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CBS may be left out
An ABC/CNN merger would make CBS the last broadcast news network without a cable partner.
October 28, 2002: 8:14 AM EST

NEW YORK (CNN/Money) - A partnership between ABC News and CNN could leave CBS News the only network without a cable partner, a newspaper reported Monday.

Executives of ABC News and CNN have been kicking around the idea of a partnership for some time, but executives are expected to renew discussions in coming weeks -- their desire to merge apparently intensified since news of the talks broke last month, the New York Times reported.

Such a partnership would extend ABC's reach to CNN's vast international presence. CNN meanwhile, would gain big-name status and a broadcast network. The combination would create a news organization unrivaled in size, the paper reported.

However, an ABC/CNN partnership would leave CBS, the last of the old-line network news divisions, without a cable partner. The question is whether that matters, and whether CBS News, which is owned by Viacom (VIA: Research, Estimates), will be left scrambling for its own cable partner, like the Fox News Channel, a unit of News Corp (NWS: Research, Estimates)., according to the Times.

CBS News executives say the division can thrive independently, but analysts and competitors say it all depends on whether Viacom's managers view news as a major profit source, or a public service that should at least not lose money.

A partnership with CNN would give ABC an all-day outlet to showcase news scoops and starts, like its competitor NBC, which is owned by General Electric (GE: Research, Estimates). CBS News is largely confined to its two-hour "Early Show" and the half-hour "Evening News with Dan Rather," as well as other radio and Internet outlets, the paper reported.

CBS might also be financially disadvantaged. The CNN/ABC partnership would have three different revenue sources, cable subscriber fees, cable advertising and broadcast advertising. CBS makes most of its money on network advertising.

ABC and CNN executives have said the deal would save each side up to $100 million -- about half of the current earnings of CNN, which is owned by AOL Time Warner Inc., (AOL: Research, Estimates) and nearly twice that of ABC, owned by the Walt Disney Co., the Times reported.

CBS News executives question the savings, noting they walked away from a similar deal with CNN in the summer after a cost-benefit analysis indicated they would give up too much, according to the paper.

CNN has not ruled out a partnership with CBS should an ABC deal fall through, the Times reported. CNN wants to hold two-thirds of a jointly run news operation that would be spun off as its own company. That has become an outline of its deal with ABC.

Tom Wolzien, a media analyst at Sanford C. Bernstein, told the Times that a CBS merger with CNN would add just a tiny percentage of the annual earnings of Viacom, or even Disney (DIS: Research, Estimates). He said CBS has already cut costs heavily, primarily through staff cuts.

However, news executives at competing organizations said a CNN merger would not only help ABC curb costs, which Wall Street would welcome, but also position it for the future, the Times reported.

ABC News President David Westin has said the merger offers the best opportunity for growth. Broadcast ratings are expected to continue sliding while cable grows. The news divisions, which operate on tight profit margins in a good year, need new revenue sources, the paper reported.

It is unclear whether there would be anyone for CBS to merge with outside of CNN. NBC has not shown interest in new partnerships. Fox News Channel remains a possibility, but an unlikely one given its solidifying lead over CNN and projections for healthy advertising and subscriber revenue.

Other options for CBS might be smaller, cost-saving arrangements with organizations like the BBC, Reuters or even Fox News, the paper reported. It could also expand outside ventures -- like the selling of documentaries to cable networks like those owned by Discovery Communications, to raise more cash, according to the Times.  Top of page

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