The Fifth Elements : Rival Networks WB, UPN at Critical Stage as Season Begins

From the start, the battle to build a profitable fifth broadcast network has pitted UPN against WB for the best programs and stations on the theory--still prevailing in many quarters today--that only one would survive.

The competition took a critical turn last month when one of UPN’s biggest allies, the Sinclair Broadcasting Group, agreed to switch the affiliations of five of its nine UPN stations to WB for an unprecedented cash payment of $84 million.

Approaching their fourth years on the air, the two rookie networks are entering a watershed juncture as affiliate agreements to carry their programming begin to expire. With both networks losing mounds of money and only notches apart on the low end of the ratings spectrum, distribution has become the clearest way to shift the power balance.

Although it’s still anyone’s guess who will win the fifth-network war, one thing is becoming abundantly clear: It will take many more millions--and possibly many more years--before either network makes money, especially as they expand their schedules and vie for new affiliates. And though many analysts believe a merger of the two, considered by the parties early on, would be the best solution to staunch the losses, they say aligning the interests of the various owners seems unlikely for now.

Going forward, the battle will be fought in the trenches, with each fraction of a rating point gained and each new market covered considered a critical win. Troops from both camps have been canvassing the country to get stations to sign or switch, and television managers see the Sinclair deal as only the biggest in a series of realignments. UPN took its own swipe at WB this month by turning five stations--in Tallahassee, Fla.; Providence, R.I.; Columbus, Ohio; Sacramento; and Richmond, Va.--into their own, bringing to 13 the affiliates it has lured away.

In an indication of the importance of distribution, UPN filed a lawsuit against Sinclair this week for failing to properly notify the network of its plans. Sinclair counter-sued, vowing to proceed with its conversion come January and to switch off UPN on its other stations in a declaration of war.

“The deal with Sinclair is opening deep wounds for both companies,” said David Hanna, president of TV 65 Broadcasting in Richmond, the new UPN affiliate. “The turf wars have begun.”

A WB affiliate owner said: “Programs and hits come and go. The ultimate winner will be the one with the securest station lineup.”

To be sure, a network’s success depends on a combination of programming, promotion, distribution and management strength. And all these factors will be weighed as affiliates take sides. The deep pockets of the network owners may also play into the equation.

For instance, Sinclair was drawn to WB by its promotional and programming pizazz. Barry Baker, the acting chief executive of Sinclair, said the ownership structure of UPN also made him nervous--echoing a concern that is rising within the Hollywood community.

A three-month search for a new chief executive at UPN to replace the outgoing Lucie Salhany has some affiliates and Hollywood agents questioning whether the network’s ownership structure is slowing decision-making. UPN is owned 50-50 by Viacom, which controls the Paramount studios and a large TV station group, and Chris-Craft Industries, which operates eight large stations, six of them UPN’s.

“I had doubts whether the partnership was working,” Baker said. “If [CBS President] Les Moonves was leaving in three months at CBS, you wouldn’t see that position open. The partners have been unable to agree.”

Although UPN declined to comment, executives associated with the network said the search process is ahead of schedule because Salhany is not scheduled to depart until September. And a top Viacom executive said the UPN partnership was “a perfect fit” and that any tension dissolved in January when Viacom exercised its option to buy half the network, easing Chris-Craft’s doubts that it might not buy in.

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Still, many affiliates and Hollywood agents are distressed that the Salhany post is unfilled as the new television season approaches and development for next year gets underway. Though former CBS Entertainment chief Kim LeMasters, who is currently a television producer, is rumored to be the front-runner, sources close to the candidate say he has not yet been offered the job.

In television, the big money is in a network’s owned stations, and on that score, UPN’s partners are well invested and better off than when they started. Despite financial constraints, Viacom has over the last three years become one of the nation’s largest station owners by trading $850 million worth of major network affiliates for UPN or stations that can be converted. The value of the group has doubled to an estimated $2.5 billion, sources say.

Though Chris-Craft is flusher than its partner, with $2 billion in cash on its books, it has remained on the sidelines as a buyer, leading some to question whether it will eventually sell out.

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By contrast, WB’s majority owner, Time Warner, owns no stations because of cross-ownership restrictions as a cable operator. But its 22% partner, Tribune Broadcasting Co., has in the last year grown into the nation’s fourth-largest station group with about a dozen WB affiliates in the largest markets. In addition, Jamie Kellner, the chief executive and owner of 11% of WB, is leading an investment group, capitalized with more than $200 million, to buy and start stations in medium-sized markets where WB lacks a presence.

Just as Viacom sees UPN as an outlet for programs from Paramount, Time Warner launched the network as an outlet for programming from the Warner Bros. studios.

Although television sources say WB’s animated children’s programming is some of the best around, some analysts are waiting for Time Warner Vice Chairman Ted Turner to claim it for his Cartoon Network cable channel.

Sources close to Turner say he prefers investing the company’s resources in cable channels and is keeping a sharp eye on WB’s costs.

Some say WB’s $84-million payment to Sinclair is an indicator that Turner had softened toward the network, although many critics believe the reward could raise the stakes on all sides.

“This changes the whole ballgame,” said one UPN affiliate. “My first thought was, ‘Where’s mine?’ ”

Since the networks started within days of each other in January 1995, WB has lost about $219 million, compared with UPN’s $348-million loss.

Most of the losses are from programming costs, but some UPN affiliates have already started to demand compensation to stay put. Viacom Chairman Sumner Redstone told analysts Thursday that UPN would not be paying compensation, although Sinclair executives say they were offered a generous package before leaving.

WB says the Sinclair payment is a one-time event--”a strategic win to dent the other side,” according to Kellner.

In several markets, Sinclair is crucial because it owns the only established station outside of the major four network affiliates, leaving UPN to ally with a new or a low-powered alternative.

Sinclair will also bring WB above a critical coverage threshold needed to attract serious advertisers.

By bringing in stronger stations, WB hoped to improve its ratings, which trail UPN’s.

Last season, 3.2% of the nation’s viewers watched UPN in prime time, compared with 2.6% for WB. Yet WB recorded more growth year-to-year, with its ratings jumping 8% from the previous season, compared with UPN’s 3% rise.

WB’s strong promotions accounts for some of that improvement.

One UPN affiliate says WB’s Michigan J. Frog mascot gives it stronger recognition than even Fox: “The frog is goofy but memorable,” said the station manager.