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Entertainment Upheaval : NEXT STEP : With a Television Network in Its Cap, What'll Disney Buy Next?


Hey, Michael Eisner, you just agreed to spend $19 billion to buy the nation's preeminent television network. What are you going to do next?

The Walt Disney Co. chief executive isn't talking, but plenty of onlookers, from Wall Street to Main Street to Hollywood, are willing to speculate. The consensus: Take a deep breath, take a close look at all of Disney's properties--and then buy again.

Unlike Westinghouse Electric Corp., which is widely expected to sell off industrial divisions to pay for its $5.4-billion acquisition of CBS, Disney can easily obtain nearly four times that for Capital Cities/ABC without having to shed any properties, analysts say.

Eisner told analysts that the $10 billion Disney will need to raise to finance the purchase of Cap Cities represents only half the company's borrowing capacity. Eisner could make more purchases to round out Disney's music and sports divisions or to augment its merchandising and interactive ventures.

Disney would buy "if the right asset comes along at the right time and at the right price," said Jill Krutick, an entertainment analyst with Smith Barney in New York.

On Wednesday, Disney's chief spokesman declined to shed light on any buying plans.

"Obviously, we have some ideas, but it would be premature to lay them out," said John Dreyer, Disney's vice president of corporate communications. "We keep these things secret because we don't want to speculate."

Instead, Dreyer said people at all levels of both companies are looking for ways to take advantage of each other's strengths. "They're all brainstorming--they've been thinking about it since 7:30 a.m. Eastern time when the deal first went out," he said. "Ideas are popping up and people are developing their concepts."

Analysts said Disney will surely fold together some of its normal overhead functions, such as accounting and corporate finance, with its Cap Cities counterparts, for a relatively minor cost savings. Both companies also have television production units, and those are likely to be merged as well.

Other combinations of Disney and Cap Cities units could include an ESPN/Disney Channel package to sell to overseas customers; opportunities to televise extra hockey and baseball games played by the California Angels (of which Disney is planning to buy a 25% stake) and the Disney-owned Mighty Ducks; and the addition of product lines to Disney's merchandising empire that are tied to popular ABC television shows.

Jack Myers, president of Myers Communications, a television and marketing consulting firm in Parsippany, N.J., suggested that Disney could create theme park attractions based on ABC programs. It could even allow park visitors to sample pilot episodes of potential ABC series, providing a mother lode of market research for the network.

The two companies have very few overlapping businesses, and analysts don't expect many of those--if any--to be put up for sale. Federal Communications Commission regulations may force the combined company to shed one of its two Los Angeles television stations--KABC-TV Channel 7 or KCAL-TV Channel 9--to meet agency requirements that prohibit companies from owning more than one station in a market. Of the two, KCAL is the more likely sale candidate, but Dreyer said regulators are considering new rules that would allow Disney to keep both.

Also at risk of going on the block are Cap Cities' newspapers and magazines, which include the Kansas City Star and Women's Wear Daily. The publishing unit may not enjoy a high enough return on investment, and Disney may well decide that "it doesn't fit in with what they're doing," said Dennis McAlpine, a media and entertainment analyst with Josephthal Lyon & Ross in New York. Dreyer denies that the publishing unit is for sale.

Another potential casualty is a deal calling for joint production of television programs between ABC and DreamWorks, the new studio founded by Disney expatriate Jeffrey Katzenberg and partners Steven Spielberg and David Geffen. Katzenberg and Geffen have publicly feuded with Eisner.

Dreyer said Disney will not have a home court advantage when it comes to selling programs to ABC.

"The goal is always to put the best programming on the air to get the largest audience and the best demographic to receive the most ad revenue," Dreyer said. In addition to producing "Home Improvement," "Ellen" and "Boy Meets World" for ABC, Disney produces shows for the other five networks, and Dreyer said he fully expects that other studios will produce for ABC.

But analysts agree that the most intriguing moves in Disney's future will involve further acquisitions.

"I certainly would expect Disney to be actively looking at Thorn-EMI," McAlpine said. Although Eisner has resisted buying a label, instead launching the mediocre Hollywood Records, analysts agree he would buy if the price were right.

Disney may also be shopping for basketball and football franchises to round out its sports division, and it will probably use the ESPN networks to develop and promote new sporting leagues, Myers said. He also predicts that Disney could buy a string of radio stations to launch a network for children.

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