Is ‘Cheers’ Worth $120 Million? : Television: Paramount thinks so. But to renew the show, cost-conscious NBC would give up all the ad revenue generated by its top-rated hit.

Paramount Pictures Corp., which recently launched a highly publicized campaign to control the spiraling costs of making movies and television shows, is demanding $120 million from NBC to renew the hit comedy “Cheers” for a 10th season.

The price Paramount has put on renewing “Cheers” is almost four times the fee that NBC currently pays and would make it the most costly TV series in the history of television. The amount also would equal NBC’s total advertising revenue from the show.

NBC’s option period to renew “Cheers” expired Feb. 1, network sources said, and NBC and Paramount officials met over the weekend without coming to an agreement.

Sources said Paramount has approached ABC and CBS about its offer, which could include other future shows in a package worth “well above” $120 million. But so far, both networks have held back, saying such costs could not be supported in the current soft advertising market.

NBC, the dominant network in prime time for the past five years, is facing a perilous juncture. The network began the season as the hands-down prime-time winner but is now only 0.2 rating points ahead of ABC and 0.5 rating points ahead of CBS.

“ ‘Cheers’ has been an important show for NBC for nine years now,” said Betsy Frank, senior vice president at New York advertising agency Saatchi & Saatchi. “But the position the network is in this year makes it even more important.”

She believes, however, that NBC really has no choice but to renew the show. “This is a business of perceptions, and the perception that NBC would lose its highest-rated show is something I think the network would want to avoid at all costs.”

Robert Broder, an agent who represents the show’s executive producers, brothers Glen and Les Charles and Charles Burrows, said the value of “Cheers” to NBC has increased substantially this year since it has supplanted “The Cosby Show” as the top-rated show in television.

“There’s no question that the network that broadcasts ‘Cheers’ would be the No. 1 network next year,” he said.

While NBC has slid in the prime-time ratings, five of its highest-rated shows are up for renewal. Series such as “Cheers,” “The Cosby Show,” “A Different World,” “Golden Girls” and “Matlock” all have contracts that expire at the end of this season.

Both Paramount and NBC declined to comment. But one senior NBC executive, who requested anonymity, was adamant that the network would not meet Paramount’s renewal terms. The executive said NBC would not allow “Cheers” to become a “loss leader” for the network similar to what happened with “The Cosby Show” this year.

Carsey-Warner Co. last year tried to extract a $100-million “signing bonus” from NBC to renew a fifth season of “The Cosby Show.” The producers were unsuccessful in their efforts but did manage to get the network to pay $2 million for each episode, bringing the total value of the renewal to a record $48 million.

NBC currently pays Paramount a license fee of $1.25 million for each episode of “Cheers.” This year’s order of 25 half-hour episodes cost the network about $31 million. Network sources said Paramount is seeking to increase the license fee 284% to $4.8 million per episode.

According to knowledgeable sources, Paramount has based its asking price--on the advertising revenue that NBC earns from the “Cheers” Thursday night time period. The studio also reportedly has told NBC that it will not be financially worthwhile to continue producing “Cheers” if NBC does not agree to the new terms.

Paramount has estimated that NBC earns an average of $330,000 for each 30-second commercial in “Cheers,” or a total of $2.6 million per episode. Annually, “Cheers” brings NBC about $115 million in advertising revenues. Based on Paramount’s calculation, “Cheers” would account for about 40% of NBC’s estimated 1991 network profits of $200 million.

“Cheers” costs Paramount $2.2 million per episode to make, so that it loses about $1 million for every episode it licenses to NBC. The show costs so much to make principally because of the hefty salaries for its large cast. Star Ted Danson, for example, makes $450,000 per episode.

According to an executive familiar with the negotiations, Paramount has absorbed deficits on “Cheers” for nearly a decade and currently loses more than $25 million annually in production costs. The studio’s position is that it cannot afford to continue producing “Cheers” in the red, especially for a show that is so valuable for NBC.

The studio’s go-for-broke strategy reasons that the 247 episodes already in reruns are sufficient; an additional 25 would not meaningfully increase syndication revenues, an executive said.

Paramount began selling reruns of “Cheers” in 1984 after the series had been on the network for two years. So far, “Cheers” has generated more than $315 million in rerun sales, making it one of the most profitable TV shows in history.

The studio’s justification for asking for such a steep renewal fee is based on the reasoning that hit shows earn immense profits for networks and the producer should eventually share in those revenues. By Paramount’s estimate, “Cheers” has earned NBC more than $500 million in advertising revenues since it went on the air in 1982.

A studio executive said Paramount knows that hardball demands can lead the network to strike back at the studio one day. Paramount has two other shows on NBC, “Wings” and “Dear John,” and an upcoming series produced by Ted Danson. And Paramount does not want to lose NBC as a buyer of TV programs.

One possible outcome of the negotiations is that Paramount will agree to supply NBC additional new shows as part of any renewal for “Cheers.”

DECLINING VIEWERSHIP FOR NBC’S TOP SHOWS Although NBC’s prime-time ratings have eroded 27% since 1985, “Cheers” remains comparatively stable and has declined at a much slower rate than the network’s other top-rated comedies. “Cheers” ratings have dropped a marginal 10% since 1985, compared to 49% for “The Cosby Show,” 22% for “Golden Girls” and 30% for “A Different World” since it began in 1987. All four shows are up for renewal.

Ratings are for the prime-time season that runs from September to April. Ratings for the current 1990-91 season are through Feb. 3.