Plenty Of Courtroom Drama

The real drama in the entertainment business this year will come from Washington. After three years of inconclusive wrangling, Federal regulators should finally settle on the guidelines that will shape the industry from now on. The rules may at last allow the Big Three television networks to own the TV shows they air, setting the stage for a flurry of mergers or joint ventures between Hollywood studios and the networks. And cable television will learn from the Federal Communications Commission whether the first change in cable regulation since 1984 will force it to scale back its rates.

In sum, 1993 could be a good year for the networks, but tough on cable. The Big Three networks enjoyed a relatively strong 1992, thanks to the Olympic Games and the Presidential campaign. The nets actually halted a long downward trend in audience share in the 1991-92 season. Cable subscriptions, on the other hand, grew less than 1% in 1992, after averaging 5% annual growth for the previous five years. They will barely expand in 1993. After years of rate hikes, consumers are "clearly reacting to the high costs," says media economist Arthur Gruen, president of Wilkofsky Gruen Associates Inc.

SIGNAL SQUABBLE. The networks will also benefit from a better, if not robust, advertising environment. They could record a 2% rise in ad revenues this year, says CBS Inc. research chief David F. Poltrack. Factoring out the quadrennial boost from 1992's Olympic and political advertising, that translates to underlying growth of 6%. The big winner will be ratings champion CBS. It could earn $350 million in 1993, up from an estimated $190 million in 1992, says Seidler Amdec Securities Inc. analyst Jeffrey B. Logsdon. ABC Inc.'s earnings could rise about 9%, to around $600 million. Fox Broadcasting Co., which will expand from five to seven nights, could record a 40% rise in profits, to $70 million, says media analyst John S. Reidy of Smith Barney, Harris Upham & Co. Despite its recent ratings swoon, General Electric Co.'s NBC Inc. could enjoy 12% profit growth, to $275 million, notes analyst Nicholas Heymann of County NatWest Securities Corp. USA.

Cable's outlook, by contrast, is unusually uncertain this year. Ad revenues will grow by as much as 12% in 1993, Gruen predicts, to just under $2 billion. But in addition to the backlash over rates, cable operators could be hindered by a new bill, passed by Congress in September, that could force them

to begin paying local TV stations for the right to carry the stations' signals.

The cable companies are banking on new technology to help sidestep their growing list of problems. Tele-Communications Inc., the nation's No.1 cable operator, recently announced plans to offer 500 channels of programming by installing digital compression technology in its system. "Our ability to deliver program services is limited only by the imagination," says TCI President John C. Malone. Down the road, cable will be able to offer services such as on-line encyclopedias and the home purchase of airline and movie tickets. One early target is likely to be the $11.5 billion a year market for home video cassettes, which is already showing signs of maturing. This year, the average cost of pay-per-view movies shown on cable could drop to $2.99 from $3.99, says Gruen, which could entice more shoppers to forgo the trip to their local video stores.

Industry heavies are scrambling to fill the programming pipeline. Former Fox Chairman Barry Diller just invested $25 million in QVC Network Inc. He plans to use the electronic shopping network to offer a panoply of multimedia services, such as interactive game shows.

While the cable industry has its hands full in Washington, the networks may finally get some satisfaction there. A Chicago court has given the FCC until April to clarify or shelve its reformulated financial interest and syndication rules, which prohibit networks from moving heavily into the lucrative syndication market or merging with a studio. If, as some experts predict, the FCC shelves the rules, one bidder may be Capital Cities/ABC Inc. It is willing to spend up to $8 billion on acquisitions. Paramount Communications Inc. is a rumored target.

BONANZA. Hollywood studios look more attractive now. After a tepid 1991, the box office came back strong in 1992--thanks to such holiday blockbusters as Home Alone 2: Lost in New York and Bram Stoker's Dracula. Even though ticket prices didn't keep pace with inflation for the second straight year, nearly $5 billion in tickets were sold in 1992. Box-office revenue could rise 2% to 3% in 1993.

Even more surprising, the big-spending Polo Lounge crowd managed to keep expenses down in 1992. Analyst Logsdon estimates that the average price of making a movie fell as much as 10% from its 1991 average of $26 million. Some extravagant films will still be made in 1993. Columbia Pictures lured Arnold Schwarzenegger to make The Last Action Hero, a $60 million special-effects bonanza due out this summer. "We're going to make big-budget movies if we think it's a movie that people are going to want to see," says Columbia Chairman Mark Canton.

Buoyed by the success of such TV-classics-turned-movies as The Addams Family, Hollywood will also go back to its future with film remakes of Dennis the Menace and The Fugitive, which will feature Harrison Ford in search of the one-armed man who murdered his wife. Like some of the regulations being thrashed out in Washington, these blasts from the past could prove to be crowd pleasers.