So You Want To Start A New Network?by
Talk about lousy timing. Chris-Craft Industries Inc. and Paramount Communications Inc. were about to disclose that they had lured the highest-ranking woman in broadcasting, former Fox Broadcasting Co. Chairman Lucie Salhany, to run their new TV network. But some bad news overtook the good a few days before the Sept. 15 announcement: Actress Genevieve Bujold abruptly quit her starring role as the captain on the network's marquee show, Star Trek: Voyager.
Bujold, who complained that she was unprepared for the rigors of a weekly series, was quickly replaced by actress Kate Mulgrew. But in Hollywood, where showbiz often obscures real business, TV executives were muttering darkly that the turmoil could destabilize the United Paramount network, which Chris-Craft and Paramount plan to start in January. Salhany, who has been hired in part to lure more affiliates, must rely on this latest installment of Star Trek as a major selling tool.
For Viacom Inc., which owns Paramount and may merge with Blockbuster Entertainment Corp., the troubles at Star Trek: Voyager are a distant rumble in a vast media empire. Not so for Chris-Craft. The powerful TV-station owner is taking on a major risk with the United Paramount network. It will put up all the money for the network, at least initially. And it is launching the venture into an increasingly competitive market.
STUDIO SCRAMBLE. Such a roll of the dice is uncharacteristic for Chris-Craft Chairman Herbert J. Siegel. Though he once owned a talent agency with clients such as Jackie Gleason, Siegel is best known as a canny investor who made hundreds of millions on investments in 20th Century-Fox Film Corp. and Warner Communications Inc. As a Warner board member, the parsimonious Siegel assailed Warner Chairman Steven J. Ross for his profligate style. "Herb is almost the personification of a prudent investor," says Siegel's friend and former lawyer, Arthur Liman. Siegel declined to comment for this article.
Now, though, he has taken on a
project worthy of Ross. Nobody has launched a new network since Rupert Murdoch in 1984, and he lost nearly $250 million before Fox broke even. Murdoch also didn't have to contend with today's hothouse climate. After a fallow period, the Big Three networks are racking up record profits. Fox itself has become a powerhouse, thanks to pro football and an affiliate deal with Ronald O. Perelman. And Time Warner Inc.'s Warner Bros. is also starting a network, which will compete for viewers and affiliates with United Paramount.
What's more, Chris-Craft will have to do much of the heavy lifting itself. Although the network was originally envisioned as a joint venture with Paramount, Chris-Craft ended up accepting a tougher deal in July, after Viacom acquired Paramount. Now, Siegel has pledged to pay all the expenses of the network for its first two years--a minimum of $150 million. Viacom will compensate Chris-Craft for half of this investment after Viacom exercises an option to take a 50% stake in the network, sometime before January, 1997. In effect, Siegel has given Viacom a bridge loan to keep his debt-laden partner on board.
Siegel has every reason to cling to Viacom. Like most station owners, Chris-Craft is anxiously trying to lock in programming for its chain of independent stations. (Siegel sold the boat division years ago.) That's becoming more and more difficult, as Hollywood studios scramble to align themselves with existing TV networks. Even as it ramps up the WB Network, for example, Time Warner is considering an acquisition of NBC Inc. By allying with Paramount, Chris-Craft gets a steady supply of programming such as Star Trek. In return, Paramount receives guaranteed distribution for its shows.
NICHE DOUBTS. Chris-Craft and Paramount have a more ambitious goal, though. By yoking Siegel's six powerful independent stations to Paramount's Star Trek franchise, the companies hope to construct a full-blown network. They have signed up 41 stations to receive an initial two nights of prime-time programming. United Paramount won't look much like CBS or even Fox in its first few years. But industry sources say Chris-Craft and Paramount expect the network to be available in 85% of the nation's television households by its January launch.
For now, Chris-Craft and Paraamount seem to have the edge in their race with the Warner network. While WB claims it has affiliates that cover more than 70% of the country, industry executives say Warner is counting WGN, a superstation it picked up through its alliance with Tribune Co. Subtract WGN, these executives say, and WB's reach is still under 40%. Neither of the two networks are releasing current figures on coverage or number of affiliates. Observers say United Paramount has succeeded by offering independent stations compensation in return for carrying its programs. Time Warner, by contrast, is asking prospective affiliates to pay for the privilege of being a part of the WB Network.
Salhany may further bolster United Paramount. At Fox, she earned a reputation for cultivating warm relationships with affiliates. "Lucie's salesmanship is vital," says John Tinker, a media analyst at Furman Selz, "because stations can preempt the Paramount network shows."
Still, few experts are sanguine about the prospects of either network. Richard Kurlander, director of programming at ad-sales representative Petry Television Inc., points out that Fox had 90% coverage when it started. With Chris-Craft's New York and Los Angeles stations, United Paramount is well represented in big markets, but Kurlander says its lineup is far weaker in small markets. He also questions whether Chris-Craft and Paramount will be able to stamp a distinctive identity on the network. "What's the niche?" asks Kurlander. "And how do you find a fifth and sixth niche?" Salhany has indicated that United Paramount will go after young, male viewers, much as Fox does now.
ROVING EYES? Even if Chris-Craft can clear those hurdles, it has to contend with a turbulent media landscape--and that could alter its agenda or that of its partner. Some observers expect Viacom to pursue CBS or NBC, which are both unofficially for sale, if its proposed merger with Blockbuster goes through. Viacom insists that it is fully committed to the network: "We're very mptimistic about its prospects," says Viacom CEO Frank J. Biondi Jr. But that doesn't preclude Viacom from looking at other networks, say sources close to the company.
For that matter, Chris-Craft has kept its options open. Several months ago, Siegel explored a joint venture with Sony Corp. to buy a network, according to investment bankers familiar with the discussions. With $1.5 billion in cash and marketable securities on its balance sheet and no debt, Chris-Craft has the muscle to do a sizable deal. The company has also shared in the general revival of TV: Its net income tripled in the first half of 1994, to $28.3 million, on revenue of $228 million.
Given Siegel's tight-fisted reputation, few media executives would be surprised if Chris-Craft completely sat out the current wave of dealmaking. Then again, he's already following in the footsteps of a confirmed wheeler-dealer: Rupert Murdoch. Just don't tell Siegel he's anything like Steve Ross.
CHRIS-CRAFT, STEM TO STERN
Key holdings and investments of Chris-Craft Industries
INDEPENDENT TV STATIONS WWOR (Secaucus, N.J.), KCOP (Los Angeles), KPTV (Portland, Ore.), KMSP (Minneapolis), KBHK (San Francisco),
NETWORK AFFILIATES KTVX (Salt Lake City, ABC), KMOL (San Antonio, NBC)
TV NETWORK Has pledged at least $150 million to build a fifth network, starting in 1995
BALANCE SHEET Has $1.5 billion in cash and marketable securities, primarily from its sale of preferred stock in Time Warner