The Network Starter Kit

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No one would call Lowell (Bud) Paxson a dimwit. He is an unusual sort of TV executive, certainly: a born-again Christian who makes more money than headlines and counts among his achievements the Home Shopping Network, which he sold for a bundle in 1992. Nor would Barry Diller, a genuine TV honcho who makes a lot of money and headlines, qualify as anything less than bright. But each is about to embark on what would appear to be a fool's errand: starting a new television network in an era in which audiences are fragmenting and network profits disappearing. Paxson and Diller are joining upstarts UPN and the WB in trying to prove that the problem with TV is not the network but the financial model on which it is based.

So they are changing the model. Paxson is assembling his group of UHF stations into a no-frills national network offering family-friendly programming. When Pax TV makes its debut on Monday in about 75% of the country, it will become the seventh (count 'em) over-the-air network.

Diller, the free-lance mogul and former chief of the Fox network has long been the topic of one of the TV industry's most popular guessing games: What will Barry do next? Since leaving Fox in 1992, Diller has dabbled in home shopping, proselytized for the digital revolution, failed to buy Paramount and, last February, succeeded in acquiring the majority of Universal's TV operations. Despite persistent rumors that he is in the market for a major network, such as CBS, Diller says he is more interested in fashioning his latest collection of TV properties--including the USA cable network and a group of 16 UHF stations--into yet another TV network that features lots of local content. O.K., America, are you ready for eight?

Traditional TV networks have not made a lot of economic sense for years: most of the money generated has a way of going elsewhere. According to Broadcasting & Cable magazine, NBC was the only network among the Big Four to turn a sizable profit last year--$475 million, on revenues of $3.8 billion. CBS lost money; Fox did too after discounting special accounting benefits; ABC turned a small profit. This year they'll do worse.

Program suppliers, on the other hand, reap most of the lucrative back-end revenue from selling syndicated reruns of hit network shows (the nets were forbidden by FCC rules to share in that pool until recently). And local stations have much higher profit margins because they can benefit from network hits, in the form of increased ad revenue, without having to share in the costs; the networks instead pay the stations "compensation" as an inducement to carry their programming. This has put the networks in a squeeze, as license fees for hit shows and major sports events have soared (CBS just paid $4 billion for eight years of American Football Conference games--more than double the cost of the last contract) and advertising-rate increases have started to flatten. "The big-gauge networks are like Detroit in the 1970s," says Diller. "In the next three years, they will all be confronted with a massive retooling effort."