THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Wednesday, February 12, 1997 TAG: 9702120441
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
DATELINE: VIRGINIA BEACH LENGTH: 158 lines
Over the past year, the titans of the entertainment industry have circled the channel that the Robertsons - Pat and Timothy - built.
CBS, NBC, Sony, Viacom, MCA - and, most recently, Fox. All have been pronounced at various times ready to swoop down and haul off The Family Channel and its sister companies, whose operations stretch from the Lynnhaven area across the globe.
The reported price tag of the most recently rumored deal - $1 billion - has turned more than a few local heads. But securities analysts say at that price, International Family Entertainment Inc. would be a steal - that IFE's true value may be $1.2 billion to $1.4 billion.
At the upper end of that range, IFE would fetch more than 2 1/2 times the current stock market valuation of another cross-region company, Newport News Shipbuilding Inc. The shipyard has 20 times more employees and six times the annual revenues of IFE, not to mention the strategic importance of being the only U.S. company capable of building aircraft carriers.
That IFE - a relatively small player in the nation's multichannel cable-TV galaxy - could be worth so much illustrates America's startling shift toward an economy built increasingly on entertainment and information.
Consider this: The Walt Disney Co., parent of Mickey Mouse and ABC, has a stock-market value of $51 billion - $8 billion greater than auto giant General Motors Corp.
But IFE's value has grown because of other factors, too.
It stands out as one of the few remaining profitable independent players in its field.
Its Family Channel has scored viewership and ad-sales gains serving a G-rated audience that is increasingly coveted by Hollywood.
It has other interests - a library of MTM Entertainment programs ranging from ``Hill Street Blues'' to ``The Mary Tyler Moore Show,'' a controlling interest in the Ice Capades, a profitable investment in a British programming company - whose value could be unlocked further by a buyer.
Whether IFE will be sold is still very much in question. The company, which has 300 local employees, continues to decline comment on reports last week that it is negotiating to sell 40 percent stakes each to Fox Broadcasting parent News Corp. and cable-programming giant Liberty Media Corp., and the remaining 20 percent to founder and chairman Pat Robertson and his son, Tim.
Meanwhile, the price of IFE's stock has retreated from last week's high of $21.62 a share. It closed Tuesday at $19.37 1/2, up 12 1/2 cents in trading on the New York Stock Exchange.
Some industry insiders think IFE is likely to strike a strategic alliance with a larger entertainment company - something that would fall short of an actual sale.
But doing nothing seems unlikely, says Ann Miletti, an analyst with the Strong Common Stock Fund in Milwaukee, whose 700,000 IFE shares account for a roughly 1.5 percent stake in the company.
``I think it's going to be harder for them to continue on as an independent,'' Miletti said. ``It's just becoming a more difficult environment.''
Miletti said that as other programmers have been swallowed, the appetite of giants such as NBC or Fox to gobble up IFE has grown. If anything, the overtures will increase and become harder to resist, she predicted.
IFE's jewel is The Family Channel, which Pat Robertson started in the early 1980s as part of Virginia Beach-based Christian Broadcasting Network, the worldwide ministry he founded.
The channel was for many years best known for re-running old westerns. But under the leadership of Tim Robertson, IFE's president, the network gradually gained audiences and industry credibility as it broadened and upgraded its programming.
Its profitability grew, too - so much so that it threatened CBN's nonprofit status. So in 1990, CBN sold the channel in a $250 million leveraged buyout to a group led by the Robertsons and Tele-Communications Inc., the nation's largest cable-TV operator. IFE was the company the Robertsons and TCI formed as the buyout vehicle.
TCI's interest in IFE was later transferred to Liberty Media, its sister company. Liberty is now the company's largest shareholder, with IFE securities that translate to a roughly 20 percent stake. The Robertsons together invested $150,000 and ended up with stakes that combined are now worth about $120 million. About half of that is in a charitable trust controlled by Pat Robertson.
Meanwhile, CBN and the Pat Robertson-led Regent University still own IFE stakes that are worth about $75 million and $80 million, respectively.
