(FORTUNE Magazine) – Wall Street's favorite TV show these days is not Seinfeld, ER, or the CNBC stock ticker but a CBS drama that we'll call The Mel and Les Show. It stars Mel Karmazin, 54, the pugnacious radio mogul who was recently named president and chief operating officer of CBS Corp., and Leslie Moonves, 48, the slick Hollywood programmer who now runs the CBS television network. They play a couple of hard-charging superheroes who, against long odds, transform an ailing broadcast network and its third-rate TV stations into a thriving growth business--and make investors lots of money along the way.

There's just one problem with this rags-to-riches adventure saga: It's fiction, if not a fairy tale. For reasons we'll explain in a moment, Wall Street has already bought the story--CBS stock has more than doubled in the past year, climbing from 16 to 35--but the truth is that the so-called CBS comeback is composed mostly of shortsightedness, wishful thinking, and hype. Simply put, CBS remains a weak player in a troubled industry, network television, which is beset as never before by declining ratings, rising programming costs, and strong cable competition. CBS is burdened by the oldest and least desirable audience of the Big Four broadcasters, and by TV stations that, while improving, remain laggards. What's more, CBS is almost entirely dependent on advertising and therefore vulnerable to economic cycles. Its radio properties are thriving, to be sure, but analysts are counting on a television turnaround to help CBS Corp. increase its earnings by nearly 30% a year.

Can CBS deliver those growth rates? Karmazin and Moonves both declined to talk on the record to FORTUNE for this story, but their publicists and backers on Wall Street argue that the company's TV properties are on the upswing. Certainly the latest numbers look terrific: TV station revenues in the past three quarters grew by 15%, 11%, and 49% while cash flow (or earnings before interest, taxes, depreciation, and amortization) was up by 35%, 12%, and a whopping 94%, driven partly by the Olympics. Investors also like CBS's plans for a $1 billion stock buyback, and some speculators are playing a takeover game, hoping CBS will unload the TV network on an unsuspecting buyer. More than anything, though, the stock is riding on the Mel factor: the near-boundless faith among Mel Karmazin's fans on the street that anything he touches will turn to gold.

"Mel has been the No. 1 driver of the stock," says Paul Sweeney, broadcast analyst at Salomon Smith Barney, who's bullish on CBS. "Wall Street is willing to bet on him."

It's not hard to see why. A fabulous salesman, Karmazin makes it part of his job to push the stock; he lobbies analysts, visits fund managers, and speaks at investment conferences. More important, he has delivered before. His Infinity Broadcasting Co., a group of lucrative big-city radio stations that feature outsized personalities like Don Imus and Howard Stern, dominated the radio industry until he sold it for $4.9 billion in December 1996 to Westinghouse, since renamed CBS. Savvy investors who bought Infinity for $17.50 a share at its 1992 IPO saw their investment grow to $170 four years later. As a result of the deal, Karmazin became CBS's largest shareholder; his 10.8 million shares are now worth nearly $380 million. Despite his initial claims that he didn't want to run CBS, Karmazin swept aside a key rival and put himself into position to do just that; two months ago, he was named second in command to CEO Michael Jordan, the ex-Pepsi executive and former McKinsey consultant who functions as a strategist, not an operator.

CBS stock has been soaring, outperforming the market and the S&P entertainment index. Though comparisons are tricky, CBS now trades at a notably higher multiple than other media conglomerates--about 19 times estimated 1999 Ebitda, more than four points ahead of Disney, seven points ahead of Time Warner, and eight ahead of Viacom, according to Sanford C. Bernstein media analyst Tom Wolzien. Wolzien is one of the few skeptics in the investment community when it comes to Karmazin and CBS. Perhaps that's because he's a former network executive who is steeped in the business from his years at NBC. Whatever the reason, Wolzien rates the stock only as "market perform." All 13 analysts tracked by Zacks Investment Research rate it strong buy or buy. "The only reason I'd buy it is if I thought someone would pay very high multiples for television stations and a huge amount for the money-losing television network," says Wolzien. Karmazin has floated the idea of selling the TV network, but senior executives at Time Warner, Viacom, Sony, and Seagram, the most likely buyers, all say they're not interested.

CBS's biggest problems are rooted in a series of blunders and missed opportunities during the 1980s and early 1990s, particularly during the nine years when the tightfisted Laurence Tisch was in charge. The worst mistake: CBS failed to expand into cable, while broadcasters ABC and NBC took stakes in such networks as ESPN, CNBC, A&E, and Lifetime, all of which are now very profitable. Even Fox, a latecomer to the cable game, now owns an impressive collection of cable sports, entertainment, kids', and news networks. Cable networks collect revenues from subscriber fees as well as from advertising sales, so they are less dependent on ratings and the ad market.

