(FORTUNE Magazine) – Shaped like a snub-nosed bullet, the ruthless billionaire who controls CBS may be the world's worst broadcaster, but Laurence A. Tisch is close to making a killing from the Tiffany Network's tattered remains. His chop-shop management style has infuriated CBS employees, stripped the company of non- broadcasting assets, and blocked its growth into cable and overseas markets. He brought the network to No. 1 in the ratings and then set a record for the fastest dive to third place; in terms of the young viewers advertisers prize, CBS ranks fourth, behind News Corp.'s Fox network--to which CBS has lost prized affiliates. Even so, Tisch's 18% stake in CBS is already worth almost $450 million more than it cost him, and the serious bidding is still to come. His price, reportedly, is over $80 per share in cash, or $5 billion. That's 22% above CBS's market value, already inflated by takeover talk.

Tisch, 72, primly denies the network is for sale (and declined to be interviewed for this story). But he has met promiscuously with interested buyers, from Ted Turner to Barry Diller. No matter what Tisch says, CBS cannot remain aloof from the seismic forces reshaping the $188-billion-a-year content business. The regulatory barriers that artificially segregated TV networks from movie studios and cable companies are crashing down, making networks prizes for consolidation-crazed media companies. Scarcity value cranks up the pressure: ABC, NBC, and Fox aren't for sale, and the two startup networks, Time Warner's WB and the Viacom/Chris Craft joint venture UPN, aren't yet worth buying. Even in the ratings cellar, CBS still delivers 18% of the prime-time audience, and the booming advertising market, which rises and falls with the economy, is pushing up broadcasting revenues like a Wonderbra. Add in the widely shared belief that CBS could repair its fortunes if only Tisch were yanked offstage, and the property becomes almost irresistible. A distinguished broadcaster puts it this way: If you leave a snare drum out at a cocktail party, after a couple of drinks someone will pick up the sticks and start to play. Says Ted Turner: "I promise you, CBS will be gone within a year from current ownership."

The fundamental source of that conviction is the drive by giant entertainment companies such as News Corp., Viacom, and Time Warner to bet huge sums on the same risky proposition: that by leveraging their growing libraries of content with ever broader distribution systems, they can balance the unpredictable alchemy of hitmaking with reliable streams of revenue. "Before, you couldn't manage it as a business," says Gerald Levin, the CEO of Time Warner, whose holdings sprawl from film and TV production to music, cable TV systems, books, magazines (including FORTUNE), CD-ROMs, theme parks, and studio stores selling Tweety Bird tank tops. "Now, with cash flow from so many sources, you can. Intellectual capital married to distribution results in brands--franchises--and our business is about attracting people to those franchises."

This theory has some grounding in fact. Some Time Warner executives have described Batman as their corporation's largest asset: Batman Forever, the latest bonanza, may be good for revenues of well over $1 billion. Viacom's Star Trek, originally a middling TV show, has made some $2 billion through 178 episodes, including three successor series; seven movies, including last year's Star Trek: Generations; scores of books, with 65 million copies in print; 17 million videocassettes; and countless toys, tote bags, key chains, wall clocks, bed sheets, underpants, and heaven knows what else. Says screenwriter Paul Rudnick (Addams Family Values): "You're not really an auteur without retail."

The drive to exploit every last farthing of value in copyrighted material has transformed even such shabby media properties as CBS into rare prizes; it's seldom possible to buy one for a reasonable price. And in the past, some crazy deals have paid off: Viacom, controlled by the relentlessly acquisitive billionaire Sumner Redstone, bought MTV Networks in 1986 for $500 million; now Viacom values its MTV business at more than $6 billion. Turner, so garrulous he seems half-mad--but still among the shrewdest strategists in entertainment--nearly bankrupted Turner Broadcasting by acquiring the MGM film library for a price deemed ridiculous a decade ago. His company is fairly healthy now, and worth about $6 billion. Closer to home, the CBS record business that Tisch sold to Sony for $2 billion in 1988 is now worth three times as much. The piratical Rupert Murdoch nearly sank News Corp. with debt by 1990; now, with MCI's promise of a $2 billion equity infusion, he looks like a genius.

Still, the desperate gleam in buyers' eyes is matched by the ever present risk of catastrophe. Consider Sony with its we-wuz-robbed $2.7 billion write-down of its Hollywood assets, or Matsushita, which paid almost $7 billion for MCA and had to choke down more than $2 billion of the studio's debt before unloading 80% of the property to Seagram at a break-even price. Even companies with brilliant long-term prospects have infuriated shareholders by piling on debt, a lesson both John Malone's Tele-Communications Inc. and Time Warner are absorbing now.

