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Big Media Vulnerable to Strike by Writers

Geraldine Fabrikant with Jim Rutenberg.
Produced by
The New York Times

With a strike deadline looming in Hollywood next week, the major film and television studios are presenting a united front against the writers, who are demanding higher "residuals" — money from the subsequent use of the films and TV shows for which they have written scripts.

Despite the show of unity by the studios, and the fact that they are owned by powerful media conglomerates like AOL Time Warner , the News Corporation and Viacom , the companies are not eager to take a hard line against the Writers Guild of America. Within each big media company, and among the companies, there are simply too many interlocking pieces and meshing gears for the studios to risk a long strike by the writers.

Warner Brothers, for example, is owned by AOL Time Warner, whose magazines and Internet business could help the corporation endure the revenue shortfall from a short-term strike. But AOL Time Warner might also worry that a long strike could risk viewer defection at its WB television network, if the network went too long without fresh episodes of popular shows like "Seventh Heaven."

And there are also constraints against any one company's breaking ranks to negotiate its own deal with the writers. News Corporation's Fox television network, for example, might seem to have an incentive to go it alone, because it already pays lower rates to guild writers than the other major networks as a legacy of Fox's having been a struggling start-up not so many years ago. But a renegade move would risk upsetting the industry symbiosis that enabled the News Corporation's 20th Century Fox Television studio to reach a $102.3 million deal last week to move its hit series "Buffy the Vampire Slayer" to Viacom's UPN network.

Rather than Big Media being a juggernaut, in other words, the industry in the age of conglomerates depends on a system of checks and balances — a structure that cannot help but influence the way the media companies conduct their checkbook negotiations with the writers.

"Either we hang together or we hang separately," said one top-level studio executive, speaking on condition of anonymity. "If the unions set one against another, the studios are the losers."

Each side in the negotiations declined to make someone available to comment yesterday. But according to people close to the discussions, the studios and writers are dealing with lesser issues right now, and saving the thorny question of residuals until closer to the strike deadline at 12:01 A.M. next Wednesday.

The media companies are not all the same in their willingness to settle with the writers or to court the risks of a strike, of course. Vivendi, for example, is generally considered to be in a better position than some others to withstand at least a short Hollywood strike, because its Universal entertainment business is only one part of a diversified portfolio that includes European water, waste management and telecommunications operations.

But it is difficult to assess the strike tolerance of even a pure-play media conglomerate, because it depends on which part of the company one is talking about. Viacom provides a good case in point.

Viacom, which yesterday reported a 6 percent increase in first-quarter revenue, to $5.75 billion, is a far-flung empire that includes the CBS and UPN networks; 35 television stations; the Paramount Pictures and Paramount Television studios, and cable networks like MTV and Showtime. A writers strike could have an impact on all of those businesses, to varying degrees.

But a strike would have only minimal impact on Viacom's syndicated- programming business, King World Productions, which licenses the broadcast rights to shows like "Oprah" and "Wheel of Fortune," programs with very little scripting. And a strike would probably have no effect on Viacom's Infinity Broadcasting unit — the radio station and outdoor advertising business that accounted for about a third of Viacom's $4.55 billion in cash flow last year.

For Viacom, like the other owners of movie studios, a strike by screenwriters would not be immediately evident at the box office. Summer films are either already completed or in the final stages of editing. And knowing the writers' contract deadline was approaching, and with an eye toward the June 30 expiration of the Screen Actors Guild contract, Paramount Pictures has scrambled in recent months to finish other movies, like "Vanilla Sky" with Tom Cruise, to build up an inventory that could last into next year if necessary.

It is in television where Viacom, like its industry counterparts, has the more complicated set of considerations.

As Viacom announced its first- quarter financial results yesterday, Fred Reynolds, president of the company's CBS Television Stations unit, said that Viacom's projected double- digit cash flow growth for the year was partly dependent on the fall television season's not being disrupted by a strike. At various networks, executives have been saying that a short strike will not damage the first weeks of the fall season, because some episodes of entertainment programs have already been completed.

Within Viacom, analysts say, a strike could have different effects on the CBS and UPN networks. CBS has one of the industry's richest lineups of so-called reality programs, like the highly rated "Survivor," which is not dependent on guild writers. "Amazing Race," a new reality show about teams of people who race one another around the world, is expected to be ready to run on CBS this summer. And the reality show "Big Brother," which ran last summer, is scheduled to return to CBS this summer, but the network could delay it until fall, if necessary, if a strike left air pockets in the prime-time pipeline.

And CBS can also look forward to sports programming during the late summer and early fall, including the United States Open in tennis, N.F.L. football and college football, none of which require guild writers.

The CBS news department. meanwhile, generates three newsmagazine shows a week, including "60 Minutes," "60 Minutes II" and "48 Hours," that do not depend on guild writers. An executive close to the company also said CBS had been stockpiling made-for-television movies that it could broadcast in case of a strike.

Viacom's far newer network, UPN, may be more vulnerable if the writers strike, some experts say, because it is still struggling to develop audience loyalty.

But two of UPN's five nights of prime-time programming are not guild dependent: Thursdays, when it shows World Wrestling Federation matches, and Fridays, when it plays reruns of feature films. For their part, UPN executives say the network could actually benefit from a strike by picking up viewers who might stray from the major networks to sample unfamiliar programming. And its one reality show, "Chains of Love," has had decent ratings so far.

Whatever factors might buffer CBS from a relatively short strike, a longer strike significantly raises Viacom's business risks — as well as the risks for the other studios and networks on which Viacom's television operations are interdependent.

Of CBS's guild-written prime-time dramas and comedies, only one — "That's Life," a Paramount Television drama — is produced solely within the Viacom family. The balance of its prime-time entertainment schedule is supplied either entirely by outsiders or by outside companies working with a Viacom division. "The Fugitive," for example, comes from Warner Brothers Television. "Yes, Dear" is from 20th Century Fox in association with Viacom's CBS Productions unit. And "King of Queens" involves Hanley Productions and CBS Productions in association with Columbia TriStar, which is owned by Sony .

Another area of concern is Viacom's 35 television stations — 16 of which are CBS affiliates, with the rest carrying UPN programming. Because of their relatively low cost to operate, compared with a network, stations can generate a sizable portion of the media company's profits. David Londoner, a media analyst with the financial firm ABN Amro, estimates that the 16 CBS stations alone will contribute about $650 million of cash flow, or some 11 percent of Viacom's total cash flow, this year.

Television stations receive some of their revenue from prime time because in many cases the networks pay them a fee to carry the programming. The stations, in turn, sell a few advertising spots within the prime- time lineup.

Theoretically, the network affiliates are shielded in large part from network problems because they make most of their money selling time during local news and syndicated programming like "Oprah" and "Wheel of Fortune" that would not be affected by a strike. Still, because the late local news on most stations is highly dependent on the lead-in audience from network programming, the damage prime time suffers during a strike could cause localized pain. Although they are not represented at the bargaining table, the network affiliates would certainly prefer to avoid a strike.

But for that matter, so would many other parts of Viacom and the other media conglomerates. In the current economy, the companies recognize that a strike of any duration could make an already difficult year even harder — for them all.

"If the ratings decline and the networks lose money, the networks may rely on more reality programming and newsmagazines to cut costs," Mr. Londoner said. "That means less demand for the studios to produce entertainment programming."

(c) Copyright: The New York Times

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