EYE ON THE FUTURE; VIACOM INC. TO BUY CBS IN MERGER OF MEDIA TITANS.

Byline: Dave McNary Staff Writer

Guess who's coming to dinner?

That's going to be Wall Street's newest game following Viacom Inc.'s stunning announcement of a $34 billion buyout of CBS Corp. on Tuesday. The pact should trigger a wave of deals among media conglomerates, analysts believe.

``It's going to be a question of eat or be eaten,'' said Marvin Roffman, a principal with Philadelphia-based Roffman Miller Associates, which owns more than $5 million of Viacom stock. ``What you have is a wonderful combination of software and hardware. This deal is saying that if you're going to compete, you need tremendous vertical integration.''

Viacom will be attempting to fit its powerful brands - led by MTV, Nickelodeon and Paramount - to CBS, parent of the leading U.S. television network and owner of more than 160 radio stations. The combined company would own 35 TV stations, including six markets where it would possess two stations in each.

If the deal works, CBS gains more control over content while Viacom adds much greater distribution options and both can compete more effectively against rivals. Analysts said the spark to the merger agreement, which would leave CBS shareholders with 55 percent ownership of Viacom, stemmed from the Federal Communications Commission's decision last month to lift a ban that prohibited a single person or entity from owning more than one TV station in a market.

``Viacom and CBS are the first companies to take advantage of the new FCC rule, which is a real tide change,'' said Barry Hyman, an analyst with Ehrenkrtantz King Nussbaum. ``You're going to see a whole round of linkups. Whenever the rules change, that leads to mergers and acquisition.''

Linda Bannister of Edward Jones agreed, noting that Viacom Chairman Sumner Redstone and CBS head Mel Karmazin both indicated that the merged company plans to seek acquisitions. She also emphasized that media conglomerates increasingly will be looking to take advantage of the explosive growth of the Internet.

``I think you're going to see more consolidation,'' Bannister said. ``What you're seeing is a lot of these changes driven by technological advances such as digital cable and Internet. So in this case, you have strong brands that people recognize and strong content, which is why people go on the Internet.''

That trend will lead to higher valuations being placed on entities that can deliver first-rate TV and movies to a specific audience.

``Content and creativity is increasingly going to be the driving force in the entertainment industry, which is a red flag for any company whose asset value is in a broadcast network,'' said Kevin Skisloock of Laguna Research Partners. ``Looking at the last 20 years, it's very clear that we'll continue to see that trend. Cable made it very cheap to gain access to an audience.''

Analysts also said the problems faced by The Walt Disney Co. in the wake of its 1996 buyout of Capital Cities/ABC, such as lagging ratings and difficulties in integrating operations, were clearly not a deterrent to Redstone and Karmazin striking a deal.

``People on Wall Street are willing to overlook the weakness in the Disney deal as an aberration,'' Hyman said. ``There's nothing in the CBS-Viacom deal that doesn't make sense.''

In short, then, every other major media/entertainment conglomerate is likely looking for partners. What's unknown is who's buying and who would be willing to sell.

For example, many analysts believe General Electric Co. might seek a deal to beef up NBC, now the only major network not directly linked to a studio.

``I don't think GE will sell,'' Roffman said. ``They will be the acquirer because they're interested in getting bigger. You're going to have to be like a juggernaut to compete.''

But Hyman said NBC is a prime takeover target for Time Warner Inc., which has seen its status soar in the four years since it bought Turner Broadcasting for $7 billion.

``Buying NBC may make more sense as time goes on,'' he said. ``Right now, people want TV stations and this deal changes the scope of things. So midsize operators of TV stations such as Young Broadcasting, Granite Broadcasting and Paxson Communications are probable acquisition targets.''

Bannister, on the other hand, said GE is not likely to move immediately on NBC but added, ``They are probably starting to take a hard look at their position because eventually they have to come to some kind of agreement in order to ensure that they get good programming.''

