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Little Sizzle In Q3 Earnings

Disney and News Corp. fail to impress

By John M. Higgins

The sizzle and flash of the fall TV season couldn't hide mixed results at the broadcast units of Disney and News Corp. Both companies posted quarterly earnings last week, and neither impressed.

At Disney, broadcast-station and network revenues grew just 1% to $1.4 billion. That's attributed primarily to the absence of ad revenue from Monday Night Football games, which shifted to Disney-owned cable network ESPN.

However, those games were money-losers, so operating income should have improved. Instead, it dropped 40% from an already unimpressive $48 million to $29 million. Part of the problem stems from a write-down in the value of station licenses; the rest, from losses at the Disney Mobile cellphone startup, which is performing much worse than investors had hoped.

CFO Tom Staggs maintains that the ABC network itself is healthy and the profit picture should improve. “The average cost per hour of entertainment programming for ABC and primetime should be about even this year as versus last year, and so that's going to give you the opportunity for strong margin improvement at ABC this year.”

At News Corp., Fox's financial numbers were more positive, but the U.S. broadcast division has other problems. For the first quarter of fiscal 2007, TV revenues increased just 5% to $1.1 billion, but operating income rose a strong 20% to $192 million.

However, that rise is due largely to an easy comparison to last year's wretched performance. The company took substantial programming write-offs in the fiscal first quarter '06 as Fox rapidly cancelled series, notably Head Cases.

This year, Fox Network doesn't have the write-offs but still has ratings problems. Poorly performing fall shows have dragged ratings down 5% in total viewers this year and 10% in viewers 18-49. In addition to weak performance of the baseball playoffs and World Series, none of the networks' new series have worked, and one-time hit The O.C. is withering on Thursday night against ABC's Grey's Anatomy.

“I think it's safe to say it has not been a stellar fall launch for us,” says News Corp. President/COO Peter Chernin, speaking on the company's quarterly-earnings conference call. Because of the strength of returning dramas House and Prison Break, “we are not in the kind of black hole that we were in the past, but we're certainly not pleased or satisfied with the new dramas we have launched.”

Fox has plenty of opportunities for write-offs from series likely to be cancelled this quarter, notably Happy Hour. The network is expected to bounce back beginning in January when American Idol and 24 return to the schedule.

Both companies' cable-network units posted strong results for the quarter, with double-digit percentage gains in both revenues and income.

High-Def Bond: Electronic, Not Taped

Sony Pictures' advertising campaign for the latest James Bond thriller, Casino Royale, marked a technical first for DG FastChannel. The commercial-delivery firm used its new HDTV service, HD NOW, to electronically deliver high-definition commercials to cable network Discovery HD Theater. The high-def spots for Casino Royale, which opens Friday, Nov. 17, began airing Thursday, Nov. 9.

While the majority of network primetime shows and major sports coverage are now offered in HDTV, high-definition commercials have been relatively slow to take off. Part of the problem is that the HD audience isn't big enough for most advertisers to spend the extra money—perhaps 10%-20% of overall production costs—to create a high-def version of a commercial.

But a bigger challenge has been getting HD commercials to networks, stations and cable headends. Because of the high bitrates required, delivering HD commercials has meant decompressing the HD video, recording it on a tape, and mailing it—a step backwards to the “horse-and-buggy days,” says DG FastChannel Chairman/CEO Scott Ginsburg.

That stumbling block has been removed with HD NOW, which DG FastChannel has spent two years developing. The Dallas-based company, whose equipment is installed at more than 1,380 stations, has added storage capacity to its Spot Box servers and has developed a software upgrade, which can be remotely delivered via the Internet, to allow them to handle HD files.

DG FastChannel has also worked with video server vendors to allow HD files to be seamlessly transferred from an HD Spot Box to a playout server. The delivery process for the Casino Royale spots, which were compressed at a high-quality bitrate of 60 megabits per second (Mbps), took only about 10 minutes.

