Media & Entertainment

In the '70s, television brought America Eight Is Enough, a show about a widowed newspaper columnist with eight kids. In 1998, America will get the broadcast equivalent-eight TV networks, each clamoring for a shrinking number of viewers willing to click away from networks to cable, home video, or the Internet. "It's like shelf space at a grocery store," says Leo J. Hindery Jr., president of cable-television giant Tele-Communications Inc. "There's not enough time in a day for anyone to see all that's out there."

That sentiment could apply to the entire entertainment industry this year. Many companies are likely to feel the hit, as network TV ratings continue to fall and consumers are confronted with a rush of new cable channels and more films than they can watch.

With digital boxes for cable or satellite TV in an estimated 5 million homes this year, the numbers of channels will explode--at least 50 new cable channels are on the drawing board. Hollywood, giddy about the prospects for more ways to distribute its films and TV shows, is increasing production. The growth of direct-broadcast satellite dishes will continue at double-digit rates. And data delivery over cable wires will make its first impact, with nearly 1 million homes equipped with cable modems able to log on.

The most visible newcomers in the entertainment race will be the two new broadcast networks. In August, infomercial entrepreneur Lowell W. "Bud" Paxson is scheduled to launch his 65-station Pax Net. Paxson will target women, and to lure them to his stations he has shelled out big bucks for reruns of such shows as Sisters, Touched by an Angel, and Dr. Quinn, Medicine Woman.

DILLER'S DREAM. TV visionary Barry Diller will take the first steps toward launching a broader-interest network in 1998. Diller, who created the Fox network a decade ago, has behind him the cash flow of the Home Shopping Network Inc. he heads and the resources of cable giant TCI, a major investor in HSN. He already struck a $4.1 billion deal to buy control of the USA cable network and Universal Pictures' TV operations. By April, he'll test his concept at Home Shopping's Miami station.

The trick will be for Diller and Paxson to survive in a TV environment in which broadcast channels' ratings have declined for years. In 1998, only an estimated 58% of American homes will be tuned in to broadcast TV at some point during a typical 24-hour period, down from 60% last year, projects investment bankers Veronis, Suhler & Associates Inc. (chart). For the Big Three networks, the outlook is even bleaker: From controlling as much as 91% of the audience as recently as 1980, market share for ABC, CBS, and NBC will sink below 50% in 1998.

The ratings race among the networks will narrow considerably in 1998. CBS, with its strong weekend lineups and contract to broadcast the Winter Olympics, will keep closing the gap behind ratings leader NBC. ABC is likely to fall to fourth, behind Fox, while three-year-old networks UPN and WB continue to climb toward respectability. To buttress their ratings, NBC, Fox, and ABC are likely to bid nearly $4 billion to keep pro football, up 60% from the previous four-year period. But with ad dollars for football up by only 27% last year, margins at the winning networks will decline.

That will continue the downward trend for ad revenues. In 1998, networks will collect $14 billion in ad sales, 5.5% above 1997, says Robert Coen, senior vice-president of McCann-Erickson Worldwide. That increase trails total ad spending for all media, which will grow by 6.6% in 1998, to $186.8 billion. Moreover, the increase badly lags that of cable television, where ad rates will climb 13%, to $5.96 billion.

Higher ad sales aren't the only good news for the cable industry. With more than 60% of the country scheduled to be hooked into some form of upgraded fiber wiring by the end of 1998, the industry can finally make good on its long-promised digital offerings. Cable giant TCI, which just ordered 12 million digital boxes, will begin rolling them out late in the year. Adelphia Cable Communications began offering digital TV to 1.2 million of its 1.8 million subscribers in November, while Cox Communications Inc. rolled out digital to 275,000 Orange County (Calif.) subscribers. Time Warner, U S West's MediaOne, and Cablevision Systems will also come online with some digital offerings in 1998. "I haven't been as excited about our cable business since Universal gave us Jaws for HBO," says TCI Chairman and CEO John C. Malone.

That excitement doesn't necessarily mean a flood of new video business. The huge number of channels will force cable operators to cut the costs of such premium standbys as HBO and Showtime. Already, the Disney Channel and some other pay channels are allowing cable operators to bundle them in with cheaper basic rates. In 1998, despite nearly 2 million more pay-cable subscriptions sold, spending on premium channels will increase only 2%, to $5.5 billion, according to entertainment economists Wilkofsky Gruen Associates.

Cable TV faces a host of other challenges, including an effort in Washington to reinstitute rate regulation and a move to digital by broadcasters in top markets that could allow over-the-air stations to offer more channels and services. Satellite broadcasters may also get a boost from the feds--the satellite companies hope to get approval to carry local signals. Until they hear from Washington, however, DBS operators will cut costs for equipment and installation in an effort to keep new subscribers at near their double-digit rates of 1997.

But cable's fiber future is likely to make it a top investment target again in 1998, with deals similar to Microsoft Corp.'s $1 billion investment in Comcast. AT&T is expected to take a hefty stake--it has been negotiating with TCI for months about investing in its At Home service or the parent cable company. Software maker Oracle Corp. is also talking to TCI. The biggest deal of the year, however, could involve U S West's MediaOne cable operations. By early 1998, U S West will formally spin off its separately traded telecommunications operation and might then seek a partner to expand beyond its 5 million cable subscribers.

E.R. WAR. The explosion of channels has Hollywood gearing up to push film and TV programming production to historic levels this year. That's got the studios into their usual trap of bidding up the cost of talent and scripts--again driving down their earnings. The big price tags? Sony's Tri-Star Pictures Inc. is likely to spend more than $125 million to bring back Godzilla in May, a few million more than DreamWorks and Paramount plan to put out for the meteor flick Deep Impact. With a piece of the profits, Mel Gibson is likely to get $50 million for the fourth installment of Lethal Weapon from Warner Brothers, while Jim Carrey will get $35 million for The Mask 2. Some studios will try to reduce the cost by sharing with others: DreamWorks and Paramount will jointly make Saving Sergeant Ryan, a war epic starring Tom Hanks and directed by Steven Spielberg.

Hollywood will even be treated to the rare sight of two networks throwing dollars at a TV show, as CBS tries to bid away the top-rated E.R. from NBC. But the bloodiest fight will be in the animated-film arena, where Disney's longtime stranglehold will be challenged by Warner with The Quest for Camelot and DreamWorks with its Biblical story of Moses, The Prince of Egypt. Disney will release two new animated films in 1998: the Chinese folk tale Mulan and the computer-generated A Bug's Life. Is there enough room for all of them? "It could be a bloodbath," says John Krier, president of the box-office tracking company Exhibitor Relations Co. But this is the entertainment world, where nothing is ever enough.

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