Capital Cities/ABC Inc.
Capital Cities/ABC Inc.
Sales: $4.77 billion
Stock Index: New York
Of three major networks in the United States, ABC is the youngest. The first broadcasting company in the United States was the National Broadcasting Company (NBC), founded by the Radio Corporation of America (RCA) in 1926. By 1928 NBC had grown so large that RCA divided the company into two networks, the red and the blue, and it is in the blue network that ABC’s origins lie. The Federal Communications Commission (FCC), worried by the monopolistic tendencies in the broadcasting industry, decided in 1941 that no single company could own more than one network, and ordered NBC to divest itself of one of its two. Accordingly, in 1943 NBC sold the less profitable blue network to Edward J. Noble, who had made his fortune at the head of Life Savers Inc. Noble dubbed his network the American Broadcasting Company.
At first ABC was only a radio broadcaster. NBC and CBS had been involved in experimental television production and transmission for over a decade by the time ABC was created, and the new network found the transition to television difficult, a reputation that dogged ABC for years. It was not until 1953, when ABC merged with United Paramount Theatres, that ABC emerged as a third network of full stature.
United Paramount Theatres had been the movie theater arm of Paramount Pictures until the company was forced by antitrust legislation to divest itself of its theater chain. In the merger, Leonard Goldenson, Paramount’s president, became president of the new American Broadcasting-Paramount Theatres, Inc. (AB-PT), the owner now of 708 movie theaters, a radio network with 355 affiliates, a television network with 14 affiliates, and television and radio stations in five major cities.
More importantly, the merger brought ABC cash. Goldenson’s first major expenditure as head of AB-PT went to Walt Disney: in return for a $4.5 million loan from the network to complete the construction of Disneyland, Disney agreed to provide a television show for ABC. This deal was the first time that a movie company produced a show for a TV network. AB-PT also acquired a 35% interest in the amusement park, presaging later purchases of similar parks.
The broadcasting division of AB-PT expanded its television programming in that same year from 21 to 35 hours a week. In addition to producing already popular shows like “The Adventures of Ozzie and Harriet,” “Make Room for Daddy,” and “The Lone Ranger,” the network introduced two innovative dramatic series in 1954: “The U.S. Steel Hour” and “Kraft Television Theatre.” AB-PT also broadcast 186 hours of the hearings involving the United States Army and Senator Joseph McCarthy. The network was able to broadcast the interrogations live without preempting any of its own programs because AB-PT did not yet have a regular daytime schedule.
A year later Warner Brothers, a major motion picture studio, agreed to begin producing shows for the network, eventually providing AB-PT with “Lawman,” “Maverick,” “Colt. 45,” and others. Meanwhile Disney studios provided a program called “The Mickey Mouse Club Show.” “The Lawrence Welk Show” also debuted in 1955 and became so popular, especially among senior citizens, that it became ABC’s longest-running prime-time series ever.
By 1957, the broadcasting division of AB-PT had passed the theater division as the largest revenue producer for the company—in part because the theater division had, by government order, been reduced to a chain of 537 theaters.
Meanwhile, Am-Par Records, founded in 1954, released its first record to sell a million copies, in 1957: “A Rose and a Baby Ruth” by the singer George Hamilton IV. In 1957 Am-Par also asked a Philadelphia disc jockey, Dick Clark, to come to AB-PT to help promote its records. Clark proposed that he host a TV show devoted to music appreciation for teen-agers; “American Bandstand” has been on the air ever since.
By the end of the decade, ABC had finally entered regular daytime programming. The company also entered another field, buying stock in the Prairie Farmer Publishing Company in order to gain full ownership of WLS radio station in Chicago. Soon afterward AB-PT also bought the Weeki Wachee Spring, a 600-acre scenic attraction near Tampa, Florida, prompted by the tremendous success of Disneyland.
The 1960s brought important changes to AB-PT. Everett Erlick joined the company in 1961 after leaving the advertising firm of Young & Rubicam. He was to play a major role in shaping the network in the coming decades, remaining with ABC for more than 25 years.
Later in 1961 AB-PT expanded Am-Par Records through the acquisition of the Westminster classical music label (Beverly Sills was among its artists) and the introduction of the Impulse jazz label (Duke Ellington was its major star).
ABC had entered sports broadcasting in 1960, when it won the television rights to NCAA college football and basketball games. ABC Sports was founded in 1961, and made a ground-breaking contribution that Thanksgiving during its broadcast of the Texas-Texas A&M football game when it offered TV viewers their first “instant replay.” Three years later, ABC Sports began its long association with the Olympic Games when it presented the Winter Games from Innsbruck, Austria. Although ABC ranked third, well behind CBS and NBC, the network was number one in the sports-broadcasting business from early on.
