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COLUMN ONE : It's Back to the Future for Disney : Deal shows those old stalwarts--the TV networks--have gained new life and respect. Now they are seen as keys to the global entertainment age.

August 01, 1995|SALLIE HOFMEISTER and JAMES FLANIGAN and AMY HARMON | TIMES STAFF WRITERS

If the big deal combining Walt Disney Co. and Capital Cities/ABC were a movie, it would be titled "Back to the Future."

Yes, the mega-deal announced Monday foreshadows the coming age of digital and global entertainment, when giant companies will produce and distribute films and programs everywhere through sets or boxes in homes.

But the Disney-Cap Cities combination doesn't rest on any single technology, whether satellite or cable or 500-channel interactive computerized TV. It's too early to know if any of those will ultimately prevail.

Rather, this $19-billion acquisition honors the know-how of distribution to mass audiences held by those 50- and 60-year-old veterans, the TV networks.

And that's ironic. Only a few years ago, experts were predicting the end of the networks, as cable television reduced their audiences and advertisers cut their spending. Networks came back into favor recently as advertisers recognized their ability to reach more homes with a single program than any other medium. Also, federal rules are about to change to allow ABC, CBS, NBC, Fox and others to own the programming they put on.

Suddenly the networks, which also control the largest stations in the country, looked like powerful gatekeepers, able to decide whether programs from a studio such as Disney got on the air.

"The networks are like the beachfronts," said Scott Sassa, president of Turner Entertainment Group, an arm of Turner Broadcasting Systems in Atlanta. "They are eroding away, but there are no other beaches."

Thus Disney is reaching out to ensure itself outlets for films and programs. In doing so, Disney confirmed a trend and stepped in front of it with a deal that will create the largest media company with annual revenues of more than $20 billion.

A sale of CBS to Westinghouse is anticipated later this week. And analysts speculate that NBC, which is owned by General Electric Co., will either make a deal with Turner Broadcasting--perhaps purchasing the Turner company--or use GE's vast resources to grow to great size itself.

The vision is of a future dominated by giants of entertainment and information. When this deal is completed, Disney will head a list that includes:

* Viacom International, owner of Paramount Pictures, MTV and Blockbuster Entertainment.

* News Corp., the holding company for Fox Network, 20th Century Fox and other properties of Rupert Murdoch's media empire.

* Time Warner, which owns Warner Bros., the Time-Life publishing company and the largest music company in the United States.

Turner, owner of CNN and other cable networks as well as film production companies, would also make the list, as would Bertelsmann of Germany.

More Outlets Sought

Why is size considered so important? Because costs have risen in the race for the hottest talent and the standout hit. To make and market the average movie costs $50 million; the cost of a hit television series such as ABC's "NYPD Blue" can cost $1 million an hour.

So media companies have sought to spread costs over more outlets. That's why they have been acquiring publishers, record producers, retail chains, movie theaters, production companies, cable channels, television stations--and networks.

This is called "vertical integration" in the jargon of the business. And in theory it promises higher returns. Viacom, for example, now can profit from a movie made by Paramount Pictures at the box office, from ticket sales at the theaters it owns, from rental fees collected at Blockbuster Video, and from subscriber fees on its Showtime cable network.

When this deal is completed, Disney can get greater exposure for its films and programs through the ABC network, or on ESPN or the Lifetime channels, which Cap Cities also owns. These outlets can also be promotional vehicles for all of Disney's many products.

Of course, theory doesn't always work in practice. Owning the product and the shelf space compounds the risks: If a picture bombs, Disney would suffer at the box office and its network would reap low ratings.

But that's why Disney is so important to Cap Cities/ABC. The deregulation that allows networks to produce and own programming is only an advantage if the programs are good. ABC has been producing programming overseas just to get into practice. But no television company and few movie studios can come near Disney's long record of producing classics.

Yet this combination of a movie studio and a television network would not have happened if optimistic predictions about the pace of technological change had come true. Even last year, all the talk was of information highways and stupefying 500-channel movies-on-demand services. Now they are once again seen as distant horizons.

"This [Disney] deal would not have been made two years ago when people were convinced the technological revolution was going to happen instantly," says Malibu-based new-media analyst Jonathan Seybold. "The fact that it's happening now reflects a more sober perspective that this stuff is going to take a long time."

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