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Diller taking aim at networks TV tycoon hopes base of stations can be start of something big; Baltimore is key; Channel 24 is among outlets, could be scene of major changes

THE BALTIMORE SUN

He's bald. He's glamorous. He's building the next television network. And though most people didn't realize it at first, Barry Diller is doing it using Baltimore as a key building block.

This is true because one of the details widely overlooked when the TV tycoon agreed to buy working control of Silver King Communications Inc., an obscure Florida company whose 12 UHF stations mostly run the Home Shopping Network, is that one of those stations is WSHW-TV, Channel 24, in Baltimore. So as Mr. Diller sets out to shake up the TV business, Baltimore will be near the epicenter.

Mr. Diller isn't yet saying whether Channel 24 and his other stations will keep home shopping, become a string of independent stations, or whether they will be the backbone of a new network. But Baltimore's five major existing stations are girding for a tussle.

"His options are 360 degrees," said Joe Lewin, general manager of WMAR-TV, the ABC affiliate in Baltimore. "Over time, he's not to be underestimated."

Mr. Diller is one of those Hollywood legends who went from the mailroom to the top, his career a monument to big brains and big brass. By 25, he was ABC's vice president of programming.

By 32, he was head of Paramount Pictures. A decade later, he became chief executive of Fox Inc., where he built the fourth major TV network before he left in 1992, saying he wanted to be his own boss.

Tougher times followed. Looking for a vehicle to build his own network, he became chairman of QVC Inc., and used QVC to launch unsuccessful bids to buy Paramount and CBS Inc. Six months after leaving early this year, he turned up at Silver King.

Differing opinions

In his wake, Mr. Diller has left both hosannas and, more recently, nonbelievers.

"He is a brilliant man. The consensus was that [Fox] couldn't be done," Mr. Lewis said.

"We tend to hold onto these icons, and you have an icon that hasn't produced in a while," said a rival who asked not to be named.

A lot of money is at stake in Baltimore's TV wars, though the amounts are small by the standards of media megadeals such as Disney Corp.'s planned $19 billion merger with Capital Cities/ABC Inc. or Time Warner Inc.'s pending $7.5 billion acquisition of the 82 percent of Turner Broadcasting Inc. it doesn't own already.

Advertisers spent $164 million last year on Baltimore television, said Marcellus Alexander, general manager of WJZ-TV (Channel 13), the local CBS affiliate. WJZ projects that the figure will be $173 million this year and about $180 million next year.

For now, Mr. Diller's Baltimore base is unprepossessing. Silver King has owned Channel 24 since 1993, and it has a staff of about 11, Silver King's chief financial officer, Steven Grant, said. Channel 24 has a deal to air Home Shopping Network programming, now interrupted twice each hour by brief news and public affairs programs, through 1997.

Stability

It's a living -- Silver King made $1.8 million in the nine months ended in May on revenue of $36.3 million -- but it's a long way from limos with Roseanne.

"This is a low-risk, low-reward contract," said Mr. Grant, to whom Mr. Diller's office in Beverly Hills (where, in perfect Fox Network fashion, his zip code is 90210) referred all comments. "There are other riskier, more [lucrative] opportunities."

Such as network television, for one. It's a great business by any measure. Owning the stations a network is made of is even more profitable, but federal regulations limit the number of stations a network may own. So the rest of a network is made up of independent affiliates like WJZ, WMAR and NBC-affiliated WBAL-TV, Channel 11, in Baltimore.

A network makes money on its own, but mostly it brings viewers into the tent for the affiliates and network-owned local stations. For example, ABC's broadcasting operations made $1.1 billion last year on $5.3 billion in sales, but the network earned only $340 million despite bringing in about 60 percent of the top line.

Even Fox, which lost hundreds of millions in the early days, made almost $360 million in 1994 on about $1.5 billion of sales.

"Stations can run 50 percent profit margins, or higher," said Andrew Marcus, broadcasting analyst for Alex. Brown Inc.

Stock jumps

That potential explains why Mr. Diller is the latest to back up Woody Allen's observation that 90 percent of life is just showing up. Since he agreed to pay about $10 million for about 5 percent of Silver King in August, with half the money borrowed interest-free from the company and joined to a deal to pay him 1996 and 1997 bonuses that equal the $5 million he paid up front, the company's stock has jumped almost 50 percent to $33.

Barry Diller, in other words, has made $4.5 million on his stock by conservative reckoning -- $14.6 million if one assumes Mr. Diller didn't really pay for his shares because of the bonus and loan arrangements -- just for signing up to run Silver King.

"The fact that Diller built the Fox network is the reason" his mere arrival is so valuable, Mr. Marcus said. "It's the only successful launch of a network in recent memory."

The other 10 percent of Mr. Diller's presumed job -- building a network -- will be the hard part. But that 10 percent will determine whether Mr. Diller's green summer wilts to brown in the chilly fall of competition.

"It can be done," said Dave Robinson, media director at W.B. Doner & Co., Maryland's largest advertising agency. "With cable, people are used to having more choices."

But Mr. Robinson said the first choice Mr. Diller is reported to have made, which Mr. Grant won't confirm or deny, shows how hard the job ahead will be.

Mr. Diller reportedly is leaning toward aiming his network at older viewers who have been passed by in the Big Three networks' rush to duplicate Fox's appeal to adolescent-and-up viewers.

"It's harder to change the viewing patterns of older people than younger people," Mr. Robinson said. Older viewers are also more attuned to news programming, he said, a big minus because most believe Mr. Diller is years away from launching a serious news division -- if he ever does.

Local competitors say Channel 24 would need to spend millions to upgrade its transmission capability to do much better than it does now, let alone to become a new network affiliate.

And they say Channel 24 won't hurt them much until it can hit them where they really live -- in the local newsroom, which generates nearly half the revenue of Baltimore stations affiliated with traditional networks.

"As long as he doesn't start a 5 o'clock news, you know what I mean?" Mr. Lewin said.

The explosion of programming in recent years, which has occurred as entrepreneurs figured out that the 500-channel future that cable TV companies promise means 500 outlets for sitcoms and talk shows, is both a blessing and a curse for Mr. Diller.

Mr. Diller's competitors are learning this already. Scathing reviews of the sitcoms launched by the fledgling Warner Bros. and United Paramount networks earlier this year -- all but one of which were cancelled by fall -- were often funnier than the shows. Both networks are still in the early phases of losses Mr. Marcus says will reach $300 million to $500 million before they turn a profit.

But the expanding TV menu has redefined success downward, Mr. Robinson said. For example, the raw audience that NBC's "ER" attracted upon its 1994 debut would have had trouble cracking the Top 20 when ABC, NBC and CBS ruled the roost.

But by today's expectations, forged in competition with the Information Revolution, the show is a runaway hit that commands $450,000 for a 30-second national spot, according to Advertising Age.

"They [Silver King] can make money; they can have an impact," Mr. Robinson said. "I don't think [Mr. Diller] can catch an established network. I'll go out on a limb: I think he can have more effect than Warner Brothers."

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