Media Corp Profile: Capital Cities/"ABC"

[dave who can do? ratmandu! ratcliffe]

This is the fifth in a series of profiles on the major media corporations
in the United States. This article appeared in the Mar/Apr 1990 issue of
"Extra!", a publication of FAIR, and is reprinted here with permission.
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Capital Cities/ABC: No. 2, AND TRYING HARDER
By Doug Henwood

In 1985, Capital Cities, a company with interests in TV, radio and
publishing, spent $3.4 billion to take over the "American Broadcasting
Co.," a company four times its size. At the time, "ABC" employees
feared their new parent's tight fists and sharp eyes. Cap Cities
management has certainly lived up to its advance billing; the
acquisition, which looked a little grandiose in 1985, effectively paid
for itself in four years.
Cap Cities/"ABC" is a diversified media conglomerate with little debt
and $1.1 billion in the bank. Just under 80 percent of 1989 sales
(which totaled $4.96 billion), and 86 percent of profits (1989 total:
$922 million), came from broadcasting, with the balance from publishing.
Within broadcasting, however, lie several stories. The radio share of
sales and profits is small--8 percent and 11 percent, respectively.
(These are estimates by First Boston; Cap Cities/"ABC" doesn't provide
a detailed breakdown.) The network, though responsible for 62 percent
of Cap Cities' sales, produced only 20 percent of its broadcasting
profits, and the profit margin (profits/sales) was an anemic 7 percent.
Radio, video and cable TV--the latter two considered broadcasting
here--are far more lucrative, with margins around 30 percent. But the
real money-spewers are the eight local TV stations the network owns,
which reach just under the legal maximum of 25 percent of the U.S.
population. Though they produce only 21 percent of sales, they
contribute more than half of broadcasting profits, and their profit
margin is 54 percent. This is the highest for the three networks;
"NBC"'s owned-and-operated stations had a 42 percent margin; "CBS"'s,
36 percent.
Network profits are low, and local station profits high, because
networks pay their affiliates to broadcast their programming, and split
the ad revenue with them. (Obviously, if you own the station, you save
the fees and keep all the ad revenue.) With the growth of cable, VCRs,
and a fourth web, Rupert Murdoch's "Fox Network," this old order is
changing.
The networks' share of primetime audience eyeballs has fallen from 94
percent in 1978 to below 70 percent, and is likely to continue its
downward slide, especially as Washington, Los Angeles, Chicago and the
outer boroughs of New York City are increasingly wired for cable. "NBC"
president Robert Wright sees the mid-50 percent range as its likely
resting place; ad people are about 10 percentage points more
optimistic.
Even though 50 percent of the primetime audience is nothing to sneeze
at, the networks are not entirely happy with the future of broadcast TV.
In what may be a taste of things to come, "ABC" started charging a
Florida affiliate to carry its programming in early 1989. Even if this
doesn't become standard procedure, networks want to reduce payments to
affiliates, since local stations would have to pay up for substitute
product. And they're looking to milk the broadcast cow with more vigor.
While it's hard to work up much sympathy for an industry that
collectively made $610 million on sales of $7.8 billion in 1989, the
three networks nonetheless feel terribly put upon. Consequently, they
are practicing the classic techniques of a monopoly suddenly faced with
competition: slashing staff and wages, outsourcing, diversifying and
searching for new sources of revenue.
Like "NBC" and unlike "CBS," the network is getting more deeply into
cable and is beginning to move overseas. Cap Cities/"ABC" owns 80
percent of "ESPN," 38 percent of "Arts & Entertainment," and 33 percent
of "Lifetime," as well as 25-50 percent interests in several satellite
and cable channels in Europe.
With all three networks now in the hands of hard-nosed operators
(Laurence Tisch at "CBS," and GE at "NBC"), the culture of network TV,
once characterized by an almost royal indifference to costs, has now
joined the business mainstream. And Cap Cities/"ABC" is a virtuoso at
fattening its bottom line. Morgan Stanley estimates that corporate
overhead has been reduced by $50 million a year under the new regime.
In 1988, "ABC News" was the first network news division to make money in
a presidential election year, usually a time of high costs and skimpy ad
revenue. (According to Wall Street estimates, "CBS News" broke even,
and "NBC News" lost $50 million in the same year.)
Some of the cost-cutting is hard to argue with--like having Peter
Jennings cover the Iowa caucuses from inside the state capitol instead
of building a $500,000 temporary studio.