For buyers, the principal allure of CBS is its distribution clout. There are probably as many TV sets as people in the U.S., and Americans invest one-fifth of their waking hours watching them. Although the traditional networks' share of viewing has plunged from 91% in 1979 to 57%, they still deliver more eyeballs than any other medium. Companies that sell filmed entertainment fear losing access to the audiences that transform unfamiliar products into invaluable brand names, like Star Trek or Simba or, God help us, the Brady Bunch. And in a business where a $100 million investment can evaporate on opening night, the fountains of cash from a network's owned-and-operated TV stations could help balance the staggering financial risk of creating new programs and movies. Among the studio set, Seagram CEO Edgar Bronfman Jr. has emerged as the likeliest bidder for CBS.

Tisch has timing on his side, as deregulation suddenly intensifies the Hollywood studios' interest in network TV. Major revisions of telecommunications law pending in Congress would make owning a network an even sweeter deal. First, they would permit studios to buy more TV stations. And the law might allow cable and telephone companies to own networks, opening the bidding to a conspicuously monied set of potential buyers.

Even if the new law fails to pass, the Federal Communications Commission is providing a new rationale for media mergers. The FCC is eliminating an arcane but economically important regulation known as the financial interest/syndication rule. In the old days, studios often complained that it was hard to get a TV show on the air unless you gave the network a piece of it. To prevent such bullying, the FCC in 1970 barred broadcast TV networks from owning most of the programs they air. The FCC's rule kept the networks dependent on studios for their entertainment programming, giving the studios the benefit of cash bonanzas from selling rerun rights to successful shows. Most lose money, but one hit like Disney's Home Improvement can produce a $500 million profit.

Combining the two sides of the TV business always made economic sense, and the pending demise of fin/syn makes it possible once again. To increase profits, networks are pushing into program production, while the studios, to protect their access to TV audiences, are pushing into network ownership. The Fox network already is part of a global media empire that includes a major film studio, Twentieth Century Fox. The fledgling WB and UPN networks are also studio startups. On the network side, Capital Cities/ABC has found production partners in DreamWorks and Brillstein-Grey, and NBC, owned by $60-billion-a-year General Electric, can afford to experiment with in-house productions while deciding how to play its cards.

TELEVISION'S competitive environment, so stable in the days when Gig Young portrayed media executives, is heading for serious weirdness. Starting almost from scratch, the networks won't be able to produce the shows they need, so program suppliers and customers will be clawing at each other like crabs. Bob Iger, president of Cap Cities/ABC, says his company is investing more than $750 million in its own programs this year--and losing money on its productions for prime time. Meanwhile, in a suggestion of craziness to come, one of ABC's more promising creations, News Radio, airs this fall on rival NBC. New World Communications, Ronald Perelman's media arm, recently promised to keep some of its TV stations affiliated with NBC, but only in return for guarantees that the network would air some New World shows from a production unit run by former NBC entertainment chief Brandon Tartikoff. In a clawfest like this, even the appearance of weakness can be deadly.

Sooner or later, someone will dart out from the shadows to bid for CBS. Whoever wrests the network from Tisch's tight grasp will have a chance to redefine the rules of competition in one of the most influential industries of our time.

The buyers that could do most with a network, of course, are the seven Hollywood studios that own the world's most important libraries of filmed-entertainment content. One has a network already, and two are growing their own. That leaves four studios in the cold: MCA's Universal Pictures, Disney, Sony Pictures (Columbia, TriStar), and Turner (MGM, New Line, Castle Rock, Hanna-Barbera).

As president of MCA, Sidney Sheinberg unsuccessfully sought approval to join in an ITT bid for CBS in 1994. He explained his reasoning succinctly last fall: "If you have content and no distribution, you will die." MCA's cautious overlords at Matsushita crushed the plan. After Sheinberg and chairman Lew Wasserman publicly revolted, Matsushita sold to Seagram. Now Seagram's Bronfman--who spent part of his adolescence living with the family of film producer David Puttnam (The Mission) and who has produced movies himself--could be a buyer. Unlike most, he can afford it: Having sold most of its 24% of Du Pont for $8.8 billion, Seagram boasts a sturdy balance sheet; its 15% stake in Time Warner, a disposable asset, is worth $2.4 billion.

