Paramount merger sets up new round of competition.

With paramount Communications Inc. apparently merging with Viacom Inc., many in Hollywood said they are convinced Paramount Pictures Corp. will rebound and once again challenge Warner Bros. and Walt Disney Co. for box-office supremacy.

If the announced $8.2-billion merger is completed, entertainment industry executives and analyst said, Paramount would be on equal footing with Warner Bros., which is part of media colossus Time Warner Inc.

Burbank-based Disney would then be the lone Hollywood major studio not purchased by a larger conglomerate.

Universal Pictures, Twentieth Century Fox Film Corp., Columbia Pictures, and TriStar Pictures have all been consumed by larger companies since 1985.

New York-based Viacom is probably best known for its succesful cable networks: MTV Showtime, The Movie Channel and Nickelodeon. Paramount is also based in New York and has interest in publishing (Simon & Schuster), theme parks and ownership of Madison Square Garden. In addition to movies, Paramount has a successful television production unit that has scored recently with its Star Trek spin-off, "Deep Space Nine," and syndicated shows "The Untouchables" and "The Arsenio Hall Show."

The merged company would be called Paramount Viacom International Inc.

Some doubt about the Paramount-Viacom deal bheing consummated was raised last week by media reports that other suitors could make a competing offer.

Viacom's &69.14-a-share offer to buy out Paramount shareholders has been considered low by many. Summer Redstone, Viacom's chairman, would end up with 69 perrcent of the voting stock, and Paramount Chairman Martin Davis would report to Redstone. However, other suitors -- most notoably, cable giant Tele-Communications Inc. and former Paramount and Fox chief Barry Diller, who is now chairma of QVC Network Inc. - may be lurking.

Media reports late week indicated that Diller has hired Allen & Co. to study a competitive bid. Allen was involved in the Matsushita Electrical Industrial Co. buyout of MCA Inc.

Redstone has dimissed the possibility of a competitive bid and has boasted he will now forge the "single most powerful entertainment communications company in the world." He also has said he will leave Paramount Pictures' management team in place.

Analysts suggestes that Paramount is not at full speed now because its movie and publishing divisions have had spotty profit margins recently. The film division's output has been considerably below that of its rivals, some of which have been pumping out more than twice the number films. Paramount announced it will try to market 24 films next year, while Disney and Warner plan to flood the market with more than 40 each.

Alan Gould, entertainment industry analyst at investment firm Kidder, Peabody & Co., said, Paramount's return on equity of 7 percent is clearly too low and a function of an over-capitalized business that is not running on all gears. Give Sherry Lansing (Paramount Pictures' chairman) another year and the studio could be right up there with Disney and Warner. They have a good schedule coming up, and there is no reason for them to be languishing."

Gould said there is a 50-50 chance that another party will enter the fray and bid for Paramount over the next 45 days, especially if the value of Viacom's stock drops. Gould and other analysts said they expect Paramount to fetch closer to $80 a share.

Savvy Los Angeles investors though so, too. John davis, president of Davis Entertainment Co., and his partner/father Marvin Davis, have made a number of deals, including the buying and selling of Twentieth Century Fox. John Davis said, "It looks like they left $5 or $6 (a share) on the table, but this is a good deal for Paramount and a good combination overall that will increase software output."

"Paramount can now make movies for Showtime," Davis continued. "And, if they need to, they can make movies that will be promoted on MTV. If you believe in the next five years that the digital highway is coming, here will be new demands for product. Right now, we don't know what all the uses of software are. So it's hard to assess all the dimensions and value of this combination."

Davis was co-producer of "The Firm," Paramount's only hit film this summer. "The Firm" accounted for $151.6 million of Paramount's summer box-office total of $250 million. That total gave Paramount an 11.7 percent share of the summer's record box office and put the studio in fourth place -behind Warner, Universal and Disney.

The studio also had a spring hit with "Indecent Proposal," which grossed over $100 million. But Paramount has had many more big-budget misses than hits. This summer's misses included "Silver" and "Coneheads."

Many industry sources said Paramount has lost the momentum it had during the 1980s, when Barry Diller, Michael Eisner and Jeffrey Katzenberg were in charge, churning out such blockbusters as "Beverly Hills Cop," "Top Gun," "48 Hours" and additions to the "Indiana Jones" and "Star Trek" series. Some of the most successful producers of that era - Joel Silver, Larry Gordon and the team of Don Simpson and Jerry Bruckheimer - are no longer making movies for Paramount, which is now run by Lansing, who succeed Brandon Tartikoff in 1992 after his brief tenure.

Many Hollywood sources said they assume Lansing and Stanley Jaffe, who is president of the parent company, Paramount Communications, will hold their jobs and will not be suplanted by Redstone's executives.

Martin Davis, 66, Paramount Communication's chariman, has been named CEO of the combined company but will report to Redstone, 70. Many were surprised to see Davis accept his pending subordinate status, and there is uncertainty about who will emerge as the future boss when Redstone and Davis retire. The roles of Viacom CEO Frank Biondi Jr. and Paramount President Jaffe had not been defined as of late last week.

Lansing has gotten generally high marks from Holly sources. Jeff Berg, chairman of talent agency International Creative Management, said, "Sheey has the total support in the community and, with this acquisition, Paramount Pictures, will get the added-on asset of cable syndication. It gives both Paramount and Viacom the missing piece."

Paramount's fall and holiday film release schedule appears strong, according to theater owners and executives. The studio plans to release the sequels "Addams Family Values" on Nov. 19 and "Wayne's World 2" on Dec. 10.

"Bopha," a film about South Africa starring Danny Glover and Alfre Woodard, is set to debut Sept. 24. "intersection," starring Richard Gere caught in a love triangle between Sharon Stone and Lolita Davidovich, is to be released around Christmas, as is a Johnnny Depp Film,"What's Eating Gilbert Grape." Dennis Quaid and Meg Ryan in "Flesh and Bone" is scheduled to come out Nov. 5.