By the middle of the decade, the company had started looking for financing to cover the massive costs of conversion to color broadcasting (which had been in limited use since 1962) and help it bid competitively for feature-film packages. In 1965 the company announced plans to merge with International Telephone and Telegraph, Inc. (ITT), a company with enormous financial resources. The FCC approved the merger and hopes were high at ABC (its name was shortened that year to American Broadcasting Companies). However, the Justice Department’s anti-trust division appealed the approval, delaying the merger so long that ITT finally exercised its right to opt out of the deal. ITT did loan ABC $25 million, however, to help the network convert to color broadcasting, and within a year, the entire prime-time schedule was in color.
After the ITT deal fell through, eccentric billionaire Howard Hughes attempted to gain control of ABC through a tender offer for 43% of the company’s stock. The management at ABC fought vigorously against Hughes, however, and he dropped his bid two weeks after his initial proposal.
In 1968 ABC was divided into three separate divisions, each to provide the ABC television network with programming: entertainment, news, and sports. The other two networks followed ABC’s lead in this restructuring.
The 1960s were a trying time for ABC. Despite an influx of financial support, the network lost more than $120 million between 1961 and 1971. The company was sustained during this time primarily by revenues from its theater chain, its record company, and the television stations that it owned. Radio broadcasting also contributed to its survival—in fact, the network had 500 affiliate radio stations by the end of the decade. Like the television network, ABC organized its radio network into several divisions: American contemporary, American information, American entertainment, and American FM networks.
In 1971 the FCC limited the number of hours of primetime programming a network could schedule. This proved to be a blessing for ABC since the network had been unable to fill the time anyway, and in the following year, the network became profitable for the first time in a decade: revenues passed the $800 million mark and net earnings were over $35 million. But just as things were looking up, in 1972 the Justice Department filed an antitrust suit against all three networks. The suit aimed to bar the networks from carrying network-produced entertainment programs, including feature films, and charged the networks with monopolizing prime-time television entertainment programming. ABC claimed that documents from the White House, the Justice Department, and the Watergate prosecution would prove that the government’s antitrust suit was intended to suppress the three networks, presumably in retaliation for press “harassment” of the president. Though the suit was dismissed without prejudice in November, 1974, the matter was not fully resolved until six years later.
In the meantime, ABC was engaged in the further divestiture of its movie theaters and an expansion of its record business. Anchor Records was established in 1973 to develop European talent for the company.
One of the most famous mass-media programmers in the United States joined ABC in 1975. ABC tempted Fred Silverman (christened by Time “the man with the golden gut”) away from CBS with an offer of a $300,000 salary, a $1 million life insurance policy, stock options, and homes on both coasts of the United States. Despite such extravagances, the day he joined ABC its stock went up two points on the exchange. Under Silverman’s guidance, ABC introduced hits like “Laverne and Shirley” and “The Love Boat” and expanded its soap operas to hour-length features that were not afraid to touch controversial topics, greatly boosting ABC’s daytime ratings.
Within a year, ABC had moved into first place in prime-time ratings. In the same year the network created a stir by offering Barbara Walters, then the co-host of NBC’s “Today Show,” a $5 million contract to co-anchor “ABC Evening News.” Walters accepted and became the first full-time female news anchor on any network. Unfortunately, the show flopped. Roone Arledge, the former head of ABC Sports who was now head of ABC News, moved in to salvage things. He changed the format of “ABC Evening News,” renaming it “ABC World News Tonight” and using three anchormen, in London, Washington, and Chicago, connected by satellite. By the following year ABC had surpassed CBS as the world’s largest advertising medium, and within another year, ABC also led in daytime programming.
In 1978 Silverman was lured from ABC by NBC, not quite three years after he was hired. Silverman’s tenure, although brief, benefited the company tremendously: between 1975 and 1978 broadcasting profits rose from $82 million to $311 million. His departure marked the beginning of a period of streamlining for ABC as the company finished selling its theaters and sold its record business in order to concentrate on broadcasting and publishing (it retained its farming journals).
During the Iranian hostage crisis in 1979, ABC aired daily special reports on their condition. These reports were so popular that when the hostage crisis ended, ABC continued to broadcast a special news report in the same time slot, and “Nightline” was born.
