BHC Communications, Inc.

1956–1998

BHC Communications, Inc. was, in 1997, operating nine television stations in the United States, including stations in the New York City and Los Angeles metropolitan areas. Five of these stations were being operated by one or the other of two wholly owned subsidiaries; the other four were being run by United Television, Inc., a majority-owned subsidiary. BHC Communications also jointly owned, with Viacom, Inc., United Paramount Network, which was providing programming to 178 television stations in early 1998. BHC was 79 percent-owned by Chris-Craft Industries, Inc. at this time.

Growing Chris-Craft Subsidiary: 1977-90

Herbert J. Siegel, described as a consummate dealmaker with an affinity for entertainment properties, acquired Chris-Craft at the end of 1967. Among the properties held by this diversified company were two television stations: KCOP in Los Angeles and KPTV in Portland, Oregon. In 1977 these stations were placed in a new Chris-Craft subsidiary, BHC (which apparently was an acronym for "broadcasting holding company") Inc. Chris-Craft Television, Inc. was a subsidiary of BHC, while KCOP Television, Inc. and Oregon Television, Inc. were subsidiaries of Chris-Craft Television. During fiscal 1978 (the year ended August 31, 1978) television accounted for about $30.1 million of parent Chris-Craft's revenues and $9.4 million in operating income, a profit margin typical of the highly lucrative television broadcasting field.

In the same year BHC was incorporated Siegel obtained, in Chris-Craft's name, a minority interest in 20th Century-Fox Film Co. Four years later he sold this interest, which had grown to about 22 percent, to Marvin Davis and Marc Rich for $140 million in cash and 19 percent of United Television, Inc., a Fox subsidiary. Founded in 1956 to operate station KMSP-TV in Minneapolis, United Television in 1975 acquired KTVX, an ABC affiliate in Salt Lake City, and KMOL-TV, an NBC affiliate in San Antonio. BHC became the fourth largest television broadcast company not owned by a network in 1983, when its stake in United Television reached 50.1 percent of the common stock. Also that year, United Television purchased an ultra-high-frequency (UHF) station in San Francisco. The six television stations had combined revenue of $115 million and operating income of $39.1 million in fiscal 1983.

Chris-Craft, early in 1984, acquired convertible preferred stock valued at more than $200 million from entertainment giant Warner Communications, Inc. in exchange for a 42.5 percent stake in BHC taken by Warner. The cross-ownership agreement, which gave Chris-Craft 19 percent of the voting power in Warner, was sought by Warner to prevent a takeover by Rupert Murdoch's News Corporation Limited. It also made sense to Siegel because, he told a reporter, "They make feature films and have a large film library. We have mostly independent television stations and the cost of programming is going up." Investor Mario Gabelli hailed the deal, saying "Siegel sold the stations at retail price, and he bought Warner's stock wholesale." Eventually Chris-Craft upped its voting stake in Warner to 29 percent.

BHC continued to thrive under the autonomous management characteristic of Chris-Craft's divisions, although operating income declined slightly in the 1980s after reaching a peak of $38.8 million in fiscal 1984. In (calendar year) 1988 it was $30.7 million on record operating revenues of $230.6 million. In late 1985 United Television launched a second UHF station, KUTP, in Phoenix.

The six television stations had combined revenue of $115 million and operating income of $39.1 million in fiscal 1983.

1948–1996

Time Inc. acquired control of Warner (which then became Time Warner Inc.) in 1989-90. For its shares in Warner BHC received cash, some of the shares of its own stock previously held by Warner, and convertible preferred stock in Time Warner. Payment, in all, was valued at $2.3 billion, almost a sixfold pretax gain over a six-year period. Following this settlement, BHC was reincorporated as BHC Communications, Inc. and recapitalized into two classes of stock in an arrangement that gave Chris-Craft almost the entire voting power.

Awash in Cash: 1990-95

The distribution of other BHC shares by Time Warner to other Warner stockholders turned BHC Communications into a public company, although it remained a majority owned Chris-Craft subsidiary with the same headquarters in New York City as Chris-Craft and the same chairman and president, Siegel. Part of BHC Communications' windfall was used to retire its debt and buy back about 10 percent of its (virtually nonvoting) Class A shares. The remainder&mdashout $1.3 billion at the end of 1990--remained in BHC's coffers. By early 1993 this sum had grown to $1.6 billion. One of the company's most enthusiastic shareholders was Gabelli, who, along with his funds, now held 21 percent of the Class A shares of common stock.

Although Siegel showed no interest in using BHC's cache to negotiate another megadeal, in 1992 the company purchased, for $313 million, Pinelands, Inc., holder of WWOR, a television station based in Secaucus, New Jersey. WWOR was one of only six over-the-air VHF television stations broadcasting in the metropolitan New York City area--the nation's largest. Although it ranked last of the six in viewer ratings, acquisition of the station anchored BHC Communications at the eastern end of the continent. Moreover, WWOR was a superstation being beamed to other parts of the nation by cable operators. At the end of 1996, however, AEC Corp., which was providing the satellite feed outside of the New York area, pulled the plug on the station. This action, which affected some 12.5 million cable subscribers nationwide, came shortly after Tele-Communications Inc., the largest cable operator, decided to drop WWOR from many of its cable systems.

