution leverage. While the company has launched several overseas channels, it operates only the Game Show Network in this country. The deal with Telemundo gives Sony an additional outlet, but that network reaches a limited audience compared with the major broadcasters.

In the last two years, as federal rules have allowed networks to own more of their own programming, Sony has been forced to relinquish significant stakes in its prime-time TV shows to the networks in exchange for air time. CBS’ recent renewal of Sony’s program “Early Edition” gives the network rights to sell the sitcom in the United States in reruns, dramatically reducing Sony’s potential profit.

“If you’re a company creating copyrights on a global basis, you’ll be out of business if you don’t own the front window,” one media investor said.