Walt Disney Co., the master sorcerer of copyright exploitation, is another logical buyer. In the decade since Michael Eisner became CEO, the company's market value has soared from $2 billion to $29 billion. But much of that astounding success came from milking what Walt Disney the man had already created: Eisner raised prices at theme parks and exploited classic cartoon characters so shamelessly that children in public schools brought home Snow White homework last fall. The videocassette version of the 1937 film Snow White and the Seven Dwarfs, released in October, may produce profits of $400 million. The Eisner team's outstanding creative success has been in animation: profits from The Lion King alone will total $1 billion, according to Jessica Reif, a security analyst at Merrill Lynch. The new Pocahontas, though willowy in comparison, clearly is some kind of smash.

With a great library but a weaker set of distribution systems than many of its competitors, Disney could benefit more than most from owning a network. The company has plenty of money. And Eisner, who once sneered at investments in distribution, has acknowledged to Fortune that owning a network at the right price would be good for Disney. But there's the rub: Eisner is a chiseler. One of his CEO peers, who asks not to be identified, says he doesn't believe Eisner is constitutionally capable of paying a premium price.

Ted Turner? The chronically underfinanced Atlantan, who tried and failed to take over CBS in 1985, certainly wants a network. And as owner of CNN, he could capture immediate savings--$100 million or so--by combining redundant news operations. Explaining his own motivation in characteristically florid fashion to an audience at the National Press Club last fall, he said, "I have to compete with Rupert Murdoch, who has his own studio, his own broadcast network, and his own cable network. I am having to fight with one hand tied behind my back. It's like fighting a war without an air force...If the people you're fighting with have got an air force, you've got to have one... All my life I've been on the outside...I'm sick of it. I want to be able to stand at the first-class table. I don't want people pushing me around anymore."

To buy CBS, Turner must surmount two obstacles. First, he must get permission from Time Warner and Tele-Communications Inc., which bailed him out after the MGM fiasco in 1987 and retain veto power over major decisions.

Next problem: no moolah. For seven of the last nine years, Turner Broadcasting had a deficit where its stockholder equity should be. A Turner takeover of CBS seems impossible, but given Turner's history, that's no reason to rule it out.

Another long-shot possibility is a bid from Viacom's Redstone this fall, when he could become free from some particularly onerous financing restrictions. Redstone himself firmly denies any interest in acquiring CBS, and--who knows?--he may be sincere. But CBS would crown his media empire, which includes Paramount, book publisher Simon & Schuster, and Blockbuster video stores, acquired in two of the biggest deals of all time. A potential hindrance is some $10.1 billion of debt that Viacom picked up in the process, but a little debt never stopped Redstone before. Redstone, 72, can be genial, yet he is just as tough and ornery and covetous as Tisch. It would be a kick to watch the two of them haggle.

Barry Diller, elegantly self-employed since he lost control of the QVC shopping networks, has eyed CBS for more personal reasons. Hardly the retiring type, he needs a business to run and appears perfectly qualified to restore the network's luster. At ABC early in his career, Diller invented the weekly made-for-TV movie; several jobs later, he masterminded the creation of the Fox network. With those credentials and a personal fortune substantial enough to support his Gulfstream jet, he probably could raise the capital to buy CBS. Diller has already demonstrated his interest; last year, as head of QVC, he tried but failed to merge with CBS, and it is understood that he and Tisch were talking again this spring. What might stop Diller this time is price: Tisch's $80 per share amounts to a steep 25 times earnings, more than the disciplined Diller may be willing to pay.

Less glamorous, but considered equally serious, is Westinghouse, a $9.2-billion-a-year wreck of an industrial company that owns five major TV stations, of which four are CBS affiliates. Through its entertainment division, Group W, Westinghouse has started several important joint ventures with the network. In this case the attraction is based on ownership of TV and radio stations, the source of all but a sliver of CBS's $280 million annual profit. CBS owns seven stations, reaching nearly 22% of U.S. households, close to the legal limit under today's regulations; but if the pending bill in Congress passes, the limit would likely rise to 35%. Westinghouse's station group, reaching about 10% of U.S. homes, would still keep CBS under the new ceiling.

In order to lock in the affiliation of Group W stations with the network, CBS and Westinghouse agreed last year to mesh important parts of their businesses. They will buy stations and produce programming together. More intimately, the two companies are creating a single organization, managed by Group W, to sell advertising time on both companies' stations.

