Viacom Seeks to Restructure 50-50 Partnership in UPN

Seeking an end to a troubled and costly joint venture, Viacom Corp. is moving to restructure its partnership in the unprofitable UPN television network with Chris-Craft Industries Inc. by forcing its 50-50 partner to either buy out the half it doesn’t already own or sell out to Viacom.

Viacom on Thursday triggered a so-called buy-sell provision of the contract, under which Chris-Craft has 45 days to choose to buy Viacom’s 50% stake in UPN for $5 million in cash or sell it to its partner for the same amount.

Some television executives were surprised by the low price Viacom assigned the network, but noted that whichever company takes over UPN will also be accepting huge ongoing operating deficits. It also reflects the underlying economics of television: The profit center is in station ownership, not in the network itself.

Since forming UPN in 1995, the partners have invested an estimated $900 million in the network, which ranks sixth in viewership, after the majors and the WB, and is years away from breaking even. While the outcome of Thursday’s development could resolve years of infighting between the two partners, sources said it could also substantially alter the network’s shows as a single owner moves to shave losses that have topped $200 million a year by favoring cheaper programming.

Chris-Craft, which also runs 10 television stations, is known as a lean operator. Viacom could change the UPN programming mix--or even shut the network down altogether in favor of running reruns and movies on its stations after completing its proposed merger with CBS Corp. this spring.

UPN affiliates, however, say ending the tortured 50-50 partnership could only help UPN, which has struggled in the ratings until improving this year with the addition of wrestling. The conflicting agendas of the partners have hampered the network from the beginning, creating a management bottleneck and a lack of direction.

Sources say Viacom triggered the buyout provision, which became effective last year, in part because of the pending $46-billion merger with CBS. Under terms of the UPN partnership, neither partner can enter into an agreement with another network without offering its partner a half interest, suggesting that Viacom might have to invite Chris-Craft into the CBS deal.

Sources say Viacom needed to resolve the issue before completing its purchase of CBS, which awaits government approval. Viacom and CBS have asked for a waiver of rules that prevent one company from owning two networks.

Sources say Viacom also triggered the provision in an attempt to force Chris-Craft back to the bargaining table. Since the Labor Day announcement of the CBS-Viacom merger, the partners have been in negotiations to buy Chris-Craft, whose stations reach 22% of the nation’s households. An acquisition of Chris-Craft would give Viacom-CBS two stations in 12 cities rather than just in six.

Since regulators relaxed laws last year allowing broadcasters to own two television stations in the same market, Chris-Craft’s stock has nearly doubled as the company is viewed as the most desirable duopoly partner because of its stations in New York and Los Angeles.

News Corp. also has discussed an acquisition with Chris-Craft, but Chris-Craft’s owner, Herbert Siegel, has been holding out for a steep price--$100 a share, valuing the company, including its $1.4 billion in cash, at more than $4 billion.

Sources said CBS-Viacom had an offer on the table in the low $80s per share and would go no higher. News Corp. dropped out of the discussions before Christmas.

Chris-Craft shares dropped 62 cents Thursday to $77.75 on the New York Stock Exchange.

Some analysts expect Chris-Craft shares to drop today because of the news, which was announced after the market closed Thursday. Should Chris-Craft buy out Viacom, it would have to shoulder UPN’s losses and potentially lose Viacom’s 19 stations that currently affiliate with UPN. If Chris-Craft sells, the company loses control over the programming that drives its station group.

Although Chris-Craft could conceivably bring in a partner, many Hollywood sources believe the Siegels have proved difficult allies and would have trouble finding a company willing to take on UPN’s risk.