At the other end of the continent, KCOP was the leading independent television station in Los Angeles. Founded in 1948 and purchased by Chris-Craft in 1960 for $5 million, KCOP began beaming the Los Angeles Marathon race at its inception in 1985 and later covered the local premieres of such stage shows as "Miss Saigon," "Tommy," and "Sunset Boulevard." The station, in 1994, was doing well both in daytime and primetime with first-run syndicated programs aimed at young adults, such as "The Ricki Lake Show" and "Star Trek: Deep Space Nine." In the fall of that year KCOP introduced a 2

hour block of original, syndicated late-night programming aimed at young adults.

1990–1997

Operating revenues for BHC Communications and its subsidiaries increased from $278.1 million in 1990 to $447.5 million in 1994. Operating income fell from $25.7 million in 1990 to only $517,000 in the recession year of 1991 but increased to $22.4 million in 1992, $79.3 million in 1993, following the acquisition of WWOR, and $113 million in 1994. Because of sales of Time Warner securities, net income was much higher&mdash high as $481.2 million in 1990 and $224.3 million in 1993. The BHC/United stations formed, in 1995, United Sales Enterprises, a firm designed to sell national spot advertising time for all eight.

Forming United Paramount Network: 1995-98

In January 1995 BHC Communications launched United Paramount Network, the nation's sixth television network. Among the 100-odd stations to receive UPN's original two nights per week, two hours per night primetime programming were the six stations owned by BHC or its subsidiaries that were not network affiliated and nine of the 11 owned by Viacom's Paramount Television Group, which acted as the network's producer. Since research had targeted men aged 18 to 49 as the audience most willing to channel surf, looking for new programs, UPN introduced "Star Trek: Voyager" to show on Monday nights. Buyers of advertising time for "Voyager" were required to buy time on the other four UPN shows as well.

"Star Trek: Voyager" was a hit, but the other original UPN shows were poorly received. They were replaced by several urban-theme situation comedies, most notably "Moesha." In March 1996 UPN added a third night of two-hour programming in primetime and by the end of the year had 152 affiliates in markets covering about 92 percent of all television households in the United States. It also had added a two-hour Sunday slot for children's shows. By the end of 1997 UPN was being carried by 178 affiliates in markets covering 90 percent of all U.S. households and had added two hours of previously exhibited movies on Saturday afternoons. UPN was being watched by an average of five percent of all television viewers during the fall 1996 season.

The agreement with Viacom provided that Chris-Craft would finance the first two years of UPN and allow Viacom an option to buy a half-share in the network before December 15, 1996, by paying half its losses. Viacom did so in early December of that year, purchasing half the network for about $160 million. As part of the deal, Viacom agreed to sell UPN "Star Trek: Voyager" rather than syndicate the series.

UPN was not expected to become profitable in the near future because of heavy start-up and expansion costs and intense competition from other fledgling networks such as WB. Nevertheless, BHC and Paramount considered their investment in the network vital because they were finding it hard to compete against more powerful station groups for quality programming. UPN's net revenues grew from $30.4 million in 1995 to $90 million in 1997. Operating expenses grew proportionately, however, and the network's net loss increased from $133.8 million in 1995 to $170.2 million in 1997.

1989–1998

After reaching a peak in 1994, BHC Communications' operating revenues fell slightly for each of the next three years. Operating income peaked at $118.6 million in 1995, then fell in the next two years. The figures for 1997 were $443.5 million and $101.3 million, respectively. Net income, $92.9 million in 1994, fell sharply the next two years as BHC absorbed all of UPN's losses. In 1997 the company benefited from sharing UPN's loss with Viacom and collecting $153.9 million for Viacom's half-share in the joint venture. Net income was $131.2 million for the year. The company had no long-term debt. Its stock, which traded between $48 and $54 a share in 1989, reached a high of $145 in 1998.

In 1997 BHC Communications' Chris-Craft Television subsidiary owned KCOP and KPTV, the Los Angeles and Portland stations. The Pinelands subsidiary owned WWOR, the New York-area station. The other six stations were owned by United Television. These included KMSP (Minneapolis/St. Paul), KTVX (Salt Lake City), KMOL (San Antonio), and the UHF stations KBHK (San Francisco) and KUTP (Phoenix). In January 1998 United Television acquired a third UHF station in Baltimore for $80 million, changed its call letters to WUTB, and made the station a UPN affiliate. United, in October 1997, agreed to purchase WRBW, a UHF station and UPN affiliate in Orlando, Florida, for $60 million and possible further considerations. This acquisition was subject to approval by the Federal Communications Commission and other conditions.

Herbert Siegel's son William became president of BHC Communications in 1996, and Herbert's son John became chairman of United Television. Herbert Siegel remained chairman and chief executive officer of BHC, however. He showed no inclination to spend the company's hoard of cash and marketable securities, whose value totaled $1.4 billion at the end of March 1998, on new acquisitions. In a 1997 telephone interview, he conceded, "In hindsight, cash has not been king. Stocks have been king.... Obviously, we should have bought the Vanguard 500" with the proceeds from the 1989 sale of BHC's Warner Communications stock to Time Warner. Still, he concluded, "you can't look back at the deals you didn't do." Siegel had little need to second-guess his performance as chief of BHC Communications. At the end of February 1998 Chris-Craft Industries owned 79 percent of the company's Class A stock and all of the Class B stock, representing 97 percent of the voting power.