TV's new landscape.

Presence in L.A. Grows, But New York Still King

Faster than a New York minute, reporters from most major TV outlets, wire services and newspapers congregated at the St. Regis Hotel near Madison Avenue last week to hear two of the country's most powerful businessmen talk about the biggest media deal in history.

The excitement was palpable on Wall Street, where Viacom Inc.'s agreement to buy CBS Corp. in a $37 billion stock swap led to frantic trading and a healthy price gain for the stocks of both companies. On Madison Avenue, ad buyers were abuzz over the implications of the deal for both CBS and Viacom's half-owned network, UPN.

So what were L.A.'s media, advertising and financial communities doing while all this was going on?

Watching the whole thing on CNN.

The scene spoke volumes about the bifurcated nature of the TV business - and L.A.'s secondary role in it. The Viacom/CBS deal, negotiated weeks ago by CBS chief Mel Karmazin and Viacom head Sumner Redstone during a lunch meeting at Viacom's New York headquarters, was a Big Apple affair from beginning to end.

There are some signs that New York's stranglehold over the network TV business is beginning to loosen. In Burbank, a cage of steel I-beams rising near the Walt Disney Co. animation building is a symbol of these changes; when it's completed in September 2000, the 10-story tower will house ABC's local divisions and network-owned station KABC-TV Channel 7. It also will be home base for 100 of ABC's top executives, who are transferring from New York along with 100 members of their support staff.

Meanwhile, the homegrown Fox network has emerged as a powerhouse, and is the only one of the four major networks to house a large portion of its sports division in Los Angeles. And Viacom's purchase of CBS likely means more cooperation between the network and Viacom's Hollywood-based Paramount Television division.

But let's face it: When it comes to network TV, L.A. is still a distant also-ran to New York. And despite a new financial reality in the industry that is forcing the networks to team up with major Hollywood studios, New York's hold on network TV isn't likely to change anytime soon.

The result is a highly unusual, even bizarre, operating structure. Plenty of industries are spread among various cities; while Silicon Valley is the undisputed center of the high-tech industry, there are high-tech clusters as far-flung as L.A., Austin, Texas and Boston. But in how many industries do individual companies evenly split their operations and thousands of employees between two cities that are 3,000 miles apart?

It's an unwieldy system, and one that involves a good deal of added costs. There are duplications of staff that go with maintaining separate operations on separate coasts: high real estate costs, especially in New York; and the costs of travel for top executives, who are continually jetting back and forth between cities - travel time that could be more productively spent running the networks.

Why do they operate this way? There are a number of reasons, but the two most powerful have to do with money and history.

Eastern money

There is a widespread belief in the network TV business that you simply cannot make large advertising deals anywhere but New York. It is where the bulk of the nation's key ad agencies are based, as well as a financial center where many of the country's most important banks and Fortune 500 companies - very big advertisers - are headquartered.

Even in this age of videoconferencing, the Internet and other forms of rapid electronic communication, media buyers and network executives agree that for really big deals, the buyer and seller absolutely must be face to face.

And the most likely place in the country for that to happen is New York.

"It's still a people business in terms of negotiating the deals," said Bill Croasdale, a top buyer of network television time with Western Initiative Media. "When you close deals for tens of millions of dollars for a car company or a packaged-goods company, you sit across the table from the person."

Even though Croasdale is based in Los Angeles, he flies to New York to negotiate his biggest ad buys. He estimates that between 90 and 92 cents of every dollar spent on network, cable, broadcast and syndicated television are generated though deals signed in New York.

All four major networks and the two "weblets" (UPN and the WB) have their ad-sales divisions based in New York. In fact, the weblets have no other New York operations besides ad sales, since they don't have network news divisions and all their programming operations are in the L.A. area.

"New York is where the money is," said Brad Turell, spokesman for the WB. "Sales is still a one-on-one relationship business. You need to talk to people, see people. You have to be in the same town as people who are buying ads if you're selling ads, period."

History

If money is the prime reason for the Eastern presence of network TV, a secondary reason is history.

The Big Three all started as radio networks in New York. Over the course of the past 40 years, they have expanded exponentially, adding workers, property and equipment along the line. Because most of those assets are in New York, moving them would be extremely expensive - not to mention politically incorrect.