“My guess is, there will be a 30-month march to the total HD adoption of commercials,” says Ginsburg. “Every month, you will see the bar raised a little bit more, until every spot is produced in the HD format.”—Glen Dickson

CBS Moves Syndication Staff

A majority of the former CBS Paramount Domestic Television staffers will move to King World Productions headquarters in Santa Monica, Calif,, over the next six months, a spokeswoman for the recently merged CBS Television Distribution Group (CTDG) confirms.

CTDG declined to say how many people from the much larger CBS Paramount staff will be making the move.

A handful of production executives are expected to retain offices on the Paramount lot, where first-run series Entertainment Tonight, The Insider and Dr. Phil are housed.

The network television group already moved to CBS' Radford lot in nearby Studio City and will be joined by CBS corporate executives next year when new office space is completed.

Consolidation of the back-office syndication staffs—including marketing, research and business/legal affairs—is expected to be completed by the end of the year. Some staffers are expected to volunteer to leave rather than face the daily drive to Santa Monica from distant locations.

CTDG put its sales house in order last month (B&C, 10/31), with King World's Joe DiSalvo named to oversee first-run and off-network broadcast-station sales and CBS Paramount's Scott Koondel cable and digital media (while reporting to DiSalvo on off-net).

The group is headed by CEO Roger King and Co-President/COO John Nogawski (CBS Paramount) and Robert Madden (King World).

Jim Benson

Fox Business To Launch on Digital

Fox Business Channel's prospects look a whole lot better now that Fox will settle for digital carriage.

Industry executives familiar with plans for the Fox News spinoff say that network executives are not demanding that cable operators carry the channel as a basic-cable offering. Instead, they are willing to accept carriage on digital tiers, to which 35%-45% of cable customers subscribe.

Comcast is close to signing a deal to carry Fox Business, according to a story last week in The New York Times. Two other top-10 operators, however, say they have not been formally pitched a deal.

On a conference call to announce News Corp.'s quarterly earnings last week, News Corp. COO Peter Chernin declined to set a timetable for the channel's launch but said it had “much greater clout than we had in years past” and “an opportunity to sign up a large number of subs before we launch.” He also denied that the company was leveraging rates for its established Fox News Channel to negotiate rates for the business network.

Combined with carriage on News Corp.'s satellite company DirecTV, digital carriage from several cable operators could allow Fox to launch the business channel in some 30 million homes next year, about a third of the way to being fully distributed.

The channel will draw a limited audience anyway, given its niche appeal of business news. Still, CNBC has proved that, even with low ratings, the focused and affluent audience for business news can generate strong profits.

Fox's business channel has been a pet project of News Corp. Chairman Rupert Murdoch, but Fox News Chairman Roger Ailes has been slow to move on it, waiting until he's sure he can line up cable and satellite-TV distribution.

The company itself has been publicly hesitant about the channel's viability. A recent press release announcing a promotion for radio syndication chief Kevin Magee said he will be the executive in charge of the proposed business channel “in the event distribution is secured for its launch.”—Anne Becker

NBC's 'Studio 60' Picked Up; ABC's 'Trees' Takes Root

NBC has given its ratings-challenged drama Studio 60 on the Sunset Strip a full-season pickup in hopes the show will gradually find an audience.

The show is averaging a 4.0 rating/9 share in the 18-49 demo, although NBC says it continues to skew extremely upscale in its Monday night at 10 time slot.

Launched to a good amount of hype with an all-star cast (including Matthew Perry, Bradley Whitford and Amanda Peet) and the return of Aaron Sorkin (The West Wing) to television, the show has been extended despite failing to hold much of the big lead-in it enjoys from rookie hit Heroes.

NBC hopes that, with questions of its immediate future answered, the show can settle in and build an audience wherever it ends up on the schedule.

Studio 60, from Warner Bros. Television, is one of two NBC shows (with comedy 30 Rock) focusing on behind-the-scenes machinations of a TV show.

Elsewhere, ABC last week pulled struggling J.J. Abrams drama Six Degrees and will replace it Nov. 30 with Warner Bros. Television's Anne Heche drama Men in Trees, which has received a full-season order.

Trees will move into the post-Grey's Anatomy slot at 10 p.m. ET Thursdays; Six Degrees is slated to return in January with its remaining seven episodes.