Under the Robertsons, IFE launched a 1992 public stock offering and embarked on numerous other ventures with varying degrees of success. They include the purchases of MTM Entertainment, the Ice Capades, and a chain of live-music theaters, and the startup of a health and exercise channel called FiT TV. IFE also has investments in TV programming ventures in Asia, plus Latin American and British versions of Family Channel. IFE sold its interest in the latter last March for stock in a British company called Flextech. That stake has grown in value from about $45 million to more than $65 million.
The cash cow that has bankrolled these extensions has been the U.S. version of The Family Channel.
It now reaches about 70 million U.S. homes, making it one of the nation's 10 largest cable networks. And though its audience is small - typically no more than about 3 percent of the total audience - the channel's viewership and profitability have been growing.
Last year, it scored its biggest audience and ad-sales successes under ``programming czar'' Tony Thomopoulos, a former ABC Entertainment chief. For the first time since its emergence as a mainstream network, Family Channel placed three programs - a showing of its original movie ``Stolen Memories: Secrets of the Rose Garden,'' and two showings of original movie ``Night of the Twisters'' - among the top 100 basic cable programs. Cable powerhouses ESPN and TNT grabbed 57 of the slots between them.
Family Channel's success has come even though it is saddled with carrying the CBN-produced ``The 700 Club'' in primetime. John Reidy, an analyst with Smith Barney & Co. in New York, estimated last week that IFE loses at least $75 million a year in Family Channel ad revenues because of the ministry's show.
IFE says it is bound to carry the program under terms of the buyout of the channel from CBN.
The ``700 Club'' obstacle hasn't been enough to deter attention on IFE within industry circles. As programmers ranging from ABC to Turner Broadcasting have been vacuumed into the folds of even-larger giants, IFE now stands out as one of only two independent publicly traded cable programmers. BET Holdings Inc., the Washington-based parent of Black Entertainment Television, is the other.
Until this week there were three such companies. But Gaylord Entertainment Co. agreed Monday to sell for $1.55 billion its Country Music Television and The Nashville Network to Westinghouse Electric Corp. The two channels combined have about the same revenues as IFE. It is Westinghouse's first big gambit in the cable business after acquiring broadcasting giant CBS in 1995.
George Shipp, an analyst in the Norfolk office of Scott & Stringfellow Inc., said the buyout of Gaylord's networks will exacerbate the ``perceived shortage of properties'' and can't help but increase interest in IFE.
Shipp said IFE may be able to survive on its own. But he thinks there would be advantages to at least a programming affiliation with a larger entertainment company.
For one thing, IFE competes to acquire programs against cable networks that are owned by big studios - and these studios are increasingly steering their shows to their own networks.
IFE could also benefit overseas from an alliance with a larger partner, he said. Fox's parent, the Rupert Murdoch-controlled News Corp., is a prime example. It has extensive operations worldwide.
But Mario Gabelli, whose various New York-based mutual funds together own about 15 percent of IFE's stock, said he thinks Fox is little interested in extending Family Channel's ``brand.''
``What Fox wants is eyeballs,'' he said. ``Essentially, they would take this 70 million customers (that Family Channel reaches) and migrate their programming format to it.''
Indeed, Fox officials have stated publicly that they have engaged in talks with IFE about shifting a daily block of Fox children's programming onto Family Channel.
Gabelli said he thinks some sort of deal is in the works.
So does Strong's Miletti. She pointed out that IFE officials backed out of a planned presentation this week at a conference sponsored by a Nashville brokerage firm.
``That gave everybody more of a reason to whisper,'' she said.
Ultimately, any decision rests with the Robertsons. Though they technically own a small percentage of the outstanding stock, they control IFE because a special class of shares in their hands has ``supermajority'' voting rights.
Industry executives say the Robertsons have insisted on retaining control.
Analyst Miletti said she has a hard time imagining Pat Robertson and the Australian-born Rupert Murdoch as partners - in spite of the fact that the two are outspoken conservative ideologues.
Many of Murdoch's media holdings have a racy edge, she pointed out.
``When people say he's a conservative kind of guy,'' she said, ``I say, `Look what he's got on Fox.' '' ILLUSTRATION: [Color] CHARLIE MEADS/File photo
Tim Robertson, left, and his father, Pat Robertson.