IT'S NETWORKING TIME

By ELIZABETH GLEICK

Now what? Who's next? Ted Turner, for one, is not saying. "I've got a pocketful of big plans," the owner of Turner Broadcasting said recently. "But I'm not going to show my hand. I mean, you didn't see Eisenhower faxing Hitler the plans for the invasion of Europe." John Malone, CEO of Tele-Communications Inc., has offered to help Turner buy a television network, and Edgar Bronfman Jr., CEO of Seagram Co., may get a piece of that action, too. NBC president Robert Wright, while announcing that he thinks parent company General Electric plans to stand pat, coyly valued his network at about $11 billion, adding, "We just got a lot more expensive." And of course everyone is watching Rupert Murdoch, the envy of the media firmament, who with a recent infusion of cash from MCI is continuing to march across the world, from Milan to Fiji. Can Barry Diller possibly sit it out much longer?

In the great gamble that is the media business, the high rollers are in a race to get their chips on the table, but no one can say for sure which will be the winning hand--or even, frankly, which is the right table.

Last week television networks were the hot property. No sooner had Disney thrown in its lot with Capital Cities/ABC than Westinghouse placed a bet with CBS to acquire the network after striking a deal with its president, Laurence Tisch, for $5.4 billion. The deals are dazzling not for their novelty--the mood to merge has been upon much of corporate America this year, with announced deals for the month of July alone totaling $50 billion--but for what they say about the value of networks in today's marketplace. CBS may be the third-rated network of the Big Three, but it is likely that one or more bidders will still emerge to supplant Westinghouse. And as Wright suggests, NBC is now looking mighty attractive.

The appeal comes partly from the fact that since the networks have become ministudios under looser federal regulations that will allow them to syndicate their own shows, studio bosses are calculating that it's better to buy a network than compete with one. Add to that the passage of the sweeping telecommunications bill in the House last week--a final version has to be hammered out with the Senate--and bigger looks better than ever. With whiz-bang technologies--interactive video on demand, whoopee!--receding back into the future, the familiar and iconic television networks look almost sexy. "In a cluttered landscape," says Howard Stringer, former president of the CBS Broadcast Group, brand names "are going to be more important than ever before."

For years pundits had been proclaiming the demise of the Big Three, and they will no doubt do so again. While it is true that cable has eroded broadcast viewership--ABC, NBC and CBS together command a market share of only 57% as compared with 61% just last year and 91% in the late 1970s--the networks still reach 98% of American homes. Even in the face of declining audiences, the broadcast networks are looking at their best year ever in terms of advertising, with an expected $5 billion in revenues for the 1995-96 season. For a movie studio looking for a name-brand outlet for its product, the networks remain, as Raymond Katz, a media analyst at Bear, Stearns, puts it, "the most efficient marketing vehicle there is."

In reality last week's two deals are more dissimilar than similar. Disney is trying to create a vertically integrated global entertainment company, marrying its unbeatable content with ABC's wide distribution. Westinghouse, which just last year entered into an alliance with CBS to buy several stations, is looking to move away from its stagnating defense and refrigeration operations and grow by expanding into entertainment. If the deal goes through, the as-yet-unnamed entity will control 15 television stations and 39 radio stations, with a total access of at least one-third of U.S. households. That kind of reach is why, to some observers, the megadeals may just be beginning.

The outlook for the success of the CBS-Westinghouse alliance, however, remains murky. CBS stockholders should have no complaints: if the deal goes through they will receive $81 a share, plus add-on payments tied to how long after Aug. 31 it takes to close the deal. Pretty rich indeed for a stock that had dipped as low as $50 in the past year.

But CBS is not in great shape. While producing impressive yields for the shareholders and a hefty profit for himself, Tisch did the opposite of diversifying his company: he sold off the record division to Sony; he watched helplessly as Murdoch's Fox swooped up both professional football and key affiliate stations around the country; and he has long balked at following the other networks into the future by making investments in cable or overseas production. In the first half of 1995, CBS revenues tumbled 16% and profits 59%. As Mario Gabelli, a money manager with major media investments, puts it, "Larry has done a marvelous financial job, but he's squeezed everything from CBS except the squeal of the hog. There was nothing left to sell but the company."

