PLAYING FOR TIME : RECIPE FOR RECOVERY MAY COME TOO LATE FOR DISCOVERY ZONE.

Byline: James McNair Knight Ridder Tribune News Wire

Somewhere in the heaving labyrinth of brightly colored tubes, slides and ball pits, a corporation is trying to crawl to its feet.

Just two years ago, Discovery Zone was king of the hill in the booming market for children's pay-to-play centers. The 1994 buyout of its biggest competitor, Leaps and Bounds, from McDonald's gave the company 347 stores from coast to coast. And the linkage to its then-new parent, New York-based Viacom, promised a treasure chest of synergies between Discovery Zone's FunCenters and Viacom's Nickelodeon, MTV and Paramount Studios.

So much for promise. Discovery Zone plopped into the safety net of bankruptcy court in March and has been trying to re-create its old magic ever since.

Meanwhile, the Fort Lauderdale company has closed 87 stores and laid off 386 employees, a fourth of its work force. Its stock, once valued at $34.25 during the D-Zone hysteria of 1993, is now worth pennies.

``They opened up to great crowds, but the concept didn't make money,'' said Stephen Bittel, president of Terranova, a Miami firm that manages shopping centers.

Even with the closing of its most unprofitable stores behind it, Discovery Zone has some bitter medicine to swallow.

According to a recent filing with the Securities and Exchange Commission, Birch Holdings - a New York investment firm formed by ex-Paramount boss Martin Davis and Balfour Investors - stands to take control of Discovery Zone if its reorganization plan is approved by the bankruptcy judge. Birch took the driver's seat by virtue of having snapped up the bulk of Discovery Zone's debt at a deep discount.

Birch is mum about its plans to revive the company - if at all - but the strategy is certain to depart from the status quo. And this much is certain: Discovery Zone's publicly traded stock will be worthless.

Since June, after the bulk of the store closings, Discovery Zone has bled an average of $5 million a month in operating losses. Same-store sales are down from year to year, and the company can't afford the advertising needed to generate traffic and offset customer defections.

Sherri Fyffe, who owns a Discovery Zone franchise in Dayton, Ohio, said the company's restructuring comes as no surprise.

``It was long overdue. We expected it to happen two years ago,'' she said. ``They had too many stores close together and they didn't have the right people in the right places.''

Discovery Zone was once held in such high regard that H. Wayne Huizenga, who normally has a Midas touch, made it a 49 percent-owned subsidiary of Blockbuster Entertainment.

It was under Blockbuster's stewardship when Discovery Zone went on the expansion rampage. But play centers turned out to be no replicas of video stores, and the company finished 1994 nearly $25 million in the red. The loss mushroomed to $455 million in 1995, mostly from restructuring costs. Blockbuster's new parent, Viacom, finally pulled the plug on the company last December in a $50 million write-off.

Only during the company's steep descent did it become clear why the FunCenters flopped.

Parents twiddled their fingers while their children slithered through giant tubes. The menu was as exciting as polyvinyl chloride. Before long, clones were popping up, undercutting Discovery Zone's $5.99 admission fee. FunCenters and clones alike were at the mercy of school bells.

``I think there can be a business for safe, indoor play-for-pay,'' said Craig Bibb, a PaineWebber analyst who used to track Discovery Zone's stock, ``but part of the equation they didn't address was how to keep the parents from being bored silly and how to drive traffic Monday through Friday.''

Under Donna Moore, a former Disney executive who came on board as chief executive in June 1995, Discovery Zone has turned itself into a laboratory for new twists on the old theme.

To draw older kids, Moore is dabbling with evening dance clubs and $8.99-a-night ``NiteZones'' with light shows and music videos. She's also testing a FunSitters program of watching children 4 and up for $12 an hour.

While those programs are pondered for national rollouts in 1997, Discovery Zone is improving the basics, like adding peanut butter and jelly waffle sandwiches to the menu and installing security gates for cautious parents. The company said its summerlong DZ Games - noncompetitive games to see who could scream the loudest or throw a foam brain the farthest, among other events - were a hit.

``We're going to continue to do what we've done all along, except to do more of it and better,'' said Steve Duesbury, Discovery Zone's marketing director.

The children's play market, however, has changed since Discovery Zone's heyday. McDonald's continues to roll out its PlayPlaces, which are now in about half of the chain's 12,000 U.S. restaurants. Burger King's playgrounds are likewise multiplying. Neither charge a cent for admission, and the food, well, suffice to say that they are the world's top two fast-food chains.

Fyffe, the Discovery Zone franchisee in Dayton, said her store still shows a profit. She said it is far superior to any copycats.

``If I were a consumer, I'd rather take my child to a play center where I know the balls are clean,'' Fyffe said. ``We sterilize our balls.''

That's dandy, but now Fyffe and Discovery Zone had better brace for the biggest threat of all to their play domain: Disney.

Come February, Walt Disney Co. expects to open the first of a chain of family play places called Club Disney. Designed for infants to 10-year-olds, Club Disney will offer not only equipment for physical play, but art workshops, educational programs, computers, party rooms, Disney theme rooms and a retail store.

Disney will announce prices before opening the first store in Thousand Oaks. That gives Discovery Zone precious little time to rethink its plan for the future.

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Photo

Photo: Annie Henry plays as mother Marilyn Henry watches at a Discovery Zone FunCenter in Glenview, Ill. Once a robust firm, Discovery Zone is trying to recover from bankruptcy.

Knight-Ridder Tribune Photo Service