Blockbuster gets toe in movie/TV production by buying into Spelling.

Blockbuster Entertainment Group Inc.'s deal to acquire 48 percent of Spelling Entertainment Group Inc.'s stock hasn't closed yet, but the video-retailing giant and the television producer of shows such as "Beverly Hills 90210" have started working on synergistic projects, according to executives at both companies.

Duke Vincent, vice chairman of Spelling Television Inc., said executives met on Friday March 12 and four days later a project was initiated. Vincent wouldn't disclose the activity because of competitive situations but said, "A project is under way already; that is how quickly we have moved.

"These guys (Blockbuster executives) are barnburners," he said, "and recognize the synergies between a major video outfit and a software programmer are limitless. Our only constraints are the clock."

The swap between American Financial Corp., controlled by the Lindner family in Cincinnati who owned the 48 percent share, and Fort Lauderdale, Fla.-based Blockbuster was valued at $141.3 million and was announced March 8.

Analysts and entertainment industry executives say Blockbuster made a savvy financial and marketing move. Blockbuster will pay a good price for Spelling without having to dip into cash reserves and it will gain a foothold in the production and distribution ends of filmed entertainment.

Spelling has a deep library with more than 12,000 hours of TV and movies. The library's shelves are stocked with internationally popular television series such as "Love Boat," "Dallas" and "Charlie's Angels" and such recent hit films as "Terminator 2," "Total Recall" and "Basic Instinct."

Spelling's library has brought in an average of $60 million annually over the last three years and is the firm's principal cash flow source. Television programming revenue was $193.4 million for the nine months ended last Sept. 30.

The deal -- and access to Spelling's software -- brings Blockbuster closer to its announced goal of having its own cable television channel. Analysts say Blockbuster is becoming an important entertainment force without the huge expense of acquiring a Hollywood studio and running it.

For Spelling, analysts say the deal will allow the company's television and feature film arms to torque up production schedules while also having an opportunity to promote its shows in more than 2,000 Blockbuster stores. Blockbuster executives are already talking about playing Spelling's trailers on its in-store monitors and featuring them in its magazine, which has a 1.4 million monthly circulation. When Aaron Spelling attempts to sell his pilots to the networks, he can test them in the video outlets.

Some Wall Street entertainment analysts and Hollywood executives predict Blockbuster will soon buy controlling interests in both Spelling and Republic Pictures Corp. and combine the two firms. Blockbuster bought a 35 percent stake in Republic in January for $25 million, primarily to gain access to Republic's strong library.

Ron Castell, Blockbuster's senior vice president for programming, would not comment on the possibility of a Spelling-Republic combination but was bullish on leveraging both companies libraries and productions. "When Spelling got on the bird (satellite) in Latin America, that got our juices flowing," he said. "Aaron's stuff has great appeal in Latin America and Republic's library has plenty of westerns and classics that will play well down there."

Spelling has initiated Spelling Satellite Networks Inc. and is developing and launching cable networks worldwide with partners in various regions. On March 1 its first programming went on the air and is available to 500,000 Mexican viewers. The system will spread to the rest of Latin America in the next six months and the company is eyeing Europe and Asia, according to Ron Lightstone, chief operating officer, at Spelling Entertainment.

Castell wouldn't discuss details of Blockbuster's plan to start its own cable channel but analysts expect it soon.

"Blockbuster is determined to create a cable channel and you must have programming," Alan Gould of Kidder, Peabody & Co. "Spelling has a decent television library, not a great one. If you put Spelling's television shows with Republic's old movies and fold that in with Florida Marlin baseball games (Blockbuster CEO Wayne Huizenga owns new baseball and hockey franchises), you have created something like TBS (Turner Broadcasting). Creating a cable channel is intelligent and shows they are diversifying their assets. This should quiet the shorts."

Short selling -- or trading in anticipation of a declining share price -- of Blockbuster stock has been occurring because many Wall Streeters believe video stores are potential dinosaurs with the coming video-on-demand revolution that will allow film buffs to digitally select desired movies. The possibility of cable television programmers to offer 500 channels also doesn't bode well for the corner video store, analysts believe.

Castell rejects this thinking and said Blockbuster plans to open 300 more stores. He said, "The cable industry has a history of broken promises, but we are not ostriches. We know the world is changing and you don't stop technology. ... I remember 12 years ago when guys were saying there would be no more movie theaters because of video stores. Over that period the number of movie screens grew from 18,000 to 22,000."

Blockbuster's involvement in Spelling comes amid the production firm's network programming comeback, with "Melrose Place" and "Beverly Hills 90210" both scoring well on the Fox network. For a while, the company had no first-run shows on the air.

Lightstone said the company is eager to break into the daytime lineup with either game shows or a drama. Also, Laurel Entertainment, the company's New York production house, is working on an eight hour mini-series based on Stephen King's book "The Stand."

Another King project, "Thinner," will be made as a feature film by Laurel. Two other feature films, "Shadowlands" and "Shortcuts," were produced by Laurel and will be released by Savoy Pictures and New Line Cinema domestically later this year.