"CBS as a company was focused on cost reduction when other companies were building cable-programming businesses," says Michael Wolf, a management consultant who runs the media and entertainment practice at Booz Allen & Hamilton. "That leaves CBS highly dependent on one revenue stream, advertising." Some 95% of CBS Corp.'s estimated $7 billion in revenues this year will come from ad sales, leaving the company vulnerable to an economic slump like the one that rocked the broadcast industry in 1991. "CBS would just be going off a cliff in a recession," Wolzien says.

To his credit, CBS's Jordan has tried to diversify the company. He has vastly expanded CBS's holdings in radio, a growth business that generates about 60% of the company's cash flow. Last year CBS bought a pair of second-tier cable networks, the Nashville Network and Country Music Television, giving it a foothold in that industry. Nevertheless, television remains not only CBS's most visible business but its most troubled one as well. Without dramatic improvements in the network and TV stations, investors' hopes for the company can't be realized.

It is Les Moonves' job to revive the network, and he isn't getting it done. Hired in 1995, Moonves is smart, competitive, aggressive, and like Karmazin, a great salesman--all traits that have served him well at CBS. But the last two hits he developed were Friends and ER; unfortunately, they air on NBC, and he developed them in his previous job, as president of Warner Bros. Television.

What Moonves has managed to do is stabilize CBS's household ratings, mostly by attracting older viewers to a mainstream schedule. CBS's lineup should appeal to both the AARP and the EPA--Moonves is an avid recycler, plugging holes in prime time with revivals of such 1960s TV standbys as Candid Camera and Kids Say the Darndest Things, and rescuing Unsolved Mysteries and JAG after they were cast onto the trash heap by NBC. All have performed well for CBS. By pairing the feel-good Touched by an Angel on Sundays with 60 Minutes, Moonves has given CBS a powerhouse night of television outpaced only by NBC's Thursdays.

On the strength of those victories, plus some clever stunts during sweeps periods, Moonves has sold a CBS momentum story to the press, advertisers, and not least, his own management. Jordan and Karmazin recently promoted him to CEO of CBS Television, which puts him in charge of CBS News and CBS Sports as well as entertainment; they've also rewarded him with a compensation package that makes him the company's best-paid employee. Last year Moonves earned $4.15 million in salary, plus stock options valued over time at $9.8 million. (Who says the Tiffany days are over?)

The trouble is, there's less to this CBS comeback than meets the eye--both puns intended. CBS's ratings among its target audience of 25- to 54-year-olds are down by 8% since last season, once the Olympics are factored out. Even worse, Moonves couldn't capitalize on the Olympics to launch any new shows; CBS's 25-to-54 audience is down 6% from last year, more than its competitors', since the closing ceremonies in Nagano. That leaves CBS in the worst shape of the Big Four networks, by far. It has the oldest audience--with a median age of 52, compared with 41 for ABC, 40 for NBC, and 33 for Fox. That means that nearly half of its viewers are over 54, outside not only the 18-to-49 demographic prized by advertisers but CBS's own 25-54 target as well. The CBS audience is also less well-to-do, more rural, and more female than its competitors', all negatives when it comes to selling ad time. This isn't because older viewers and women have less intrinsic value; it's because, as heavy users of television, they are easier to reach than, say, teenagers, twentysomethings, or men. "There's always going to be an abundance of older people using media, especially women, and that's going to drive the price of reaching those people down," says Joe Mandese, editor of The Myers Report, an ad industry newsletter. That is why CBS execs who have argued for years that sponsors should pay more for older viewers aren't making much headway; their problem isn't age discrimination, but the law of supply and demand.

The result is that CBS can't squeeze much value out of its audience, even when its shows are doing well. Consider the extreme example, a CBS drama called Diagnosis Murder that stars old-timer Dick Van Dyke and occasionally places among the top 20 Nielsen-rated shows. Thirty-second spots on the program sell for between $36,000 and $75,000, depending on how they are packaged. By contrast, Fox's sexy Melrose Place, which reaches 28% fewer viewers but has a much younger skew, commands ad rates of $120,000 to $160,000. NBC leads the networks in revenues because its audience is not just large but also young, urban, and upscale--a sponsor's dream and the mirror image of the CBS crowd.