The broadcasting industry has never been particularly stable, however, and ABC’s fortunes soon changed. Scandal clouded the success of the popular “Charlie’s Angels” when a reporter for The New York Times uncovered numerous accounting oddities in connection with the show, the show’s producers, and Elton Rule, the president of ABC. Some of these oddities, based on informal oral understandings, ran into the millions of dollars. This was followed by an agreement to a consent decree in connection with the antitrust suit the Justice Department had brought in the early 1970s, in which ABC agreed to place ceilings on the number of shows it produced in-house for network broadcast and to give actors, producers, and writers involved in its prime-time schedule greater freedom to leave ABC for other networks. It was a poor start to the 1980s.
By the middle of the decade ABC had once again fallen behind both CBS and NBC in ratings. Despite this poor showing, however, ABC was more profitable than either of the other two networks. This led, as many had predicted, to ABC’s takeover.
In 1985 Capital Cities Communications, Inc., a communications company with a one-quarter of ABC’s sales, bought ABC for $3.5 billion. The name of the combined operation was changed to Capital Cities/ABC Inc. The business community reacted quite favorably to the announcement: not only did ABC’s stock rise as soon as the deal was announced but, unusually, Capital Cities’ did too.
Capital Cities owned seven TV stations and 12 radio stations and had annual sales of slightly less than $1 billion before the takover. In addition, the company controlled several publishing interests, including the Kansas City Star and several medical journals—a mix that reproduced ABC’s on a smaller scale. Capital Cities had long held a reputation for being extremely efficient and many at ABC feared for their jobs. Thomas S. Murphy and Daniel Burke, the chairman and president of Capital Cities, placed Frederick Pierce in charge of ABC. Pierce had been second to Leonard Goldenson for several years before the takeover.
The broadcast industry went through a period of rapid change in the second half of the 1980s as competition from cable television and VCRs reduced network viewing audiences. ABC was in last place among the three networks in 1986 and recorded a substantial loss that year. In order to cut costs, the company trimmed the budget of its nonprogramming-related expenditures. In addition, the company lowered the amount it pays affiliates to carry its programs by about 4% and announced that it would not pay any clearance fees for special events such as mini-series and the Academy Awards. This move touched off a struggle between the network and its affiliate stations, who became less inclined to grant clearances for shows with poor ratings. This tension continued even when ABC’s ratings edged past CBS’s to take second place in 1987. The network still trailed far behind first-place NBC, however.
In the late 1980s ABC’s epic mini-series programs, once a network strength, lost the viewing public. “Amerika,” aired in 1987, led the week’s ratings, but was hardly a smash success. A year later “War and Remembrance” lost $20 million for the network. ABC had pioneered the mini-series back in the late 1970s with “Roots,” but the appeal of the format seemed to have worn out.
ABC’s coverage of the 1988 Olympic Games gave the network a big ratings boost, but still resulted in a $65 million loss. On the other hand, ABC’s news division was doing well late in the decade with “ABC World News Tonight,” “20/20,” and “Nightline.” In addition, while the network struggled to cope with a changing industry, Capital Cities/ABC’s owned-and-operated stations did very well on an individual basis.
The mix of holdings is beginning to diversify. Capital Cities/ABC recently acquired a professional expositions management company and a trade show exhibition company. In addition, ABC has an 80% interest in ESPN, the cable sports channel, and smaller interests in the Lifetime and Arts and Entertainment cable channels, which are all prospering, and the company’s publishing interests are also doing well. Meanwhile, innovations in network programming will continue as the battle for ratings and advertiser revenues rages on.
Cablecom-General, Inc.,; Capital Cities Entertainment Systems, Inc.; Capital Cities of Illinois, Inc.; Capital Cities of Kansas, Inc.; Capital Cities Media, Inc.; Legal Com of Delaware, Inc.; Securities Data Company, Inc.; Institutional Investor, Inc.; Sutton Industries, Inc.; Tele Hi-Fi Company; Texas Media Holding Company, Inc.; The Kansas City Star Company; The Oakland Press Company; CCC Properties, Inc.; Wilson Publishing Company; CC Finance Holding Corporation; ABC Holding Company Inc. (76.2%); ABC Video Enterprises, Inc.; Ambro Land Holdings, Inc.; Ambroad, Inc.; COMPUTE Publications, Inc.; Farm Progress Companies, Inc.; Hitchcock Publishing Company; Los Angeles Magazine, Inc.; The Miller Publishing Company, Inc.; NILS Publishing Company; R.L. White Company, Inc.; TNC Company, Inc.; WLS, Inc.; WMAL, Inc.; WXYZ, Inc.; Word, Incorporated.
Qinlan, Sterling. Inside ABC: American Broadcasting Company’s Rise to Power, New York, Hastings House, 1979.