The Baby Bells Go Hollywood

The battle to control your television has been the Baby Bells. The folks who brought you digital switching and speed dialing intend to crash into your living room, bringing a new onslaught of cheesy sitcoms, zircon shopping, and even a sporting event or two.

In one week, six of the seven Baby Bells installed a direct connection to Hollywood. On Aug. 8, Walt Disney Co. announced that it was negotiating to set up a joint venture with Ameritech, BellSouth, and Southwestern Bell. Three days later, word leaked that superagent Michael S. Ovitz and his Creative Artists Agency were involved in talks with Bell Atlantic, Nynex, and Pacific Telesis aimed at forming a similar venture.

CRITICAL MASS. The moves underscore the telecommunications industry's intent to go head-to-head with the cable-TV business. "The notion is to develop a venture that can put together a critical mass of programming," says Thomas O. Staggs, Disney's vice-president for strategic planning. The Bells expect eventually to distribute programming--their own and others'--over upgraded lines, collecting lease payments for access. Phone-line services may include shopping and banking channels, games, and educational shows, plus traditional broadcast and satellite networks.

What's startling is how fast the Bells were able to forge links with Hollywood's creative community. They now see program acquisition and development as the key to differentiating their video services from those of competing groups of cable and phone companies. "This is not a distribution deal--it's program development," says W. Patrick Campbell, executive vice-president at Ameritech. Campbell, who negotiated the deal with Disney, is no stranger to Hollywood: Until six months ago, he headed Columbia TriStar Home Video, a unit of Sony Pictures Entertainment.

The rumors swirling around Creative Artists are even more tantalizing. While barred by Hollywood labor-guild rules from participating directly in production entities, Ovitz clearly has the connections to funnel programming to the company. His roster of more than 900 clients includes heavyweight directors Steven Spielberg and Francis Coppola, both entrepreneurs with well-honed high-tech interests, plus scores of writers and actors. Moreover, Ovitz has nurtured relationships with the likes of Microsoft Chairman William H. Gates III, who is working on a "navigator" to help guide TV viewers through a maze of choices.

DORMANT TREASURE. Further down the road, Ovitz also plans to peddle long-suffering Metro-Goldwyn-Mayer Inc. The studio, controlled by French bank Credit Lyonnais, with whom Ovitz consults, is being prepared by Ovitz-selected Chairman Frank G. Mancuso for a sale within three years. MGM regains the rights to its 2,000-film library by the end of the decade, and its trove of old Pink Panther and Rocky flicks would allow the Baby Bells to join the TV big leagues virtually overnight. "The telcos want to produce their own programming," says W. John Aronsohn, consumer communications analyst at market researcher Yankee Group in Boston. "And the easiest way would be to take a stake in a studio."

Now, the only thing standing in the way is the 1984 Cable Communications Act, which prohibits Baby Bells from delivering their own video entertainment in their own service territories. Congress is widely expected to lift the ban, though, perhaps later this year. Already, U S West and Bell Atlantic are exempt after getting the rule overturned in court. U S West got a jump on its rivals last September, when it invested $2.5 billion in Time Warner Entertainment, giving it access to film and cable production.

Dismantling the cable act also will open local phone service to competition from cable-TV companies, another reason the Bells are eager to launch new interactive services. Can they pull it off? Says analyst Aronsohn: "With companies beginning to look past the physical distribution networks, we've started moving into the next phase of highway hype." But with deep pockets and vast customer lists, the Baby Bells promise to deliver quite a bit more than hype.

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