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September 7, 1999: 5:27 p.m. ET

CBS-Viacom media union may spur merger action from NBC, other players
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NEW YORK (CNNfn) - The blockbuster $35 billion marriage of Viacom Inc. and CBS Corp., announced Tuesday, may spur rival broadcasters to rush to the altar, media industry analysts and experts say.
     With the cost of television production on the rise, dragging on earnings at industry heavyweights, and the benefits of cross-promotion across TV, Internet, radio and film clear, top media companies may be adjusting their attitudes in light of that link-up.
     "This puts competitive pressure on the likes of Disney, NBC and Fox Television," said Frederick Moran, a media analyst at Furman Selz. "These other players will have to step up, reevaluate, see what kind of assets they are missing in their specific platform and address it as quickly as possible."
     The major difference between CBS (CBS) and its rivals, however was its independence, after being recast from the heavy industry giant Westinghouse Corp. by ex-CEO Michael Jordan into the pure-play media company that it is today.
     ABC is owned by Walt Disney (DIS), NBC is a unit of General Electric (GE), Fox is the U.S. affiliate of Rupert Murdoch's News Corp. (NWS) and the upstart WB network is owned by CNNfn parent Time Warner (TWX).
     Many industry watchers expected recent Federal Communications Commission rule changes about TV station ownership limits to lead to a flurry of sales of local broadcasters. Instead, they spawned the largest media merger on record, roughly twice the size of the 1995 deal in which Disney took over Capital Cities/ABC.
     While word emerged recently that CBS and Viacom were considering a merger, few analysts expected such a massive deal was in the offing for CBS outright. But the lure of such a media play, with its billboard, radio and TV properties, made CBS, the leader in TV's Nielsen ratings, very attractive to Viacom (VIA).
    
Set off the light bulb in GE's head?

     The pairing of CBS and Viacom, analysts said, underscores how important it is to cover as many bases as possible in the media business to reap all the cross-promotional benefits and operating efficiencies.
     Fox has a presence in network and cable TV and film, ABC is under the catch-all umbrella of Disney including theme parks, movies, Internet and TV like Time Warner, which also has a publishing empire.
     NBC is the odd man out, analysts said. Mary Ann Winter, a publishing analyst, said the CBS-Viacom deal puts pressure on GE, whose business lines include engines, light bulbs and financial services.
     "Westinghouse was not a media company, GE is not a media company, but Walt Disney is, and that makes a big difference," said Winter, who has a "long-term buy" rating on Disney shares. "You can't make an argument that ABC would be better off without Disney," added Winter.
     Collins & Co. analyst Brian Eisenbarth said GE's real dilemma is that the bulk of its programming is provided by competitors, who could choose to keep for themselves their most-watched TV shows.
     "NBC is now the only stand-alone broadcaster, which has to buy its programming from the likes of Paramount, Disney or Time Warner," he said. "That puts them at a competitive disadvantage."
     One potential partner to rectify such a hole in its programming slate would be Japan's Sony Pictures Entertainment, whose TriStar unit produces NBC's "Just Shoot Me."
     That speculation has been around for some time, however. The most recent buzz cropped up a year ago they would ally, but SPE has had a rough go of it in the U.S. market and would face ownership restrictions here if it launched a bid for NBC.
     Meanwhile, NBC reportedly has been in talks to buy a stake in Paxson Communications (PAX), an owner of local stations, to beef up its bargaining leverage with affiliates NBC wants to help pay for programs.
     In the meantime, however, it's mainly smaller-fry media companies that are most likely to be on the auction block.
     "There might be transactions involving smaller companies … that probably represent more available targets than the networks because they're so hard to pry loose from their strong owners," said Tom Burnett, a mergers and acquisitions analyst at Merger Insight.
     Burnett said among those potential targets are Chris-Craft Industries (CCN), Viacom's partner in its UPN network, whose shares rallied 5-7/16 to 59 Tuesday, or Dallas-based A. H. Belo (BLC).
     At the least, UPN could become a bone of contention with U.S. regulators for CBS-Viacom. The addition of CBS stations would cause Viacom to have national coverage of 41 percent of the U.S. market -- above the 35-percent now permitted by federal rules.
     At the very least, that could give Chris-Craft a chance to buy the Viacom half of UPN at a low, if not cut-rate, price. But Mel Karmazin, CBS's chief executive who is slated to become president of the new Viacom, said he wants to hold on to UPN.Back to top

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