__________________________________________________________________
| The Bill Casey Connection |
| |
| Several Capital Cities founders and board members have had |
| intelligence connections, but none more prominently than the |
| late CIA director William Casey. |
| Casey, along with broadcaster Lowell Thomas, Republican |
| leader Thomas Dewey and others, started Cap Cities in 1954. |
| Serving as the company's chief counsel, Casey was also a |
| board member until 1981, when he was appointed by Reagan to |
| head the spy agency. When Casey was forced to put his stocks |
| in a blind trust in 1983, he quietly kept control of his |
| largest single holding: $7.5 million in Cap Cities stock. |
| Despite his close connections to a company in the news |
| business, no one ever accused Casey of being a fanatical |
| supporter of the First Amendment. In November 1984, in his |
| official capacity as CIA director, he asked the Federal |
| Communications Commission to revoke all of "ABC"'s TV and |
| radio licenses, in retaliation for an "ABC News" report that |
| suggested the CIA had attempted to assassinate a U.S. citizen |
| ("ABC News," 9/19/84, 9/20/84). In February 1985, the CIA |
| asked the FCC to apply Fairness Doctrine penalties to the |
| network. The following month, "ABC" was bought by Casey's |
| Cap Cities. |
| (See "The Seizing of the American Broadcast Company," by |
| Andy Boehm, "L.A. Weekly," 2/20-26/87.) |
| --The Editors |
|__________________________________________________________________|

But the favorite target of the cost-cutter is always labor, especially
in an industry with relatively low capital costs. And this is an area
where Cap Cities chair Thomas Murphy--who recently announced his partial
retirement--shines. As a Newspaper Guild official said of Murphy
shortly after the "ABC" takeover was announced, "If I ever get to hell,
I know I'll meet him there."
Cap Cities had a long history of labor conflict, especially at its
newspapers, an industry that has suffered from a squeeze not unlike that
of today's broadcasting business. Unionists argue that the Cap Cities
style is confrontational and penny-pinching, the kind of stuff that
alienates people and sends morale into the tank. No one seems to have
an accurate count of how many people have been laid off--the company
refuses to give a count--but private estimates are around 1,500, which
would put "ABC" at the head of the network class.
Wall Street, of course, loves to see a company on the labor offensive,
one of several reasons it has long carried a torch for Cap Cities.
Brokerage reports on the company typically gush with admiration for
Murphy and the Cap Cities team.
The consensus is that "ABC," currently the No. 2 network in the
ratings and in profitability, is best positioned for the long haul.
"NBC" and "CBS" are in the hands of financiers; the Cap Cities crowd
has three decades' experience in the broadcasting business.
The eight TV stations it owns, more than the other two networks, are
likely to remain money machines despite the encroachment of cable. And
"ABC" has cable covered too--while "ESPN" is paying off nicely, "NBC" is
new to the game, and "CBS" hasn't even tested the waters yet.
"ABC" has several new hit shows--including "Doogie Howser, M.D.,"
"thirtysomething," "Roseanne" and "America's Funniest Home Videos"--
while "NBC"'s fare, especially "The Cosby Show," is getting a little
long in the tooth. The news division, as viewers are frequently
reminded, is the nation's No. 1 source of information (or whatever it is
that Jennings and Koppel deliver).
Cap Cities' other lines of business, radio and publishing, are
suffering from "softening" trends in national advertising, but TV is at
the heart of the company's business. About the only negative is the
rising cost of programming, especially big-time sports--like the $900
million "ABC" had to pay to keep the rights to "Monday Night Football,"
or the $450 million "ESPN" paid for a Sunday night package.
It's sometimes said that there's only enough room for two-and-a-half
networks; Cap Cities/"ABC" is unlikely to be the one bisected. In
fact, should the global media universe condense into about ten giants,
Cap Cities is almost certain to be in that pantheon.