Hyman said other players in upcoming deals might include media mogul Barry Diller, who lost out to Redstone in 1994 in an attempt to buy Paramount, through his USA Networks; Seagram Co., which is a part-owner of the USA Network and now the world's largest music company thanks to its buyout of PolyGram; and Disney, which could decide to sell ABC.

MEGA-MARRIAGE

When finalized, Viacom Inc.'s $34 billion deal to buy CBS Corp. will create one of the world's largest entertainment and media companies, rivaling Time Warner Inc. and The Walt Disney Co. Here are the major components:

Cable

MTV, Nickelodeon, Nick at Nite, VH1, TNN, CMT, MTV2, TV Land, Home Team Sports and Midwest Sports Channel; pay channels Showtime, The Movie Channel and FLIX; interests in Comedy Central, Noggin and Sundance Channel. Includes Nickelodeon Animation studio in Burbank.

Radio

More than 160 stations in 33 markets. Local stations include KNX-AM (1070), KFWB-AM (980), KCBS-FM (93.1), KTWV-FM (94.7), KLSX-FM (97.1), KRLA-AM (1110), KROQ-FM (106.7), and KRTH-FM (101.1).

Television

The largest television group in the nation, including the CBS Television Network with more than 200 stations and 15 company-owned stations including KCBS (Channel 2) in Hollywood; 50 percent ownership of UPN network, including KCOP (Channel 13) in Los Angeles. Programming arms include Studio City-based CBS Entertainment, CBS Sports, CBS News, Paramount Television, Eyemark Entertainment, Viacom Productions, Spelling Television. CBS has agreed to buy King World Productions Inc. Viacom owns 19 TV stations.

Film

Paramount Pictures, the last remaining major studio in Hollywood. Library includes more than 2,500 titles, including ``Forrest Gump'' and ``Titanic.''

Publishing

Simon & Schuster, which publishes more than 2,100 titles annually and placed 64 titles on The New York Times Best Sellers list last year.

Retail

Blockbuster Video, with more than 6,000 stores in 27 countries. Will be spun off within six months.

Theme parks

Six Paramount parks with more than 13 million visitors annually.

Theaters

650 screens at 109 Famous Players theaters in Canada.

Internet

Sites include cbs.sportsline.com, cbs.marketwatch.com, mtv.com, SonicNet.com, vh1.com and Nick.com.

MERGING LOCAL ASSETS

Here are some of the local operations that would be owned by a combined Viacom-CBS:

Cable networks:

West Coast headquarters for MTV Networks is in Santa Monica, with 560 employees.

Nickelodeon Animation studios is in Burbank with 300 employees.

Nick on Sunset production facility in Hollywood.

16 Nickelodeon shows are currently in production in the L.A. area.

Radio stations:

KNX-AM (1070), KFWB-AM (980), KCBS-FM (93.1), KTWV-FM (94.7), KRLA-AM (1110), KROQ-FM (106.7) and KRTH-FM (101.1).

Television:

CBS Television and CBS Entertainment are headquartered at Television City in Hollywood with 2,500 employees.

KCBS (Channel 2) at Columbia Square on Sunset Boulevard with 40 newsroom employees and KCOP (Channel 13) in Los Angeles.

50 percent ownership of Los Angeles-based United Paramount Network.

Local programming arms include CBS Entertainment (``Everybody Loves Raymond,'' ``Touched By an Angel,'' ``The Young and the Restless''), Paramount Television (``Frasier,'' ``Charmed,'' ``Star Trek'') and Spelling Entertainment.

Film:

Paramount Pictures, with more than 32 soundstages.

Retail:

Several hundred Blockbuster Video stores.

CAPTION(S):

5 Photos, 2 Boxes

Photo: (1--Color) Viacom Inc. Chairman Sumner Redstone, left, and Mel Karmazin, head of CBS, share a laugh at their news conference.

James Estrin/New York Times

(2--Color) no caption (Tv show)

(3--Color) no caption (``Titanic'')

(4--Color) no caption (Web site)

(5--Color) no caption (Blockbuster)

Box: (1) MEGA-MARRIAGE (See text)

(2) MERGING LOCAL ASSETS (See text)