Network Crazy!

By Richard Zoglin

Michigan J. Frog was a singing amphibian who appeared in a single Warner Bros. cartoon, One Froggy Evening, back in 1955. He would burst into exuberant renditions of The Michigan Rag and I'm Just Wild About Harry for his delighted owner. But the minute anyone else showed up, all the frog could emit was a feeble croak, driving his owner from dreams of instant wealth to the brink of insanity. The cartoon is not exactly an uplifting parable for a company on the verge of a new venture, but this week the frog will be reincarnated as the on- air mascot for Warner's entry in what has suddenly become the hottest of entertainment businesses: network TV.

Not too many years ago -- or was it only months? -- the traditional broadcast networks were relegated to the endangered-species list. Viewers were drifting to cable; industry seers were predicting a future of countless channels and "video on demand"; and ABC, CBS and NBC were fighting to remain relevant. Now it seems everybody wants to get into the network act. Warner's new WB Television Network, which premieres with a weekly two-hour block of sitcoms this Wednesday night, is one of two aspiring "fifth networks" making their debut this month. Next week the United Paramount Network -- a joint | venture by Paramount Television and Chris-Craft Industries, which owns a group of broadcast stations -- will introduce another starter network with four hours of programming on Mondays and Tuesdays. Both UPN and WB hope to expand to seven nights in the next several years, just as the Fox network has done after a similar start-up in 1986, and thus to bite off another chunk of the increasingly fragmented audience pie.

But the Big Three are getting a new weapon to keep their upstart competitors at bay. In November, barring any last-minute regulatory roadblocks, the Federal Communications Commission will lift the last of the restrictions that for years have prevented the networks from owning more than a small portion of the programming they air and from selling reruns of those shows on the syndication market. The new business opportunities that this opens up, along with an upturn in the advertising market and a healthy profit picture (the three networks combined made roughly $600 million last year, an increase of 30% from 1993, according to Broadcasting & Cable Magazine), have turned the networks into hot properties on Wall Street. At least two of the Big Three, NBC and CBS, have had serious discussions with potential corporate buyers in the past year, and many analysts expect at least one of them to be sold or to acquire a new corporate partner before the end of 1995.

Yet if the network business is thriving, it is as a radically different sort of business. The line between distributors (the networks) and suppliers (outside producers) is being blurred. The networks, given the chance to produce and own their shows, are acting more like studios, while the studios, afraid of being squeezed out, are trying to become networks. Just how this will affect what viewers see on their home screens is hard to predict. The advent of new competitors could foster more diversity and innovation. But with everyone aiming for the same audience -- those inescapable young-adult demographics -- the result could be just more of the same old thing. "The good news is that there will be a lot more stuff to see," says Christopher Dixon, a media analyst at PaineWebber. "The bad news is that it may not be very good."

The model for this changing network landscape is Fox, the fourth network, started by media baron Rupert Murdoch in 1986. With its methodical, one-night- at-a-time pursuit of the Big Three, Fox was a tough competitor because it played by different rules. Even though it now programs 15 hours of prime time a week -- one FCC benchmark for what constitutes a network -- Fox has managed to avoid the commission restrictions on program ownership and syndication that govern the Big Three. This annoys the other networks, which argue that Fox receives an unfair competitive advantage from Washington while it escapes such public-interest obligations as maintaining a news division.

The networks' attitude toward Murdoch did not improve in May, when he enticed 12 stations owned by New World Communications Group to switch their affiliation to Fox. The bad blood came to a full boil a month ago, after NBC went to the FCC to accuse Fox of trying to improperly acquire six more stations and thus exceed the limit on the number a company may own. NBC also asked the commission to investigate whether Fox is violating the 25% limit on foreign ownership of a U.S. broadcast station. (Fox is owned by Murdoch's News Corp., an Australian company, but Fox claims it is effectively controlled by Murdoch himself, who is an American citizen.) Just how high the stakes are in the battle was made clear by the jugular quality of Murdoch's response. Denying that his network violates the foreign-ownership rules, he fired back with charges that General Electric, NBC's corporate parent, should be stripped of its station licenses, alleging "a pattern of illegal activity." "Two can play at this game," said Murdoch. "If they want a brawl, they can have one."

Warner and Paramount, the two newest entrants in the network derby, see Fox not as a nemesis but as a network to emulate. Just as Fox did at the outset, each has cobbled together a lineup of affiliates composed largely of independent uhf stations. Like Fox, each is starting modestly, with one or two nights of programming, and plans to expand gradually to additional nights. Moreover, both are trying to reach the same audience that Fox has made its specialty: teens and young adults, particularly males.

The first batch of shows on WB and UPN will convince no one that they are bringing something new to TV. The centerpiece of Paramount's schedule is Voyager, the fourth installment in the seemingly indestructible Star Trek series. The rest of UPN's schedule ranges from a mystery-adventure series, Marker, starring teen heartthrob Richard Grieco, to a pair of frenetic Fox- style sitcoms, Platypus Man, in which comedian Richard Jeni plays the oversexed host of a TV cooking show, and Pig Sty, about five twentysomething men who share a New York City apartment. The four sitcoms being introduced by Warner also have the familiar whiff of Fox: former Fox leading men Robert Townsend (Townsend Television) and Shawn and Marlon Wayans (In Living Color) star in broad and unfunny sitcoms, while Unhappily Ever After introduces another crude, dysfunctional family created by Married with Children co- creator Ron Leavitt.

