"Using the strongest artillery in their programming arsenals, the 3 commercial television networks (NBC, ABC and CBS) went head to head over the weekend (in September 1985), and preliminary ratings in 10 major cities came up with a number of surprising results," 'The New York Times' reported. "The networks have tried to devised their schedules this year (the 1985-86 season) to attract viewers who have, in recent years, turned to the alternatives of cable television and video cassettes. 

"Last week (in September 1985) the viewers were there: 'The Cosby Show' on NBC got a 31.6 rating and a 48% share of audience on Thursday, closer to the high ratings that television series were getting 20 years ago (back in 1965), when the networks had no competition. 'Dynasty', the ABC Wednesday night drama, got a 28.1 rating and a 42% share of the audience (for the aftermath of the wedding in Moldavia)." 

David Poltrack of CBS enthused, "Based on 4 nights of ratings, it looks like premiere week has substantially higher viewership than it did last year (the 1984-85 season). It's an encouraging start for network television in general." On Friday night of that week, NBC scheduled the 2-hour season premiere of 'Miami Vice' against a 2-hour episode of 'Dallas' on CBS. 'Miami Vice' (22.1% ratings; 35% share) lost by a narrow margin in the 10 cities to 'Dallas' (23.3% ratings and 37% share). David Poltrack reminded, "The two programs are playing to different audiences." It was understood 'Dallas' usually attracted its largest audiences outside the major cities. 

In the 1984-85 TV season, 3 of the Top 10 shows in the United States were produced by Lorimar Productions; 'Dallas' (with an average households rating of 24.7% and 39% audience share); 'Knots Landing' (with an average households rating of 20.0% and 33% audience share); and 'Falcon Crest' (with an average households rating of 19.9% and 34% audience share). 

That season, Lorimar broke new ground by distributing already-aired 'Dallas' episodes into the syndication market (or sold rerun rights to 112 independent stations around the country). It was groundbreaking because the independent stations would air the hour-long weekly continuing drama series daily. As reported, "('Dallas') is primarily watched by slightly older, slightly less educated Americans, and it is watched more in the South and in rural areas than in the rest of the United States, but throughout the country, through all television-watching groups, the program's audience is as high as anything being broadcast."

In 1981, speaking to 'American Film' magazine, Lee Rich argued, "Don't make the American public something it's not. You can't talk about sophistication when you're talking about the American public. You can't give them relevance that hurts." Around the time, 'United Press International' reported, "Not in the 35-year history of network television (since the end of World War II in 1945) had a prime time series captured the imagination of so many viewers as the J.R. shooting controversy.

"Early Nielsen ratings showed that Friday's episode (in November 1980) garnered 65% of the total viewing audience in New York, 68% in Los Angeles, and a whopping 76% in Chicago. The overall rating was expected to increase when figures were available from the hinterlands. CBS earlier estimated that between 70 million and 80 million viewers would tune in to watch the climactic episode of 'Dallas.' Bookmakers in London and Las Vegas placed odds on the prime suspects, among whom Kristin ranked high.

"The dining room at Chasen's restaurant exploded with cheers when the puzzle was finally resolved. Not since Robert Service's epic of the 'Shooting of Dan McGrew' in the famed Malamute Saloon had public interest been whipped to such a frenzy over the shooting of a fictional character. CBS and Lorimar Productions tantalized viewers through the long summer and during the 10-week actors' strike, prolonging the suspense until November 21, 1980" when 120 million Americans tuned in to find out who shot J. R.?

"Rarely has the television industry succeeded in recycling a serialized program, as opposed to series with self-contained plots," 'The New York Times' noted. Ken Page of Lorimar maintained, "We're in a speculative arena. We debuted the program in Dallas last week (in September 1984). We did spectacularly. Is that conclusive? I don't know. It's one week. 'Dallas' is a phenomenon. A phenomenon is something that defies description. We have zero here, no prior description, no experience about what happens when this kind of program is run every day. I do know that we'll be looking at a $25 million investment running across the screen Monday-to-Friday."

