With New Venture, Exec Raises Stakes in TV Game

As chief executive of the upstart WB Network, currently in its third season, Jamie Kellner has once again displayed a penchant for risk-taking and innovation that he was known for in his eight years as president of Fox Broadcasting. The difference this time is that he is putting his money where his mouth is.

Kellner, along with two partners and a deep-pocketed investment group, has formed a new venture called Acme Television, based in Costa Mesa, that is buying television stations in mid-sized markets. They are targeting underperforming stations, or starting them from scratch, and turning them into WB affiliates. If WB succeeds, the stations could zoom in value, and Kellner would go from being another rich network executive to being a very rich media mogul.

Whether Kellner can make lightning strike twice is by no means ensured. Ted Turner, vice chairman of WB’s parent Time Warner Inc., has publicly groused about the network’s losses, fueling speculation about the company’s commitment to WB.

But, at 50, Kellner’s boyish looks and preference for casual dress belie his ambitions and a track record that’s hard to dismiss.

As president of Fox, Kellner was routinely upstaged by his high-profile boss, Barry Diller, who was practically deified as a visionary for building Fox into a legitimate television network. Within the industry, though, it was known that Fox’s success also had much to do with the low-key Kellner. Diller, who is laying the groundwork for yet another new network, said his former right-hand man “is a superb broadcast strategist and tactician, and he has an infectious enthusiasm for the process.”

And, as Acme shows, Kellner is willing to break the mold. A network head owning affiliate stations is unusual even in the incestuous world of television. Most networks own station groups, but Time Warner is restricted from the business because of its vast cable holdings. Its WB partner, Tribune Broadcasting Co., which owns nearly 22% of the new network, has affiliates in a dozen major markets, including New York, Los Angeles and Chicago.

But Acme is strictly Kellner’s baby, the seeds for which were planted back in his Fox days. At Fox, he helped turn affiliate owners into tycoons, because as the network’s ratings grew, the value of the TV stations carrying its programming soared.

“From our side, operating the business, we were taking most of the risks,” Kellner said in an interview at WB’s Burbank offices.

“The network powered the stations up. We sat there doing that for other people for many years.”

So when Kellner left Fox in 1993 and began shopping around his idea for a fifth network, it was his plan all along to own TV stations.

He joined forces with Tom Allen, former Fox Broadcasting chief financial officer who now holds the same title at Acme, and veteran station operator Doug Gealy, who serves as Acme’s president. Kellner is chairman. They ponied up $600,000 of their own money, and have raised nearly $250 million in debt and equity from investors.

Among the investors is BancBoston Capital, which parlayed a $2-million investment in Fox station owner River City Broadcasting in 1989 into a $65-million profit. Another is investment banking firm Communications Equity Associates, which also invested in River City. “We feel that Jamie is going to do that trick here with the WB,” said CEA Executive Vice President Bill Lisecky.

Acme bought its first station, in Portland, Ore., in January. It has since acquired or started to build stations in St. Louis, Salt Lake City, Albuquerque, and Knoxville, Tenn., for prices ranging from $4 million to $146 million (for the flagship St. Louis station).

The Acme partners plan to own about a dozen stations within a couple of years, and eventually take the company public.

Kellner’s dual role may present a conflict of interest at times. He could find himself in a touchy situation with other station owners if it’s perceived that he’s cutting more favorable deals with Acme, for example.

“I think it’s a tough position he finds himself in,” said W. Don Cornwell, chief executive of New York-based Granite Broadcasting Corp., which owns a WB affiliate in Detroit and is buying another in San Francisco. “There’s always the possibility of conflict,” although he credits Kellner’s efforts to be evenhanded.

Kellner, who also has an 11% stake in WB, said he has removed himself from Acme’s direct negotiations with the network, and that other affiliates should take comfort in knowing he has so much riding on WB’s success.

Some observers also consider Acme a smart way to secure access for the network in an increasingly crowded market. “One of the reasons they’re doing this, on top of getting a lot of money, is UPN and WB are in a battle for affiliates,” said Mike Gajewski, an associate analyst at Paul Kagan & Associates, a Carmel media research firm.

Making a go of the WB network stands to be Kellner’s toughest test yet.

WB has made some headway in its uphill struggle for ratings. The network premiered in January 1995, within days of the debut of Paramount-backed UPN. Common wisdom suggested there was room for only one to succeed, and UPN, with its stalwart “Star Trek” franchise, pounded WB’s ratings in the first season.

Last year the gap narrowed. Expanding to four nights a week starting in January, WB so far this season is just a notch below UPN--although both remain in the TV equivalent of Siberia compared with the major networks.

Kellner believes WB should be viewed more narrowly because it’s skewed toward a young audience--the one Fox is leaving behind as it matures. Indeed, some of its programs are popular with youthful viewers, including Aaron Spelling’s “Seventh Heaven,” about a minister and his family; “Buffy the Vampire Slayer,” a campy sendup about teenagers who fight supernatural monsters; and comedies such as “Sister Sister” and “Smart Guy.”

In daytime television, it’s developing a stronghold with 19 hours of kids’ programming, primarily Warner Bros. cartoons.

WB, with its goofy Michigan J. Frog mascot, is going after the family audience, but that doesn’t mean “goody two shoes,” Kellner said. “Buffy,” for instance, is promoted as a show that teens and parents can watch together.

At Fox, Kellner said, “the most important lessons we learned were to be different, to speak in a different voice than what was available to viewers already, and to get as young as you can get.”

Analysts applaud the concept, but say the jury is still out. Jeffrey Logsdon, an analyst at Cruttenden Roth in Irvine, expects WB to log a $90-million loss this year, on top of last year’s $97-million deficit.

“If you look at the ratings, it’s not enough to sustain the kind of programming budget that they need to make it into a mainstream network,” said Paul Kagan TV analyst Derek Baine.

Besides its bitter battle with UPN, WB also now faces an assault from none other than Diller, who left Fox in 1992 and has been assembling a hodgepodge of media assets under his HSN Inc. Last month, HSN agreed to buy Universal Studios’ television business for $4 billion in cash and stock, part of a plan to create a national network with a hybrid of cable and broadcasting distribution.

Acknowledging that he’s going head-to-head with WB, Diller said, “Of course, I don’t think there’s room” for so many competitors. “That’s just the point.”

Like Diller, Kellner also is turning to cable. He’s trying to fashion a patchwork of cable outlets in smaller, hard-to-penetrate markets that will be fed with a mix of WB shows and programming from local broadcasters.

Kellner dismisses any suggestion that WB’s days are numbered, as well as persistent rumors that it will be merged with UPN. He predicts that a decade from now, WB will be the first-, second- or third-ranked network.

“We wouldn’t be doing this if I didn’t believe this would be as successful, or more successful, than the Fox network.”

Investors note that Kellner has surrounded himself with many of the executives who helped birth Fox, and he has the backing of Hollywood’s most prolific television studio.

Echoing a common observation, Jonathan Levin, president of Spelling Television, considers Kellner’s real talent to be an innate sense “for what the audience wants.”

Ultimately, Kellner said, the fate of any network rests with programming. That will be even more the case in a decade or so when the promise of digital TV is realized, allowing distribution capacity to expand and level the playing field with the big networks, he said.

“Fox has already proven that distribution can’t prevent you from succeeding against the big guys,” he said. “It’s all about programming.”