___________________________________________________________________
| BOARD OF DIRECTORS |
| |
| Chair Thomas S. Murphy was a member of the group that |
| started Capital Cities in 1957, when it was a rag-tag |
| collection of small TV stations; among his colleagues was |
| the late CIA director William Casey. Casey was on the board |
| from 1976 until he became chief spook in 1981. Casey's |
| failure to disclose his holdings in Cap Cities caused a mild |
| furor when it was revealed by "Newsday" in 1985. Casey was, |
| and Murphy and fellow boardmember Thomas Macioce are, |
| members of the Knights of Malta, a secretive international |
| club of right-wing ruling class Catholics with long- |
| suspected intelligence links. |
| |
| ------------- * ------------- |
| |
| INSIDE (Cap Cities/"ABC" employees) |
| DANIEL B. BURKE. President. Will become CEO in June 1990. |
| Former head, Jell-O division, General Foods; brother of |
| retired Johnson & Johnson chair and eminence grise James |
| Burke. Other boards/memberships: Avon, Conrail, Rohm & |
| Haas; American Film Institute, American Women's Economic |
| Development Corp., National Urban League, N.Y. Botanical |
| Garden, Ohio Wesleyan Univ., Conference Board, Council on |
| Foreign Relations. 1988 salary: $969,286. |
| THOMAS S. MURPHY. Chair and CEO. Will retire as CEO in |
| June 1990 while retaining chair. Other boards/memberships: |
| General Housewares, IBM, Johnson & Johnson, Texaco. Member |
| of legendary class of '49, Harvard Business School. |
| Member, Knights of Malta. 1988 salary: $1,030,501. |
| JOHN B. SIAS. Executive vice president, "ABC" Television |
| Network Group and veteran of Cap Cities' publishing |
| division. Sias has a reputation as a cut-up--the kind of |
| guy who wears a Captain Marvel T-shirt under his white |
| business shirt. 1988 salary: $815,286. |
| |
| OUTSIDE (non-employees) |
| ROBERT P. BAUMAN. Chair, SmithKline Beecham. Harvard |
| Business School classmate of Daniel Burke. Former General |
| Foods exec and former vice chair of Avco and Textron. Other |
| boards/memberships: Avco, McKesson Corp. |
| WARREN E. BUFFETT. Legendary billionaire investor based in |
| Omaha, with major holdings in Cap Cities (16.6 percent), |
| Salomon Bros., "Washington Post" Co. Close friend of "Post" |
| publisher Katharine Graham and "CBS" head Laurence Tisch. |
| Owner, "Buffalo News," several insurance companies and |
| retailers. Promoter of population control, nuclear |
| nonproliferation, rhino preservation, and U.S.-Soviet |
| friendship. Other boards/memberships (partial list): |
| Berkshire-Hathaway (Buffett's investment vehicle), "Omaha |
| World-Herald," Salomon Bros.; Boys Clubs of Omaha, Grinnell |
| College, Urban Inst. |
| FRANK T. CARY. Retired chair, IBM. Other boards/ |
| memberships: Hospital Corp. of America, J.P. Morgan, Merck, |
| New York Stock Exchange (whose chair and vice-chair are |
| members of the Knights of Malta), PepsiCo, Texaco; Business |
| Council, MIT. |
| LEONARD H. GOLDENSON. Retired chair, "ABC." |
| LEON HESS. Chair, Amerada Hess; owner, New York Jets. |
| Other boards/memberships: Mutual Benefit Life. |
| GEORGE P. JENKINS. Consultant to W.R. Grace & Co; retired |
| chair, Metropolitan Life. Other boards/memberships: |
| Bethlehem Steel, Chicago Pacific, Trammel Crow. |
| FRANK S. JONES. Professor of urban studies, MIT. |
| ANN DIBBLE JORDAN. Social worker and consultant to |
| University of Chicago Medical School and Stroh Co. Other |
| boards/memberships: "Granite Broadcasting," Johnson & |
| Johnson, National Bank of Washington; National Symphony, |
| National Foundation for Learning Disabilities, World |
| Population Institute. |
| THOMAS M. MACIOCE. Partner, Shea & Gould (New York law |
| firm); former chair, Allied Stores. Member, Knights of |
| Malta. Other boards/memberships: Columbia Press, |
| Grossman's, Manufacturers Hanover, the Vatican Bank. |
| JOHN H. MULLER, Jr. Chair, General Housewares. Other |
| boards/memberships: Robbins Co. |
| WILLIAM I. SPENCER. Retired Citicorp executive. Other |
| boards/memberships: Amerada Hess, Bridge Capital Mgmt., |
| Keller Indus., McLean Indus., Trust Co. of the West, United |
| Technologies, US West; Colorado Coll., Council on Foreign |
| Relations, Nature Conservancy, NY Blood Center, NYU Medical |
| Center. |
| M. CABELL WOODWARD Jr. Vice-chair and chief financial |
| officer, ITT. Other boards/memberships: Melville Corp., |
| Sheraton Corp. |
|___________________________________________________________________|

Doug Henwood is editor of "Left Business Observer," 250 W. 85 Street,
New York, NY 10024. This series of media profiles has been assisted by
grants from the Fund for Investigative Journalism and W.H. and Carol
Bernstein Ferry. Research assistance by Valerie Picard.
--
daveus rattus

yer friendly neighborhood ratman

KOYAANISQATSI

ko.yan.nis.qatsi (from the Hopi Language) n. 1. crazy life. 2. life
in turmoil. 3. life out of balance. 4. life disintegrating.
5. a state of life that calls for another way of living.