Fox engineers defection of 8 CBS affiliates

May 24, 1994|By New York Times News Service

NEW YORK -- In a sweeping realignment of the television industry, Fox Inc. announced yesterday that it would form a new alliance with a broadcast station group that will result in the defection of eight important stations from CBS to join Fox.

CBS, which had already seen Fox take away the rights to broadcast certain National Football League games that CBS had held for four decades, now faces the further humbling exercise of having to seek new -- and probably weaker -- affiliates in many of the biggest cities in the country, including Dallas, Detroit, Cleveland and Atlanta.

Three ABC stations and one NBC station will also switch to Fox under the terms of the agreement with New World Communications Group Inc., a company whose controlling share holder is Ronald Perelman, the chairman and chief executive of Revlon Group Inc.

Fox accomplished its move, which clearly took the other networks by surprise, by pledging to invest $500 million in New World, which owns seven television stations and has plans to acquire eight more.

Twelve of those 15 would switch their affiliations to Fox. In exchange, Fox will initiate a partnership with New World to produce and syndicate programming for their stations and others.

Fox has affiliates in all 12 cities. But they are less desirable stations with weaker signals. By luring older, stronger stations onto its roster in those markets, Fox is, in effect, trading up.

The Fox network began only in 1986; it lacks the distinguished news operations and rich entertainment history of CBS, NBC and ABC. But Fox's owner and chairman, Rupert Murdoch, has been moving the network toward equal status with those competitors, and yesterday's move was his boldest yet.

"We are getting closer to parity," Mr. Murdoch said in a telephone interview. "We are about three-quarters of the way there."

Anthony C. Malara, president of CBS' affiliate relations division, said he was stunned when he received the news in a phone call yesterday morning from William C. Bevins, chief executive of New World.

"It's a big blow," Mr. Malara acknowledged. "But it's not Armageddon."

He promised that CBS would have new affiliates in each city, though he said that many might have to be weaker UHF -- ultra-high-frequency -- stations, those with channel positions above 13 on the dial.

The announcement by Fox yesterday set up a scramble for new relationships between networks and affiliates, suddenly making precarious the partnerships that date to the beginning of the television era.

In Detroit, for example, the current Fox affiliate has been owned by Paramount Communications, recently acquired by Viacom Inc., which is in the process of starting its own network.

That station had been expected to stay with Fox; now it is likely to align itself with its parent company. CBS would then have to seek a different station in Detroit -- perhaps the one affiliated with NBC.

Similar turmoil could arise in many of the other cities affected by Fox's move. Contracts between a network and its affiliates are short-term, usually a year or two, and may be broken by either party upon expiration. Because of that, Fox officials said yesterday that they thought they could have all 12 new affiliates in place within 18 months -- some of them by fall.

The move is likely to translate into improved ratings for Fox, while CBS, depending on which stations it is able to secure in the affected cities, could sustain serious damage to its programs across the board.

Among the most likely to be affected is the "CBS Evening News," which will lose lead-ins from established local stations in big cities.

CBS could also be hurt in late night, where "Late Show With David Letterman" will be compelled to follow newscasts or syndicated reruns that are likely to be rated far lower than those on the stations that are abandoning CBS.

Fox will pay New World a total of $500 million to walk away from its relationship with the other networks. Fox will receive 20 percent of New World's stock for the first $250 million of that price, paying a little more than 12 cents a share.

Fox will commit the other $250 million to two issues of warrants, the first $18 million to be converted to stock when the price reaches 15 cents a share, the rest to be held for seven years or until the price reaches $50 a share.

Mr. Murdoch said the latter amount of money was "our real cost on the deal -- the cost of that money for seven years."

But Fox will remain a nonvoting shareholder of New World, Mr. Bevins said. The nonvoting status is intended to prevent Fox from running afoul of the Federal Communications Commission, which limits any network or corporation to ownership of 12 television stations.

Mr. Bevins said he did not expect the ownership provisions to become a problem.

The FCC had no official comment on Fox's move yesterday.

Shares of CBS fell $15.50 each yesterday, to $288, on the New York Stock Exchange. Shares of New World rose $1.6875, to $10.625, in Nasdaq trading.

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