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Westinghouse Gets A Little Twang For Its Buck


News: Analysis & Commentary: MEDIA

WESTINGHOUSE GETS A LITTLE TWANG FOR ITS BUCK

Will down-home Nashville cable be the keystone CBS needs?

Black gold. Texas tea. Oil, that is. Three and a half decades ago, when CBS was still the Tiffany Network, it went slumming with The Beverly Hillbillies, a sitcom that poked fun at simple country folk living in the land of plenty. For a few years, those hillbillies and their kin in later CBS shows such as Green Acres and Petticoat Junction provided a gusher of profits as steady as the oil from Jed Clampett's well.

Now, a much-diminished CBS is back with a new scheme to make money from country folk. Michael H. Jordan, chairman of CBS parent Westinghouse Electric Corp., announced on Feb. 10 that CBS was securing cable distribution through a $1.6 billion acquisition of The Nashville Network (TNN) and Country Music Television (CMT) from Gaylord Entertainment Co. The deal gives CBS the cable networks it sorely lacks. Indeed, the other three networks are far ahead in the race to bulk up on cable assets (table).

The move is a milestone for Jordan. With it, he is close to completing Westinghouse's transformation from the beleaguered industrial giant he was brought in to turn around in 1993 into the sprawling media company he promised to build when he acquired CBS for $5.4 billion in 1995 and Infinity Broadcasting Corp. for $4.9 billion last year. By late summer, when the Gaylord deal is expected to close and Westinghouse's remaining industrial units are spun off as a separate company, the evolution should be complete. CBS will then have the nation's largest radio and television station groups, a respectable network operation, and profitable cable subsidiaries. Now, says Jordan, all the important pieces are in place.

CUTS COMING. The question for investors, who have seen Westinghouse stock languish near 18 since the CBS deal, is whether the revamped company can now start to make money. It can. But first Jordan, who has proven adept at buying and selling, must master operations, an area that has plagued him for nearly four years in the industrial side of Westinghouse, which continues to struggle for profits.

In broadcasting, the operational challenges are nearly as big. CBS, for all its massive distribution, has a long way to go. Years of cost-cutting under Laurence Tisch eliminated Tiffany-style spending at CBS, but the network wound up with niche audiences--rural and elderly viewers--that generate lower ad revenue. And even serving that audience is getting costly as stars such as Bill Cosby and Ted Danson command higher salaries. That helped drive down the network's after-tax operating cash flow by $77 million last year, while TV station sales fell 5%.

Winning a more lucrative TV audience will take years. In the meantime, say analysts, Jordan will be leaning on radio to take up the slack. Radio sales rocketed last year from $216 million to $554 million. Infinity was folded into Westinghouse two months ago, producing a billion-dollar business with robust cash flow. Another short-term tactic will be to try to boost TV ad sales revenues and improve profits through cost reductions that will likely include spending cuts and staff reductions.

The new cable channels should give Jordan the increase that he wants in advertising revenue. Last year, sales of TNN and CMT combined rose 17.4%, to $321 million. Their cash flow was up 15%, to $100 million. Some of TNN's programming, like its NASCAR car racing, Dallas reruns, and hunting and fishing shows, already dovetails nicely with existing CBS offerings, creating the opportunity to cross-promote shows on different CBS properties. And the country-music crowd, while not a Gen-X gold mine, is still attractive. TNN, broadcasting a "country lifestyle" mix, reaches 69 million homes, making it the eighth-largest cable network. CMT, the MTV of country, claims 38 million cable households.

PLAN B. Jordan and his execs say they won't convert their new cable channels into outlets for other CBS programming, such as news or sports, except to add more country concerts and NASCAR races--along with a slew of cross-promotions with CBS's TV and radio stations. That makes sense, say industry observers. "The issue in cable is finding niches," says media analyst Tom Wolzien at Sanford C. Bernstein & Co. "That's what they're doing."

To be sure, country isn't the rage it was a few years ago, but it has twanged its way from the hinterlands into America's 'burbs and downtowns. Jordan's hope is that if those free-spending viewers are still watching TNN and CMT, he can claim the kind of audience that the advertisers love. And if country comes up short? Jordan still has the valuable cable networks--and archives full of The Beverly Hillbillies.By Stephen Baker in Pittsburgh, with Elizabeth Lesly in New YorkReturn to top


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