Is there room for two more networks offering another load of laugh tracks, retreads and raunchy wisecracks? Industry opinion is divided. Start-up costs have been estimated at $300 million apiece, and each network could lose between $50 million and $75 million in the first year alone. Also, unlike Fox, which was able to scoop up relatively strong independent stations in a number of markets when it began, Warner and Paramount have had to settle for the weaker leftovers. Paramount seems in the better position at the outset: it has signed up 96 affiliates (covering 79% of the country), and is promising advertisers an optimistic 7 rating (nearly what Fox now averages in a typical week), largely because of high expectations for its Star Trek series. Warner, which has confirmed only 43 affiliates thus far but says more will be on board by launch time, has had to resort to cable -- it will be carried on superstation WGN -- to boost its coverage to 72% of the country.

"It's going to be very difficult for both of us," concedes Lucie Salhany, president of Paramount's UPN. "Can both survive and grow? I don't know." Jamie Kellner, chief of WB, argues that it is hit shows that count. "This is a business that's all in the programming and the promotion," he says. "If you make good programs and promote them properly, people will beat your door down." But executives for the other networks downplay any threat posed by the Warner and Paramount ventures, describing them not as networks but as enhanced versions of the syndication outfits that distribute shows like Oprah, Wheel of Fortune and Baywatch to local stations. "What they're about is the evolution of syndication," says Neil Braun, president of the NBC television network. "What Paramount and Warner have done -- wisely, I think -- is to go out and try to tie up time periods first rather than sell, show by show. I think it's a very smart thing to do. But believe me, there's really no comparison between what they're building and what we have."

If Paramount and Warner aspire to be networks, it's partly because they - think they must in order to survive as significant TV players. The reason can be traced to the demise of the so-called financial-interest and syndication rules. Instituted in 1970, these rather abstruse regulations limited the networks' ownership of the shows they aired and barred them from the syndication business. As a result, the networks were forced to acquire their shows from outside suppliers -- ranging from big studios like Universal and Warner to smaller, independent producers like Norman Lear (All in the Family) and Carsey-Werner (Roseanne).

The "fin-syn" rules have caused years of squabbling between the studios (which maintain that the networks, as gatekeepers of the airwaves, should not be allowed to own shows) and the networks (which view the rules as an outmoded relic of the days when the networks were the only game in town). The FCC has finally come down on the networks' side. "Broadcast television is doing great against all its competitors," says FCC chairman Reed Hundt. "((The agency)) wants to make sure they have the opportunity to exercise all of their competitive energies."

As the rules have been relaxed in stages over the past few years, the networks have increasingly moved into becoming producers as well as distributors of their programming. A growing number of prime-time shows, such as CBS's Dr. Quinn, Medicine Woman and ABC's Me and the Boys, are produced by the networks' in-house production units. The networks, meanwhile, are negotiating for an ownership share of more shows produced by outside companies. In one sense, these new arrangements are righting what has always been a skewed system of network economics. Typically, the network pays an outside company a license fee for the right to air its show, then keeps all the ad revenue that the program generates. The show's owner usually takes a loss in the early years of its run, as the network license fee rarely covers the entire cost of production. But if the show is a hit, its owner can reap huge profits down the road by selling reruns in the syndication market.

The new alliances between networks and producers at least apportion the risks and rewards more equitably. With an ownership stake in shows they air and the change in fin-syn rules, the networks for the first time can share in the money that a show generates in its afterlife. The producers, in the meantime, get the networks to take on more of the up-front costs. In a landmark deal last fall, ABC entered into a joint venture to create a new TV studio with Hollywood moguls Steven Spielberg, Jeffrey Katzenberg and David Geffen. ABC has a 50% stake in the company and, in an unprecedented move, has agreed to share directly with the studio the advertising revenue its shows bring in.

To viewers, of course, the question of how the networks and studios divide the money may seem to have little bearing on what they see onscreen. But these new network-producer partnerships could have an impact. With a chance to share at last in the back-end revenues, the networks may have a greater incentive to stick with a program that is struggling in the ratings, in the hope it will catch on. Yet many in Hollywood are fearful that the networks will give preference to the shows they produce or own a piece of, making it even more difficult for small, innovative outsiders to break into prime time.

Network executives argue that it would be self-destructive to make programming decisions on the basis of who owns a show rather than how popular it is. "This is an intensely competitive business," says David Westin, president of the ABC television network group. "It's a business where 250 million Americans get to vote every night and we get a report card the next morning. No network can afford to start playing fast and loose with its programming decisions in order to reap some benefits out of syndication five years down the road."

Still, the networks are busy looking for new ways in which they can profit from the afterlife of their shows. NBC is engaged in exploratory talks with Ted Turner, the Atlanta cable entrepreneur who has long hankered to own a broadcast network. NBC views Turner's cable networks TBS and TNT as a promising market for NBC reruns. Explains network president Braun: "Historically, what's always happened is that the broadcast networks create the value for a show and the third parties are able to exploit it in the aftermarket. Now the networks can participate in the value they create. And that aftervalue is increasingly going to be exploited in media supported not by advertising dollars alone but by consumer dollars -- like basic cable and various forms of pay-per-view."

As the networks take on new roles, make new alliances and face new competitors like Paramount and Warner, the old verities may no longer hold. "I think we may well see more and more situations where stations are just buying blocks of time -- whether it be from the network or from one of these new networks or from somewhere else," says Richard Kostyra, head of Media First International, a Madison Avenue media-buying firm. "Right now the networks have an exclusive in certain time periods, but there's no reason why that couldn't open up. It's possible that we could move to the point where stations will take five hours from ABC and four hours from CBS and 10 hours from Warner."

The networks are working busily -- locking up affiliates with long-term contracts and increasing the compensation money they pay stations to carry network shows -- to make sure that day never comes. But in the new world of network TV, anything can happen. Even a singing frog.

With reporting by Melissa August/Washington, Jeffrey Ressner/Los Angeles and William Tynan/New York