Nor has Westinghouse chairman Michael Jordan publicly announced any sort of plan to jumpstart the network. It is still unclear whether he intends to continue to make significant investments in CBS by selling off other assets, or whether he will enter a strategic alliance with another player. Says Howard Stringer: "They said the same thing about GE when it bought NBC. What did GE know about broadcasting? It all depends on how Westinghouse manages the network."

In theory, though, the time has never been better for these mergers. The House last week passed the most far-reaching reinvention of telecommunications law in 61 years. In addition to deregulating cable prices, the bill would allow one company to own television stations reaching 35% of U.S. households (up from 25%). Moreover, the House version would permit a company to own cable systems, newspapers, radio and broadcast stations and an interest in the local telephone company in the same market. Foreign-ownership restrictions would also be relaxed somewhat.

President Clinton has threatened to veto the bill, at least partly out of concern that consumers would suffer from the high prices and cultural limitations that sometimes come with big concentrations of power. "The good news is, these large companies bring the kind of horsepower, creative force and technological advances that one would hope would create a better universe," says Fred Roberts, president of a Los Angeles investment-banking firm specializing in mergers and acquisitions. "On the other hand, it's going to make individuals and entrepreneurs irrelevant because no one is going to be able to compete with these behemoths." Massachusetts Representative Ed Markey, ranking Democrat on the House Telecommunications Subcommittee, puts it this way: "For us to allow there to be this concentration of media ownership would make Citizen Kane look like an underachiever."

But the best argument against fears of this oligopolistic future is that today's giants seem to be chasing an ever expanding market, never quite sure which technologies will come out ahead. The 500-channel world may not be imminent, but as new distribution systems like digital broadcast satellites and digital cable come into use, programming outlets will multiply. TCI's John Malone, who heads up what has long been the nation's largest cable company, is choosing to highlight the red-hot Internet, investing in his own Internet company as well as the Microsoft Network. "There is a growing distrust of one-way, packaged mass media," says Mark Stahlman of New Media Associates. This may mean that as people become more adept at navigating the World Wide Web, for instance, they will be less likely to depend on a single source of fun and news.

No matter what the future contours of the media industry, those who own and produce content will continue to have clout--the animators, the screenwriters, the TV whiz kids. To that end, Jeffrey Montgomery, CEO of Harvey Entertainment, which holds the trademarks for Casper and Richie Rich, lost no time last week in meeting with investment advisers about putting his company on the block. Says he: "The good news is my company's a whole lot more valuable because the major players need content even more." Last week, too, there were rumors that Turner may be trying to regain greater control of his company. The speculation was that Turner, together with Bronfman, was hatching a deal to swap Bronfman's Time Warner shares for Time Warner's holdings in Turner Broadcasting.

But contrarians caution that the major players may have the wrong idea--that someone like Malone, by striking deals with everyone, is positioning himself better than is Michael Eisner, who for better or worse will now be tethered to ABC's network. "The risk is that some dumb deals will happen just because people are feeling they'd better buy something," says Tom Adams, a media analyst based in Carmel Valley, California. "It's almost a panic out there," agrees Derek Baine, an analyst with Paul Kagan Associates. "There's going to be a lot of dealing this year.'' But will the media barons be able to recognize high cards when they see them?

--Reported by Bernard Baumohl and William Dowell/New York, Dan Cray/Los Angeles, and John F. Dickerson and Suneel Ratan/Washington

With reporting by BERNARD BAUMOHL AND WILLIAM DOWELL/NEW YORK, DAN CRAY/LOS ANGELES, AND JOHN F. DICKERSON AND SUNEEL RATAN/WASHINGTON