"They don't want to live in Los Angeles; they all live in New York," said one top local network executive, referring to his peers.

ABC provides a textbook example of the difficulty of relocating network operations from one coast to the other.

Even after moving its 200 executives to L.A., the network will maintain by far the bulk of its employees - about 4,500 - in New York. By comparison it will have fewer than 1,000 located in L.A. once the relocation is complete in the fall of 2000. That's pretty close to the N.Y.-L.A. ratio at NBC and CBS, as well. Only the Fox network among the four majors has the majority of its employees in L.A.

ABC only recently settled a bitter two-and-a-half-year contract dispute with the labor union that represents broadcast engineers, producers and technicians. Network observers note that it would be all but impossible politically as well as contractually - for Disney, which bought Capital Cities/ABC in 1996, to order ABC's 4,500 New York employees to either pack their bags and move to Los Angeles or lose their jobs.

The 200 ABC employees who are moving West are being given generous incentive packages to ease the pain of leaving the Big Apple.

The somewhat tense political environment helps explain why ABC officials continue to insist that the network is still officially headquartered in New York, even though virtually all its top executives - including ABC Group Chairman Robert Iger, ABC Entertainment Television Group Chairman Lloyd Braun, network President Patricia Fili-Krushel and the heads of the daytime, children's, financial support and promotional departments - are now or will soon be in Los Angeles.

Disney Chairman and CEO Michael Eisner is keeping a closer eye on ABC because the network continues to lose money, creating a major drag on Disney's earnings. Eisner has reportedly long wanted to have ABC's top brass close at hand.

"The reason (we are moving department heads) is because the decision-making base of our company has changed," said ABC spokeswoman Patricia J. Matson. "You want your executives to be where the overall decisions are being made."

Personnel issues aside, the Big Three networks are unlikely to move the bulk of their operations or their official headquarters to Los Angeles because they have invested so much money in New York properties.

"The reason why they are still HQ'd in New York is part historical and part infrastructure," said an executive with NBC News. "They have a lot of property, rental commitments and technical operations in place there, and it wouldn't be easy to dash out very quickly."

For ABC, NBC and CBS, moving the bulk of their operations to L.A. would be an enormously expensive undertaking. Although the networks would ultimately save money in travel, real estate and other costs, those savings probably wouldn't offset the expense of such a move for a long, long time.

"There has to be a huge differential in costs for moving to make sense, and I just don't think the differential is there," said veteran media analyst Harold Vogel. "It doesn't add up."

Finally, there's the reality of news and sports programming. New York is the undisputed capital of the news business, benefiting from its greater proximity to Europe, its universities for training media personnel, and its infrastructure of technological equipment.

Even the Fox network, which was born in Los Angeles, splits its news and sports divisions between L.A. and New York.

Greater efficiencies

For all the reasons that keep the Big Three based in New York, wouldn't it be more efficient for them to shift their headquarters to L.A., where the bulk of programming decisions are being made and the shows are being produced? There's widespread agreement that it would be.

"Networks can operate very well from Los Angeles, and probably more efficiently, because this is where 90 percent of the work gets done on the entertainment side," said the WB's Turell, who believes his network is more efficiently run than the Big Three because everything but ad sales is concentrated in L.A.

Sherrie Mazingo, a former professor of TV economics at USC who is now based at the University of Minnesota, agreed that the networks would likely be more profitable in a lower-cost city than New York.

"It is really by accident that the networks started in New York, but there is no reason to be in New York unless you are tied to the banking industry or Wall Street," Mazingo said.

Disney recently shook up the TV business by merging its production arm with ABC, and the economics of modern television make it likely that others will follow suit. Pressed by competition from cable and the Internet, the networks have learned that they must own their own programming in order to turn a profit. That's one of the reasons that led Viacom to buy CBS, and analysts say the merged media giant will probably look to get more Paramount programming on its newly acquired network.

With the bulk of TV production done in Los Angeles, now would seem like the ideal time to move network operations closer to the production divisions.

But don't hold your breath.

"I don't think it's ever going to happen," said media analyst Vogel. "I think it will always be split between the two coasts."

Staff Reporter Frank Swertlow contributed to this report.