Upn, Wb 1998 Losses Widen

Television Digest with Consumer Electronics, April 12, 1999

Red ink of fledgling TV networks UPN and WB continued upward spiral in 1998, according to annual reports of their parent companies, Chris-Craft and Time Warner (TW), respectively. During year, both networks expanded their prime-time programming to 5 nights weekly from 3. Chris-Craft Chmn.-Pres.

Herbert Siegel told stockholders that UPN losses rose 4% last year, to $177.9 million (UPN revenues weren't given). Chris-Craft absorbed 50% of that loss, with other half covered by partner Viacom. Siegel said UPN's "progress has been uneven," with overall ratings declining in 1998: "Nonetheless, our commitment to the network is unwavering." Of Chris-Craft's 9 TV stations, 7 are affiliated with UPN. In 8-page letter (including pictures) to shareholders, TW Chmn.-CEO Gerald Levin disclosed that WB lost $96 million last year, increase from $88 million in 1997, with losses shared equally with partner Tribune Co. WB revenue almost doubled to $260 million from $136 million. Revenue from TW cable networks increased to $2.9 billion from $2.4 billion and cable operating income to $374 million from $297 million. Only WB of over-air networks increased its audience in 1998, Levin said, and shift of viewers to cable "that began 2 decades ago has passed the point of no return [and] Time Warner's cable networks are the biggest beneficiary of this historic change." He praised Vice Chmn. Ted Turner as having a "gift for spotting trends and then getting there first with distinctive businesses." Cable "sits astride the strategic center of the digital revolution," Levin said. Report said: (1) TW expects to have 85% of cable plants digital, 2-way ready by end of 1999, all by end of 2000. Capital spending was flat at $2.1 billion in 1998, with $1.7 billion for cable upgrades, and TW said it should decrease when upgrades are complete. (2) Road Runner online venture with MediaOne should add another 10 cities in 1999. (3) TW's digital cable service being tested in Austin will roll out on another 20 systems this year, allowing 150 analog and digital channels. (4) AT&T telephony venture will allow TW to "leverage its existing cable infrastructure into a new growth opportunity in a noncore business without the need for any incremental capital investment." Twenty-year agreement makes AT&T responsible for all negative cash flow and assures TW's equity won't be diluted, with TW also receiving $300 million upfront and $1.50-$6 per month for each telephony subscriber. (5) TW commitment to carry HD signals from CBS-owned stations is "demonstration of its belief that digital television will revolutionize the television viewing experience." It said cable system upgrades provide enough bandwidth to carry HD, high-speed data and residential phone service, and "even with the addition of these services, substantial capacity has been reserved for future use." Cable dominated TW's financials, with 52% of revenue from systems operated by Time Warner Cable, Time Warner Entertainment and Time Warner-Advance/Newhouse. Turner networks contributed another 26% and HBO networks 5%. TBS networks' income rose to $706 million from $573 million and HBO networks profit increased to $454 million from $391 million. TW Cable profits dropped to $325 million from $427 million, but TW Entertainment cable system profits rose to $1.4 billion from $1.2 billion (TW Entertainment systems are 25.51%-owned by MediaOne Group). Time Warner's earnings were up 14% in 1998 to $4.46 billion from $4.03 billion on 11% revenue increase to $26.8 billion from $24.6 billion.