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Chris-Craft Deal Clouds UPN's Future

Television: As Viacom loses to News Corp. in the bidding war for 10 stations, its network also could lose crucial affiliation agreements.

August 15, 2000|SALLIE HOFMEISTER | TIMES STAFF WRITER

With News Corp. announcing Monday that it has won a bidding war against Viacom Inc. for Chris-Craft Industries, the question is what becomes of Viacom's UPN television network. The network relies on Chris-Craft's 10 stations for survival.

Most analysts and industry executives predict that UPN, which is owned by Viacom and has struggled over its five-year life to find a niche, will die.

News Corp. is unlikely to renew its affiliation agreements with UPN when they expire in January. The media giant has its own ideas about how to program the stations.

The betting is that in Los Angeles, for instance, News Corp. will use Chris-Craft's Channel 13, KCOP, as a broadcasting outlet for its Los Angeles Dodgers, the professional baseball team whose games air on KTLA, Channel 5, which is owned by Tribune Co., the Los Angeles Times' parent company.

News Corp.'s new position as the nation's most powerful station owner, with 33 outlets and two stations in five cities, could at the same time bring a sea change in broadcasting.

Analysts predict a buying and trading frenzy--and a jump in broadcast stocks--as large rivals race to match News Corp.'s "duopoly" strength. They predict a rush to capitalize on new rules allowing broadcasters to own two stations rather than just one in certain cities.

"This will have ripple effects that no one has even thought of yet and that will play out over time," said one News Corp. executive, pointing to the programming buying clout the proposed purchase gives his company. "You won't even be able to syndicate a TV show in New York without going through Fox."

If the $5.4-billion deal to acquire Chris-Craft and two related companies is approved by regulators and shareholders, News Corp. will own stations in 29 large cities, with two outlets in five of them. These "duopolies" would give News Corp. added operating efficiencies in New York, Los Angeles, San Francisco and Salt Lake City, as well as in Dallas.

Sellers of network reruns would have to approach Fox because Chris-Craft owns one of the strongest stations in New York after the major networks.

The deal has the most profound implications for the loser, Viacom, which believed it was the front-runner in the bidding war until it learned Thursday that another suitor had emerged with a higher bid. Chris-Craft would have given Viacom six additional duopolies, for a total of 12 of 41 cities. The stations would have given it control over the fate of UPN, which counts on the Chris-Craft stations for 20% of its reach. Viacom launched UPN with Chris-Craft, then recently bought out its partners' 50% stake for $5 million.

Viacom and Chris-Craft together have invested $500 million in UPN and Viacom faces further heavy losses. The new prime-time season begins in a month, forcing Viacom to figure out a strategy for dealing with affiliates, advertisers and program suppliers should it decide to pull the plug rather than continue funding losses.

But the biggest headache could be a recent multimillion pact Viacom signed with the World Wrestling Federation. The deal calls for wrestling and football programming to be carried and promoted on UPN as well as on Viacom's CBS network, TNN and MTV cable channels and radio stations and billboards.

WWF is a notoriously tough and opportunistic negotiator and could make waves if Viacom falls short of its promises. WWF endured a court fight for ending an 18-year alliance with Barry Diller's USA Networks to defect to Viacom.

Viacom could find a weak station group such as USA Networks to replace Chris-Craft. And some analysts say that Rupert Murdoch, the chairman of News Corp., could make a deal with Viacom to renew the affiliation in exchange for something he wants.

But most pundits believe that Viacom Chief Operating Officer Mel Karmazin would probably prefer shutting down the network and saving his company the $300 million it is expected to lose over the next two years.

The savings would fall to the bottom line, creating roughly $4.5 billion in value based on Viacom's current trading multiple.

Besides, UPN isn't exactly setting the world on fire, even with the wrestling programming that has brought male viewers and higher ratings.

If UPN disappears, scores of stations affiliated with the money-losing network will be sent scrambling for replacement programming. Some could link up with other networks, such as the WB or Pax.

Others could be sold as large owners seek to capitalize on new "duopoly" rules passed by federal regulators last year.

Analysts said that "duopolies" have been stalled awaiting the fate of Chris-Craft, which has been on the block for a year and is considered the most desirable group because of its New York and Los Angeles outlets.

The turn of events could be a boon to owners of large but struggling station groups such as Barry Diller's USA Networks. Embarrassingly, Diller has been unable to deliver on the promise he made to Wall Street last November that a "duopoly" deal was imminent. But now, he could emerge as Viacom's duopoly partner--ironically, after fighting a bitter losing battle with Viacom for WWF.

Although some say News Corp. could use the Chris-Craft stations to form a second network, most industry sources say he would be better off programming the stations as independents.

News Corp. generates enough programming in news, sports, kids and entertainment programming the company already produces in-house.

In addition to the Fox network, News Corp. owns Fox Kids Worldwide, a 24-hour news channel, the most prolific TV production studio, movie production and two dozen regional sports networks.

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