It's understood that, if Trees does well in the Thursday-night slot through December, it will likely remain there in January.

“We love these two shows and are excited at the promise they have shown,” said ABC Entertainment President Stephen McPherson in a statement. “Thursdays will be a great platform for Men in Trees to reach a larger audience.”

Trees had initially been slated to have Ugly Betty as a lead-in on Fridays, but when that series shifted to the lead-off slot on Thursdays, Heche's show was left stranded.

Through six episodes, Six Degrees has averaged a 4.0 rating/11 share among adults 18-49, down 57% from the 9.3/22 lead-in provided by Grey's. It has declined each week except one, starting at a 5.4 rating and falling to a series low 3.1 last Thursday.

Airing behind a variety of lead-ins, predominantly Grey's reruns (2.0/7), Trees improved the Friday time period to a 2.2/7.

ABC has yet to decide the fate of another critically acclaimed but low-rated series, the 10 p.m. Wednesday hostage-afterlife drama The Nine.

At CBS, cancelled drama Smith will resurface on the network's broadband channel, Innertube, which will stream all seven episodes produced. Only three aired on CBS before the show was cancelled. Producer Warner Bros. will also make the show available on AOL, Amazon and through iTunes.

Ben Grossman and Jim Benson

Correction

ABC's Day Break and NBC's Medium (“Tough Sweeps Decisions Await,” 11/6) will debut on Nov. 15.

VH1 Plans Video-Sharing Player

Will launch with home-shopping spoof

By Anne Becker

VH1 is launching a player that will allow Web users and publishers to add its video content to their Websites and share it. The player, located on broadband channel VSPOT, is slated to launch Nov. 27.

Users will be able to “snag” network-branded content and syndicate it to their personal Websites. Unique to VH1's player, snagged content will update automatically, sending new episodes of viewers' chosen series to their pages as VH1 publishes them. Users can also search and share video.

The move comes as big media companies struggle to find a legal and financially prudent way to meet users' demand for their content online. Communal sites like YouTube have popularized video sharing but cannot legally offer much copyrighted content without permission.

VH1 designed the player to let viewers create their “own little television network on broadband,” says Executive VP/General Manager Tom Calderone, noting that automatically updating video can give users “that feeling of urgency and immediacy and of the moment.” The player will launch with new Web-only series, Home Purchasing Club, a spoof on shopping networks.

The satire was developed by Generate, a multiplatform-management/production company headed by former WB CEO Jordan Levin. Its creators, standup comics/TV actors/writers Sean Masterson and Jonathan Mangum, envisioned the series for TV but shopped it to broadband at Generate's urging.

VH1 plans to add content for syndication later this year.

Tribune Primes Sales Pump

Shops Top-MArket Stations

By John M. Higgins

By separating its biggest stations and putting them up for sale, Tribune Co. is trying to energize an auction by drawing in giant broadcasters that would otherwise be unable to bid or uninterested in bidding.

Tribune bankers have begun contacting potential buyers, shopping just its three prime stations—WPIX New York, KTLA Los Angeles and WGN Chicago—according to the Los Angeles Times. The package is valued at more than $2.5 billion, about 70% of the estimated value of Tribune's entire 26-station portfolio.

The ability to acquire properties in major markets without being stuck with stations in Albany, N.Y., and Grand Rapids, Mich., is expected to generate the interest of numerous media and private-equity players.

Top among them is CBS. Federal ownership rules would make it difficult to buy Tribune stations in markets where CBS doesn't already have properties. But the No. 1 station group could readily buy the New York and Chicago stations and establish duopolies there. CBS also would probably be willing to buy KTLA—an affiliate of CBS' 50%-owned CW network—and sell its existing Los Angeles station, independent KCAL.

Disney's ABC hasn't been interested in station acquisitions for years but might be tempted by a few big-market stations, particularly since it has no duopolies in those markets.

Tribune is in the process of breaking itself into pieces after being pressured by shareholders to boost its stock price. Even without a sale, the company's ownership of both a newspaper and a station in New York and Los Angeles violates FCC ownership rules, and a long-running waiver is likely to expire.

Additional reporting by Jim Benson

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