Acme Ready to Be Prime-Time Player

Riding the success of the WB, Acme Communications Inc., the owner of nine television stations affiliated with the teen broadcast network, plans to raise as much as $115 million this fall through an initial public offering of its stock.

Although broadcast station groups have been trading on Wall Street at a discount to private market values, analysts say the Santa Ana-based company could break from the pack because of its affiliation with the WB.

Since its launch in 1995, the WB has become the top-rated network for teens with prime-time shows such as “7th Heaven” and “Buffy the Vampire Slayer” that have expanded its audience at a time when cable has eroded overall broadcast viewership.

“The trends for broadcasters have stunk for the last 12 months,” said James Marsh, an analyst at Prudential Securities. “But there’s lots of demand for TV growth stories, and the WB’s is the only one out there. Acme’s timing is perfect.”

Acme, which was co-founded in 1997 by Jamie Kellner two years after he launched the WB with Time Warner and the Tribune Co., would be the only public company focused entirely on the young network. The WB’s two largest affiliates, Sinclair Broadcast Group and Tribune, have been hurt on Wall Street because of their affiliations with Fox, which has taken back advertising inventory to compensate for rising programming costs and falling viewership.

Sinclair Broadcast Group, which owns 14 WB stations, is Fox’s largest affiliate group, while Tribune owns five Fox, 12 WB, and three stations affiliated with other networks, in addition to newspaper holdings that many television investors shy away from.

Marsh said most of Acme’s stations are start-ups or were financial under-performers before they were acquired. He said Acme should benefit as the WB matures, just as station groups such as Sinclair rode Fox’s growth from rags to riches.

“It’s advertising rates are increasing and its upfront season was 50% bigger than last year’s,” said Marsh, referring to the advertising selling season when networks sell the bulk of their prime-time inventory for the fall.

The WB, which will be programming 13 hours of prime time, up from two hours in 1995, sold $450 million in national advertising for the fall season, up from $300 million the year earlier. That is a fraction of the upfront orders of the major networks, whose audiences are still much larger than the WB’s.

While Acme does not receive distribution fees for carrying network programming, as do the station affiliates of ABC, CBS and NBC, Marsh said the WB’s business model adds a measure of stability. With traditional networks struggling to make money amid rising costs and falling ratings, these compensation fees, which amount to $200 million a year for the majors, are expected to disappear once current contracts expire in the coming years.

In fact, many network heads have praised Kellner, who remains chief executive of both the WB and Acme, for a structure under which stations pay the network fees if ratings increase because of the network’s programming. “Their business model works long term so you don’t have to worry about that cutting into Acme’s future cash flow,” Marsh said.

Kellner, 51, launched the WB after leaving Fox, which he was credited with building, along with Barry Diller, for Rupert Murdoch. He formed Acme with Tom Allen, the former chief financial officer of Fox Broadcasting Co., and Doug Geary, a television station executive who formerly ran a WB affiliate in Columbus.

Kellner holds a 5.27% stake in Acme, and he and the founders will hold up to 9% after the offering. A group of investors including Bank of Boston and CEA Capital will hold less than 50% of the company after the offering.

The company’s filing did not detail the size of the offering, the timing or the price of the shares. But Allen said most of the proceeds would be used to pay down debt related to the company’s recent station acquisitions. Debt will be about $200 million after the offering.

Acme stations reach about 5.4% of the nation’s population and are located in medium-sized cities including St. Louis; Portland; Salt Lake City; Albuquerque; Dayton, Ohio; Knoxville, Tenn.; Green Bay; Champaign, Ill.; and Fort Myers, Fla.

Marsh expects Acme to sell roughly a third of the company to the public in an offering that will value Acme at up to $300 million. He is so bullish about the offering that he predicts Tribune will reconsider splitting its broadcast and newspaper holdings into separately traded stocks to help highlight its affiliation with the winning network.

Acme was named for the fictitious firm from which Warner Brothers’ cartoon character Wile E. Coyote ordered rockets, explosives or gadgets in elaborate attempts to capture his nemesis, the Road Runner.

The company reported a net loss of $9.3 million against net revenue of $11.1 million for the three months ending March 31, compared to a $4.7 million net loss on $7.8 million of revenue for the same period a year earlier.

It plans to have the shares listed for trading on the Nasdaq stock market under the symbol ACME.