Will Tisch get the lofty price he seeks? Any number of top media executives--while refusing to be quoted by name--will readily explain why a buyer would be nuts to spend $5 billion on CBS. The consensus is that all the networks will continue to lose viewers, gradually eroding the value of their core business. That's the only business CBS has. Cap Cities/ABC, by contrast, has a profitable $1.1-billion-a-year publishing group, plus a growing cable TV unit centered on the ESPN sports channel. NBC has built up an increasingly global portfolio of cable and satellite networks, including the CNBC financial news service, that its CEO Bob Wright values at up to $2 billion.

Without question, CBS's core business is vulnerable. Brilliantly predatory raids by Fox have enfeebled both the CBS network and its station group. First, Murdoch paid $1.58 billion to snag broadcast rights to National Football League games, a CBS mainstay. Then he made a frame-breaking deal--on the advice of Michael Milken, according to Tinseltown gossip--with Perelman's New World. In return for a $500 million equity investment, New World's TV stations--including eight CBS affiliates--defected to Fox. That caused a game of musical chairs as CBS, NBC, and ABC all scrambled to lock in agreements with their affiliates. Over 50 stations changed networks; those that remained, such as Group W, extracted tough terms. Both CBS and NBC had to roughly double their payments to affiliates, reducing their profits. And CBS emerged with a significantly weakened station lineup: In Detroit, that Mecca of automotive advertising, CBS had to switch from channel 2 to channel 62.

Thus weakened, CBS is more vulnerable to broadcasting's normal ups and downs. Old-timers assume CBS will regain first place in the ratings in a few years by investing heavily in risky new shows and benefiting from its fair share of good luck. Tisch recently hired Leslie Moonves, the former programming ace at Warner Bros. Television. And Tisch is said to be predicting a $200 million swing in earnings in the next 12 months. On the other hand, the network's financial performance could be hurt by higher programming costs and the negative ratings impact of a weaker lineup of affiliates. More ominous, the singularly undiversified CBS is entirely dependent on advertising revenues. When the economy slumps, advertising usually does too, and financial or programming wizardry can't prevent the resulting sag in revenues. With advertising demand at a peak, it seems reasonable to expect that a slump will follow sooner or later. One program producer who claims familiarity with forthcoming CBS shows suspects that lousy programming will cause a slump even if the overall market remains strong. If he's right, CBS's stock price could weaken in the fall and early winter as those shows go on air.

Larry Tisch would have you believe that all these speculations are irrelevant since, as he firmly told reporters after the company's May annual meeting, "CBS is not for sale." Hardly anyone took him seriously, though: During his long association with CBS, Tisch has been known, if not for duplicity, then for frequent changes of mind. Through the Loews cigarettes-and-insurance conglomerate, which the family controls, Tisch began accumulating CBS stock in the guise of a protector back when the network was reeling from Turner's takeover assault. A former CBS board member says the investor repeatedly offered assurances that control was not his ambition and the last thing he wanted was to be CEO. He joined the board and by August 1986, Loews owned nearly 25% of the stock. The next month the board ousted CEO Thomas Wyman and Tisch replaced him, ostensibly as interim leader while a blue-chip search committee sought a CEO. A decade later, Tisch still holds the job. Similarly, Tisch seemed to profess commitment to the CBS record business not long before selling it.

Perhaps he is genuinely ambivalent about selling the network. This reporter met Tisch when he first installed himself at CBS: Dwarfed by the absurd proportions of CBS's high-ceilinged, five-room presidential office suite, Tisch looked thoroughly out of place--a hot dog on a bed of caviar--but he clearly wasn't intimidated by the fragile hauteur of a company whose financial performance had by then been second-rate for years. His ability to simultaneously embrace two opposing ideas was quite evident. "While I am involved actively at Loews," he insisted, "the [CBS] stock owned by Loews will not be for sale." Yet he also said, "The word 'forever' scares me. I don't like to box myself in." Tisch is still at Loews-he shares its top job with his brother, Preston (called Bob)--but he's not boxed in.

One person who knows Tisch suggests that the investor is of more than two minds: Even if you talked to Tisch nonstop for a week, he says, you still wouldn't know what he's going to do.

If the billionaire's past behavior is any guide, the question of whether or not he will sell CBS boils down to whether someone will meet his price. Peter Diamandis, who describes himself as a "fan" of Tisch, bought Woman's Day and CBS's other magazines from him in 1987. Says Diamandis: "Larry knows how to negotiate-he's the best I've ever seen. His technique is never to show up with an empty gun. He never bluffs. He goes in with a price to buy or a price to sell, and he gets what he wants or he leaves. His price never moves."