Some production studios are so put off by CBS's demographic profile that they won't bring their best ideas to Moonves, particularly when it comes to comedies. They know that no CBS sitcom since M*A*S*H has gone on to make really big money in syndication, again because CBS hasn't been able to attract young viewers and men. Of the top 12 sitcoms now airing in reruns, none came from CBS. "My clients will not bring a show to CBS," says Paul Krumens, a consultant and publisher of Syndication News, an industry newsletter. "You want to go to Fox, NBC, ABC, almost in that order." A prominent studio executive agrees, saying, "If you are a smart studio or a smart writer-producer, you don't want to go to a place where your show has no demographic hope. Anything edgy, subversive, fun for a writer to do--you don't want to bring it there." (Moonves insists he has no trouble attracting the top writers and stars.) The other problem for Moonves, whose creative abilities are highly regarded in Hollywood, is that he hasn't got any time slots on his network where he can guarantee that new shows, particularly sitcoms, will get sampled. As a result, even well-executed shows on CBS--like the justly praised Everybody Loves Raymond--can't seem to find the audience they deserve.

Moonves concedes that the network's demographics are a problem. "Before I came here and long after I'm gone, CBS will be the oldest-skewing network," he told TV writers a few months ago. "We're playing on a more difficult playing field." Alas, he's made some mistakes of his own. Take Monday nights, CBS's signature night in the heyday of Murphy Brown, Designing Women, and Chicago Hope, which brought in young and well-to-do viewers, at least by CBS standards. Moonves has spent a fortune on Monday sitcoms starring Bill Cosby, Ted Danson, Tom Selleck, Bob Newhart, and Judd Hirsch, and he commissioned Brooklyn South, a hard-edged cop show, from producer-writer Steven Bochco. The result? CBS has lost a stunning 41% of its 25- to 54-year-old viewers on Mondays in the past two years. Surprisingly, Moonves keeps banking on high-priced stars--he's got Melanie Griffith and John Larroquette in fall sitcoms, and many more TV personalities signed to deals--even though the biggest hits in recent years, like Friends, Drew Carey, and Ally McBeal, have featured new faces. With the exception of the agents and actors living off Moonves' largess, Hollywood insiders don't think his star-driven strategy is working.

The bottom line for the network isn't pretty--no matter which numbers you choose. On revenues of $2.8 billion in 1997, CBS was close to breakeven on a cash flow basis, losing $31 million. The network had operating losses of $107 million last year, compared with a $9 million loss in 1996. And if you exclude the favorable effect of accounting adjustments derived from the Westinghouse purchase, the losses would have been about $150 million in 1997 and $140 million in 1996--that during a boom economy and the healthiest ad market in years.

The picture at CBS's 14 owned-and-operated TV stations looks better; they booked $325 million in operating profits last year, up from $295 million in 1996, and their 1998 first-quarter numbers, released April 30, are nothing short of spectacular: operating profit of $118 million on revenue of $263 million, thanks largely to the Olympics. But the CBS station group still lags way behind NBC, Fox, and ABC in ratings, revenues, and profits. (The NBC stations earned about $550 million last year.) In New York and Los Angeles, the two biggest markets, CBS-owned stations rank a dismal fifth among viewers 25 to 54. Karmazin puts a favorable spin on the rankings: he tells analysts his stations are so awful that any damn fool could improve them. On the other hand, CBS's beaten-down stations must struggle to attract strong managers, on-air talent, and sought-after shows.

Karmazin has vowed to make the stations No. 1 in revenues and profits by 1999. That promise is laughed at by rivals. While a hit or two can revive a network, TV stations make their money from local news, where viewing tends to be habitual, and from syndicated shows like Oprah and Wheel of Fortune. Most popular syndicated shows are locked into long-term contracts by CBS competitors. "It's very, very difficult to turn around a moribund station. It takes years," says Eric Braun, vice president of Frank Magid Associates, a consulting firm. "There are such strong loyalties to the market leaders."

By sheer force of personality, Karmazin is making progress. He has driven up revenues and profits, partly by judicious cost cutting but mostly by lighting a fire under CBS's lethargic sales organization. He's put more salespeople on the street--249 today, compared with 161 when he took over last June--and he's put all of them on commission. Last spring Karmazin told FORTUNE: "There is no excuse for not selling advertising. I don't care if your ratings are bad. I don't care if there is a recession. I don't care if there is anything. You hit your number. You get paid to do that." Several station executives who dissented from that point of view were abruptly dismissed, and others now know that a plaque saying NO EXCUSES sits on Mel's desk.

