CBS, UPN WILL SHARE ROOF VIACOM TO INTEGRATE NETWORK LEADERSHIP.

Byline: Greg Hernandez Staff Writer

Viacom Inc. announced plans Monday to combine its two broadcast networks, CBS and UPN, under Viacom's CBS Television Unit.

Ratings leader CBS and the surging UPN will retain separate on-air identities and affiliate relationships. Further details of the integration are expected to be announced over the next several weeks, the media conglomerate said.

The timing of Viacom's announcement came as a surprise to some on Wall Street but analysts said such a move was not entirely unexpected.

``It's the kind of thing that I would expect to come to pass under the merged company,'' said Gordon Hodge, an analyst with Thomas Weisel Partners LLC in San Francisco. ``They are continuing to find ways to work more closely together within the Viacom organization to drive cash flow. This is a natural outcome of that.''

Meanwhile, Kerry McCluggage, the executive credited with dramatically expanding the operations of the Paramount Television Group and also launching UPN, announced Monday that he will be leaving the post he has held for a decade.

Viacom officials did not say what, if any, impact the integration had on McCluggage's status. A replacement for the executive has not yet been named and his future plans were not disclosed.

In a statement, McCluggage said he will remain as chairman of Paramount Television until the end of January to help with an orderly transition of his duties. The group is one of the industry's largest producers and distributors of programs for television networks, cable channels and first-run syndication.

McCluggage, hired at Paramount in 1991 by the late Brandon Tartikoff, presided over a tremendous expansion of Paramount Television's size and profitability by keeping the ``Star Trek'' television franchise going, launching hit shows such as ``Frasier'' and gaining full ownership of the syndicated ratings giant ``Entertainment Tonight.''

``It has been a privilege to work with an executive of Kerry's caliber,'' said Jonathan Dolgen, chairman gf Viacom Entertainment Group.

``He built the Paramount Television Group into a truly pre-eminent force in the production and distribution of quality television.''

In all, Paramount Television Group produces almost 40 hours of original programming each week that spans all six broadcast networks. McCluggage presided over the development of UPN, which Paramount assumed full ownership and control over 18 months ago.

``The creation and launch of a national broadcast network is a rare opportunity,'' he said. ``We have revitalized its schedule and firmly established its viability in the marketplace. We've had a great run.''

Led by such shows as ``Enterprise'' and ``Buffy the Vampire Slayer,'' UPN delivered its best ratings performances ever during the recent November sweeps. Viacom is expected to seize on that momentum as it integrates its operations.

``It may lead to some additional sales synergy and they can coordinate programming as well,'' Hodge said. ``It makes a lot of sense to put them under one roof. I think the idea is to get UPN to catch up ratings-wise with CBS with more joint selling and package selling.''

In addition to the two broadcast networks, the CBS Television Unit includes Viacom's 34 owned-and-operated stations across the country, CBS Entertainment, CBS News, CBS Sports and the network's distribution unit, CBS Enterprises.

Viacom President and Chief Executive Officer Mel Karmazin said the merger represents an opportunity to bring ``new efficiencies'' to broadcast television.

``There is no better time to bring UPN together with CBS, which is also enjoying one of the best years in its history,'' Karmazin said.

The operations of UPN will report to Leslie Moonves, president and chief executive officer of CBS. Moonves said both networks have ``extraordinary momentum'' and that the integration will not only enable the company to increase efficiencies, but also advertising sales.

``With two broadcast networks and Viacom's owned-and-operated television stations all under one roof, the CBS Television Group has a unique opportunity to create a new model of success in broadcast television,'' he said.

Shares for Viacom Inc. fell $4.09 on Monday, closing at $41.51 per share on the New York Stock Exchange.