3 Bells join to produce video shows

November 01, 1994|By Michael Dresser | Michael Dresser,Sun Staff Writer

A star of sorts was born in Hollywood yesterday as three of the nation's regional Bell telephone companies came together to bankroll a new media venture to produce and acquire programs for their video systems of the not-too-distant future.

The $300 million newcomer, prosaically dubbed the Media Co. until a more suitable name can be found, is the progeny of Bell Atlantic Corp., Nynex and Pacific Telesis Group. Hollywood talent agent Michael Ovitz served as midwife for the deal, which will create a "virtual network" covering six of the nation's top seven media markets, including Baltimore- Washington.

"This is a speed-up for the information superhighway," Bell Atlantic Chairman Raymond W. Smith said during a telephone news conference.

In yesterday morning's announcement, the three formerly staid utilities said the new media company will develop a nationally recognized brand for a package of traditional and futuristic entertainment and information services.

For the three partners, the goal is to compete on the cable television industry's home turf. Each is spending billions to upgrade its network to carry video as well as voice, and the alliance is the partners' effort to ensure they have appealing content to pipe down their enhanced conduit.

The deal is a far cry from the phone companies' comfortable niche as monopoly providers of local telephone service. Hollywood can be a vast money pit for well-heeled investors, as some giant Japanese companies found out in recent years.

"Anyone that is coming into a new market with a lot of money and an interest but no knowledge should be careful," said Kevin Holmes, manager of the Center for Tele-Information at Columbia Business School.

To make sure they are not just Baby Bells in the woods, the partners have enlisted Mr. Ovitz's Creative Artists Agency as a consultant. Mr. Ovitz, one of Hollywood's best-known agents, said yesterday that the new venture is "an extraordinary opportunity for the creative community."

The new company will be owned equally by the three Bell companies. Mr. Ovitz said Creative Artists would not take an equity stake in the new company.

S. Ross Brown, who runs the telecommunications practice for Egon Zender International in San Francisco, said the phone companies were wise to bring a Hollywood insider aboard.

"It's a good step, a very good step -- perhaps the first acknowledgment by these phone companies that they need help to get this stuff off the ground," the former Pacific Telesis executive said.

In addition to creating a media company, the three regional Bells also announced yesterday that they would launch a separate enterprise to develop and integrate the technology needed to provide advanced entertainment, information and interactive services over their networks. Each of the companies will hire its own chief executive, and Mr. Ovitz said a search is under way.

The two companies will start out with $300 million contributed by the three owners, each of which kicked $100 million in cash and assets to launch the new companies' operations.

Mr. Holmes said that should be sufficient to get them started.

"They might not be able to get Schwarzenegger to make 'Terminator III' for them, but no one's going to ignore them," he said.

Among the assets Bell Atlantic will contribute are the resources of its multimillion-dollar video production center, a state-of-the-art facility that recently opened in Reston, Va.

The Bell Atlantic chairman said the investment poses no threat to telephone ratepayers. "This is shareholder money, retained earnings, that will be used," he stated.

Still sensitive after the collapse of Bell Atlantic's tentative merger with Tele-Communications Inc. early this year, Mr. Smith emphasized that yesterday's agreement is not contingent on further negotiations.

"This is an up-and-running company. The deals are done, there's nothing more to do," he said.

The new alliance accomplishes some, though not all, of the objectives Bell Atlantic envisioned when it announced last October that it would merge with TCI and Liberty Media, a TCI-controlled programming affiliate.

The new media company, which will operate primarily out of New York and Los Angeles, will be competing directly with Liberty Media and such entertainment heavyweights as Viacom, Time Warner and the Walt Disney Co.

According to the announcement, the Media Co.'s role will be to "license, package, acquire, invest in and create both traditional and new interactive entertainment and information services."

The company also will be charged with developing a unified marketing strategy for the new program package.

Tedd Alexander, a telecommunications analyst at Legg Mason, said the three partners plan to roll out the package in Montgomery County, Silicon Valley and Warwick, R.I., before the end of 1995.

The three phone companies in the alliance control less than half of the nation's local telephone industry but a disproportionate share of its major media markets.

Bell Atlantic serves the mid-Atlantic states from New Jersey through Virginia, while Nynex dominates New York and New England. Pacific Telesis serves only two states, but one of them is California.

The Media Co. would not necessarily be bound by geographic constraints, however. Under FCC rules, phone companies that offer "video dial tone" must make the service available to multiple programmers on the same basis enjoyed by their own video subsidiaries.

Bell Atlantic spokesman Jay Grossman said the new company could end up selling its programs to nonparticipating telephone companies or could decide to offer a competing package. He emphasized that the company wasn't ruling out any potential customers.

"If a cable company wants to buy from them, I don't know that we would refuse them, but the emphasis will be put on satisfying the needs of the owners," Mr. Grossman said.

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