Under Karmazin and Moonves, the stations and the network are working more cooperatively, a smart strategy. The idea is to create a prime-time lineup with strong urban appeal, reversing a rural skew that goes back to the days of Green Acres and Petticoat Junction. When Moonves unveils his fall schedule for advertisers this month, expect lots of shows set in New York and Los Angeles. Among the candidates: a drama called L.A. Docs and a sitcom called The King of Queens. Already, CBS's prime-time lineup is performing a bit better in the major markets.

Karmazin's got another idea to jolt the stations: a Saturday late-night show hosted by high-voltage radio shock-jock Howard Stern, which debuts this summer. Traditionalists are appalled, particular in the hallowed halls of CBS News, and TV advertisers may be reluctant to underwrite Stern's raunchy act. (Dr. Laura Schlesinger, a popular radio host who was negotiating with CBS to do a TV show, broke off the talks after the Stern deal was announced.) If nothing else, Stern should attract urban male viewers.

Putting Stern on the air is a no-brainer for a radio guy. Karmazin's forays deeper into television look shakier. By most accounts, he overpaid the syndicator King World for a revival of the game show Hollywood Squares, shelling out a reported $25 million a year for an iffy project. In contrast, he gave up the rights to a court show called Judge Judy, which is currently the top-rated daytime show on New York's WCBS-TV. NBC's New York outlet outbid CBS to get Judge Judy, beginning in the fall of 1999. This is what Wall Street blithely labels "execution risk."

The fact is, Karmazin is entirely untested as a TV programmer. It's one thing to push ad sales people around and keep an eye on costs; it's quite another to develop hit TV shows and fix local news operations. Steady growth in revenues and profits requires higher ratings or at least increased market share--and so far Karmazin has delivered neither. Even after using the Winter Olympics as a promotional platform for local news, the ratings for CBS's late local newscasts--the most valuable half-hour of the day for a station--are flat or falling in New York, Los Angeles, Philadelphia, and Boston. (They're up slightly in Chicago.) Unless the stations become more competitive, their recent growth in revenues and cash flow isn't sustainable. "At the end of the day, it all comes down to programming and ratings," says Krumens, the industry consultant. "They have single-digit shares in their local news pods. How's the best salesman in the world going to sell that?"

What Karmazin will learn, if he hasn't already, is that winning in television is much harder than winning in radio, where stations abruptly switch formats and listeners are fickle. "He's gone from speedboats to battleships," says a rival. Besides that, Karmazin made his radio fortune during a period of consolidation, competing against midsized companies and mom-and-pop operators. Now he's up against the likes of Disney-owned ABC, GE-owned NBC, and Rupert Murdoch's Fox.

In the next couple of months, we'll have a better idea of how how Karmazin is faring as he tackles his toughest sales job yet--making CBS's big NFL purchase pay off. In January, CBS agreed to pay an eye-popping $500 million a year for the rights to broadcast American Football Conference games over the next four years; that's more than twice the $217 million annually that NBC paid for the same AFC package in the last contract. Here's another sobering fact for investors to consider: Fox paid $400 million a year for a superior package of NFL games in the last four-year deal and had to take a $360-million write-off. To avoid a similar fate, Karmazin will need to charge advertisers hefty price increases. Advertisers say they won't pay them, and CBS's first major deal, with Honda, suggests they may mean it. The automaker will pay a 9% increase over last year's rates in year one and 4% annually in the next three years. What's more, while the NFL has added commercial time to the telecasts, it is prohibiting the networks from selling sponsorships of "game elements" like statistics and scores during the contest. Karmazin insists CBS will break even by accounting for some of the rights increases in future years and by using NFL games to create local sports programming. Guess what? Wall Street sees the deal Mel's way. Some analysts even upgraded the stock after the NFL announcement.

And that's the way it is today at CBS, as anchorman Walter Cronkite used to say. You can focus on the company's troubled TV assets, as the television industry does, or you can believe, as investors do, that Karmazin's just the man to fix them--or barring that, find a buyer. Turning from football to a baseball metaphor, a rival network executive says: "What Mel has done is the equivalent of Babe Ruth pointing at center field and saying, I'm going to hit the ball over the fence." A long shot, that is, for CBS and its backers. Then again, television's a funny business. And Ruth did hit the home run.

REPORTER ASSOCIATE Carol Vinzant