Good Morning, Cbs

Six months after Westinghouse took over, the network may be waking up

Leslie Moonves looks haggard. He and his team of entertainment executives at CBS have been working around the clock for more than a week, finalizing the prime-time schedule the third-place network unveiled on May 22. In the "war room" off Moonves' office on the 34th floor of Black Rock, CBS' New York headquarters, old bagels and wilting fruit are littered about, and the room has the feel of a gym on a muggy day. One question remains central to every debate: What combination of programs can lift CBS from its ratings gutter of the past two years?

The schedule that emerged from those long meetings shows a CBS that clearly feels it can leave its ratings slump and its nightmarishly unsuccessful last season behind. What has changed? Moonves is new, having joined in July. And the former actor and TV-studio executive has paid for some big-name stars, who bring promotional value and can get viewers to at least try the show. Bill Cosby will have a sitcom on Monday nights, followed by another sitcom with former Cheers star Ted Danson and Oscar-winner Mary Steenburgen. "We're dealing with a lot better names," Moonves says. One marquee name is President Clinton, who will play himself in a movie-of-the-week about a family coping with a sick child.

Moonves is also turning CBS back to its core older audience and playing up family-values programming. To that end, it is moving the surprise religion-themed hit Touched by an Angel to boost Sunday-evening ratings. And on Tuesday, it's adding Home of the Brave, a patriotic drama starring Gerald McRaney, which features a down-and-out family piling into a truck and driving around the country, looking for work. "We're climbing out" of the slump, Moonves says. "This is a better schedule than a year ago. I feel that in my heart."

A lot is riding on that prediction--not only for Moonves but for his boss, CBS President Peter Lund, and Lund's boss, Westinghouse Chairman Michael H. Jordan. Jordan has bet Westinghouse's future on transforming it into a major media company. He may well end up selling off remaining nonbroadcasting assets, such as power systems and refrigerated trucks, while acquiring more "growth" media assets, such as cable properties and additional radio and television stations.

If it works, Jordan will have pulled off one of the most dramatic corporate transformations in American business history. The former PepsiCo executive took the helm of Westinghouse in 1993. If he fails, of course, he'll be the hapless loser at the top of a depleted, old-line industrial company that spent $5.4 billion to buy an ailing, old-line TV network.

PROMISING PATH. But six months after Westinghouse took control, the new prime-time schedule is only the most visible evidence of the strategic path Westinghouse is plotting for CBS. All along, Westinghouse has believed that it can wring better operating margins from CBS' 15 TV stations and 39 radio stations. It is even planning to buy a few more TV outlets and to make substantial acquisitions in radio. Increased profits from broadcasting properties can be shielded from taxes for the next several years by Westinghouse's $1.5 billion in tax-loss carryforwards. A ratings rally achieved by Moonves would be gravy.

Right now, ratings are improving, which will help as CBS begins to sell ads for the just-announced season. It beat out ABC to place second in the February ratings sweeps and ran No.2 through much of the May sweeps (charts). Westinghouse's stock is up 41%, to 18 3/8, since the announcement of the acquisition last summer, and Jordan predicts it will hit 30 within the next 18 months.

Some outsiders are beginning to agree, albeit grudgingly, that CBS may be on the mend. "Under the current leadership, there is a vision," says former ABC executive Peter Chrisanthopoulos, now a broadcasting and programming executive at Ogilvy & Mather. "Jordan realizes what it's going to take to get the network ahead. They're spending the money and bringing home the talent. The merger seems to be a good marriage." Adds New York-based media buyer Paul Schulman: "All CBS needs is a couple of hits and to turn around one night, and they're right back in the ball game."

The challenge in the meantime is for Westinghouse to boost profits at its many broadcasting outlets. Station chief Bill Korn, another former PepsiCo executive, had for years made Westinghouse's five TV stations and 18 radio stations profit powerhouses: Westinghouse's TV stations posted operating margins last year above 50%, vs. around 35% for CBS, even though Westinghouse is in slightly smaller, less profitable markets. Westinghouse radio stations posted 44% operating margins last year, vs. 30% at CBS. Now, by running the stations leaner and consolidating some operations, Korn figures he can raise both radio and TV operating margins over 50% within five years--or in three years, if ratings improve. Higher station margins alone, even with no ratings improvement, would add some $200 million to the network's operating cash flow.

Fixing two other major areas of worry for CBS--news and sports--won't be as easy. CBS Evening News, anchored by Dan Rather, is a perennial third in the ratings, but the network blames weak affiliate stations and poor lead-in programming. CBS' morning news show has been through numerous overhauls in past years, with little success. New CBS News President Andrew Heyward, a highly regarded news producer, has announced dramatic changes in the show, including giving affiliates the option of airing local programming during the first hour, with periodic spots provided by the network. While it means CBS will lose out on ad revenue, the move may help the local stations, including CBS'.

FUMBLE. CBS Sports is a basket case. Since losing pro football to Fox Broadcasting Co. in 1993, CBS can offer viewers little more than college basketball, pro golf, and NASCAR racing. With the exception of the NCAA championships, none of these draws anywhere near as well as football. They also are less efficient as feeders and promotional devices for CBS' other programs. CBS executives say winning back pro football when the contract comes up for bid next year is a priority, but the bidding will be fierce, and costly.

CBS strategists acknowledge they need to make additional big-ticket acquisitions, chiefly in cable and radio and TV stations. CBS badly needs cable distribution. And since Westinghouse sold its defense and Knoll furniture divisions and paid down a good portion of the CBS acquisition debt, Fredric G. Reynolds, CFO for both Westinghouse and CBS, says the company has plenty of room to maneuver. "Certainly, we could borrow a couple billion dollars more," says Reynolds, yet another former PepsiCo exec. "If the right candidate came along in the broadcast area, we can surprise a lot of people. There's a lot working. This is a very deals-oriented culture."

An obvious acquisition candidate is Nashville-based Gaylord Entertainment Inc., which has long had a joint venture with Westinghouse. Gaylord's two cable channels, Country Music Television and The Nashville Network, are attractive, and CMT has the widespread international distribution CBS needs. Neither company would comment on rumors that Westinghouse may buy Gaylord.


Financially, Jordan's purchase of CBS is starting to look like a good buy as the network eases out of its slump. As a former finance guy at Pepsi and later at Clayton, Dubilier & Rice, that's a game Jordan knows and enjoys. Meanwhile, he has moved into the old office of legendary CBS Chairman Bill Paley and is learning to take the jibes that go with being a media exec. David Letterman, one of CBS' best-paid stars, has weighed in. "I've called him a drunk on the air. The guy's a lightweight. He's a pinhead. He's a twit," Letterman said in a February appearance on CNBC. He gripes that the CEO has never called or paid a visit; Jordan says Letterman "canceled a couple of meetings we had scheduled."

And the jibes? Jordan forces a smile and croaks: "He can pick fun at me all he wants. We're quite profitable in the Late Show." Hold that thought, Mr. Jordan.

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