Waiting For A Megadeal

It has been nearly a decade since television host Monty Hall looked beyond that last curtain. But for the entertainment industry, the latter part of 1993 was one big rerun of Hall's old show, Let's Make a Deal. Cable-TV companies linked up with studios, telephone companies reached out for cable companies, and even home-video giant Blockbuster Entertainment Corp. guaranteed itself a source of tapes by buying a pair of Hollywood production companies. There's little doubt that the dealing will continue in 1994. "It's like the '80s all over again," says Peter Hoffman, former president of film-production company Carolco Pictures Inc.

This year, investment bankers expect more hostile takeovers, and heftier prices. None may match the $30 billion merger of phone company Bell Atlantic Corp. and cable giant Tele-Communications Inc. But after the bidding war for Paramount Communications Inc., buyers will scramble for what is becoming a scarce commodity: film- and TV-production companies that can provide programs for the 500 cable channels many subscribers may have by decade's end. "It's like a game of musical chairs," says Michael P. Schulhof, chairman of Sony Corp. of America. "There are only five major studios and 10 people looking for a chair."

NEW BIDDERS. The studios, in turn, want an electronic pipeline into the home. In 1994, Sony may peddle at least a piece of its Columbia Pictures to a cable or phone company: It has hired investment bankers at Furman Selz Inc. to start the process. A likely bidder: the Bell Atlantic-TCI combine. TCI President John C. Malone has talked to Universal Pictures owner Matsushita Electric Industrial Co. about buying all or part of the film company. And News Corp. Chairman Rupert Murdoch is said to be looking to sell part of his Twentieth Century Fox Film Corp.

The chase for studios may include new bidders such as software giant Microsoft Corp., Hollywood insiders say. But much of the action will come from cable companies, which can use the deep pockets of their new phone-company allies and need new programming to boost revenues. After rapid growth in the 1980s, the cable market has matured. The number of subscribers will grow just 2.7% in 1994, to 59 million households, according to Paul Kagan Associates. To attract new viewers, 66 new channels are set to bow in this year--three times as many as in 1993--including the environmental ECO Network, the Food Network, and the Trax Channel for car buffs.

With a revived economy and the Winter Olympics in 1994, TV ad revenues should grow by 5% to 7%, to $32 billion, according to the Television Bureau of Advertising (TVB). The biggest gainer: cable, with a hike of 11% to 13%, to $2.7 billion. The traditional networks should prosper, too. Saturation of the cable market helped the Big Three rebound in 1993, to 62% of the audience from 60% in 1992, according to A.C. Nielsen Co. Their share should rise again in 1994, predicts industry economist Arthur Gruen of Wilkosky Gruen Associates Inc. That will mean a 4%-to-6% hike in ad revenues, to $10.1 billion, after a flat 1993, predicts the TVB.

Add in cost-cutting through layoffs, and profits should take off. Operating earnings for ratings leader CBS Inc. will jump 27% in 1994, to $395 million, on revenues of $3.95 billion, predicts PaineWebber Group Inc. analyst Alan J. Gottesman. Operating income at General Electric Co.'s NBC Inc. will jump 33%, to $400 million, says NatWest Securities Corp. analyst Nicholas Heymann, while Furman Selz analyst John Tinker figures that Capital Cities/ABC Inc.'s network unit will earn $1.08 billion from operations, up 17%.

Still, the Big Three face new rival networks to be launched by Warner Brothers in mid-1994 and Paramount Communications Inc. in early 1995. To combat the outsiders, NBC and ABC will roll out new cable channels. The networks may also forge alliances with Hollywood--having been freed last year from Federal Communications Commission rules that long blocked them from owning production companies. On everyone's list: Walt Disney Co., which may also be in the market to buy a network, possibly CBS or ABC.

Hollywood's box-office take was up a robust 10%, to $5.1 billion, in 1993, despite a lackluster Christmas. That should help boost video sales 4% this year from last year's $14.9 billion, estimates Video Software magazine. This year will have no blockbuster Jurassic Park but should have hits--such as Columbia's City Slickers 2.

The one blockbuster could be a megadeal. "We all feel like kids with a nickel looking into the candy store window," says Glenn R. Jones, who in December sold 30% of his cable-systems company for $400 million to another window-shopper, Canadian telephone operator BCE Inc. In 1994, a lot of hungry buyers may crowd the candy store.