For Hollywood, It Could Be a Season of Surprises

Will Ted Turner continue to sling mud at archrival Rupert Murdoch? Will cable stocks ever rebound? Will the megamergers that stole headlines over the last two years gel or start coming unraveled?

The coming year will provide some answers, although analysts, investors and industry executives canvassed for their predictions warn that events in Hollywood often take surprise twists.

Though the entertainment sector took a beating in 1996 as Wall Street worried about high debt levels, pundits say media stocks could bounce back in 1997 as companies that borrowed to bulk up restructure and sell off properties. The investment bankers who sold media companies on the virtues of bigness and “vertical integration” in 1995 are now pushing spinoffs as a way for them to raise additional capital.

News Corp. spun off its Fox Children’s Network, sold pieces of Fox’s sports and options on its cable news channel this year, and is now trying to find partners--or make a public offering--for its ASkyB satellite service. MCA recently sold its Putnam publishing unit because it was not essential to its core entertainment business. And the trend should continue next year, when analysts predict Viacom will sell radio, Time Warner will shed cable and Westinghouse is scheduled to spin off its industrial businesses.

Outside of selective downsizing, analysts say it is still too early to assess the financial returns of this wave of media conglomerization. But the first clues could appear this year.

Based on interviews with analysts, investors and industry executives, here are a few Company Town predictions for 1997.

Year of the set-top box: A barrage of incompatible digital set-top cable boxes flood the market this year, confusing consumers and stifling the rollout of what is expected to be the cable industry’s major defense against satellite services. John Malone, the chairman of Tele-Communications Inc., recently warned fellow cable operators that the industry must back a standardized technology to achieve wide scale.

Replace your VCR: Studios agree with the technology industry on piracy protections for the long-delayed digital videodiscs, allowing Hollywood--eventually--to reap a fortune from re-selling their movies to video stores on the new format. The rollout promised for 1996 may actually begin in 1997.

Ovitz sightings: Former Disney President Michael Ovitz is the subject of 200 news reports emanating from lunches with power brokers in associations with his next venture, about which there will be at least one wild rumor a day.

Sony throws in the towel: Sony Corp. spins off its studio, Sony Pictures Entertainment, or sells it to General Electric, leaving CBS as the sole network not attached to a studio.

TCI splits up: Tele-Communications Inc. spins into four discreet companies concentrating on international markets, telephone service, programming and domestic cable, the latter of which is eventually purchased by a long-distance company. Brendan Clouston, head of the cable company, is ousted in a management shake-up as Chairman John Malone works to clean up the balance sheet after a period of capital overspending.

Blockbuster rebounds: Viacom reverses the slide at Blockbuster Entertainment, one of the company’s weakest links, by turning the stores into broad-based entertainment retail outlets.

CBS is in play again: Westinghouse spins off its industrial operations in the third quarter, setting the stage for a takeover of CBS in late 1997--or more likely in 1998--by MCA, Barry Diller, or perhaps a combination of the two.

Digital wars: Digital satellite companies merge as price wars continue to reduce margins and subscriber growth slows. Rupert Murdoch’s News Corp. aborts plans for its ASkyB satellite service, merges with EchoStar or DirecTV, or gets phone partners to foot the bill.

Ted Turner tapes up his mouth: Ted Turner, the new chairman of Time Warner, adopts a more corporate posture and stops calling Murdoch names to make peace with News Corp.

Death Row’s death: The most famous rap label collapses with its chairman, Suge Knight, behind bars.

Motown lowdown: Andre Harrell, the new chairman of Motown, is ousted for overspending and failing to break-in any new acts.

Sinking ship: Twentieth Century Fox’s appropriately named “Titanic” could be the next “Waterworld,” reconfirming the high-priced risks of taking movie cameras on the water.

Happy returns: Howard Stringer, the former CBS president and Tele-TV head, returns to the news business, running one of the 24-hour cable news channels--or returns to his native United Kingdom.

Viacom sings the blues: After pulling Spelling Entertainment off the auction block because it didn’t get its asking price, Viacom sells its radio business, but gets far less than its $1.5-billion asking price.

Levin’s fate: U.S. West continues to procrastinate in restructuring its interest in Time Warner’s cable and entertainment assets, keeping the Time Warner stock price in the cellar. That could find Gerald Levin out of a job as chairman and chief executive, replaced by Ted Turner as chairman and Robert Daly, the studio chief, as chief executive, with Terry Semel running Warner Bros. studio alone.

The King’s cash-out: After two previous takeovers were scrapped, King World is finally sold to Sony Television, which owns some game shows distributed by the syndicator.

Opryland in Hollywood: CBS buys Gaylord Entertainment, the owner of Opryland and two country music cable channels, to fill out its cable holdings.

Diller fried: Cable operators are no longer required by the government to carry broadcast channels, opening up channel capacity and hurting Barry Diller’s plan to launch a local network by forcing cable systems to carry programming that runs on his UHF stations.

Black hole: Polygram loses its shirt in the film business.

Interactive television: Digital cable boxes finally give cable operators the ability to use the television like a computer, allowing Joe TV viewer to send e-mail messages and click on advertisements for more information. These applications may be fine for the computer-illiterate but are no substitute for the Internet.

Defection to the Internet: Children are watching less television to spend more time at their computers, and new studies show that 1.5 million adults 18 to 34 have stopped watching TV. Recognition that the Internet will ultimately compete with television for advertisers widens.

Power money: Electric utilities look to Hollywood and cable as a way to expand in an era of deregulation, providing a new source of financing for filmed entertainment.