It was understood Lorimar had spent $500,000 to film "a series of 45-second openers for the syndicated programs with plot teasers" to create a fresh situation with the recycled series otherwise viewers may not watch a series run in sequential order without supplying some plot information. Pat Servodidio of WOR-TV in New York stated, "With 'Dallas' the question is, can you turn old audience habits into new loyalty?" B. Donald Grant of CBS insisted, "I think it will have a long life. Usually after this many years, a series is in the twilight of its career. J.R. gets us high ratings. He drives the story. Without him it would be a pretty boring show."

'The Los Angeles Times' reported in 1986, "Despite the hype, 'it was a very tough sell,' says the programming director of one independent television station in California. Program buyers in many markets shunned the show; in others, Lorimar had to settle for less-desirable UHF stations. As a result, 'Dallas' ranked 49th among all syndicated shows in Nielsen's most recent national ranking of syndicated shows and was available to just 57% of the nation's households.

"By contrast, 'M*A*S*H' was available to 88% of the nation's households and 'Wheel of Fortune', the No. 1 syndicated show, covered 98% of the nation. Still, 'Dallas' reruns have generally outperformed the shows they replaced, and that bodes well for future syndication sales of 'Knots Landing' and 'Falcon Crest'. Demand for syndicated programming has risen sharply in recent years because of the dramatic growth in the number of independent television stations."

In February 1986, producer Lorimar and marketer Telepictures Corp. merged. By May 1986, 'Fortune' magazine reported, "Lorimar has sold reruns of 161 'Dallas' episodes for about $80 million so far. The merger with Telepictures is designed to solve such problems as Lorimar faced in this video lotus land. By last September (1985), when merger talks started, Lorimar was fast running out of network hits to syndicate.

"Most of the 'Dallas' riches appeared on the company's books last year, and episodes of 'Knots Landing', a lower-rated show, were selling for 60% less. Merv Adelson knew that Lorimar's most recent hit, 'Falcon Crest', which debuted 5 years ago (in 1981), would be the hardest sell of all because program buyers at TV stations were hungering for situation comedies.

"Two peculiarities of the rerun business made Lorimar's position tougher. Stations usually air reruns in 5-day-a-week 'strips.' That practice consumes episodes so fast that TV stations are reluctant to buy even network megahits unless they run 3 seasons and accumulate about 75 episodes. So Adelson knew that no matter how popular Lorimar's new network series might prove, they would not be ready for syndication before 1988.

"The second difficulty stemmed from accounting rules. After selling a batch of reruns to a station, a producer usually must book all the revenues the deal calls for when the first episode airs, even though the cash from the station arrives in a steady stream of equal monthly payments that lasts for years. So while cash from rerun sales was sure to keep Lorimar liquid, the company's reported TV profits were likely to drop.

"Producing the three shows costs $30 million a season and no network is footing the bill. Telepictures would not have risked so much alone, and Lorimar's profit might have evaporated if an independent distributor got a big chunk of the proceeds. Networks are covering a shrinking portion of series' production costs. New competition is squeezing syndicators' profit margins. And new tax legislation is expected to eliminate the investment tax credit for TV and film production, which has kept Lorimar's tax rate under 20%.

"By October (1985), just before the merger was announced, the price of Lorimar's stock had slumped to 8 times earnings per share from 14 times just over a year earlier. Enter Telepictures, whose reliable 50% annual earnings growth had helped win it a price-earnings multiple of 16. Together, with an unmatched 21 1/2 hours of freshly produced shows airing weekly, this entrepreneurial upstart wields as much clout in TV as the major film studios that are its main competitors.

"Wall Street is enchanted with the company and with TV, the safest and most lucrative segment of show business. But this achievement does not satisfy Lorimar co-founder Merv Adelson, 56, the straightforward, often brilliant chief of the merged enterprise. He wants to make movies too, a glamorous but treacherous endeavor that has sunk sound companies before. Against long odds, Adelson is betting he can win Lorimar-Telepictures the status of those overlords of entertainment, the top studios.

"But in its 17 years (since 1969) before the merger Lorimar consistently flopped in films, and the cyclical movie business is a sucker's game just now. Making and marketing a major feature film costs roughly $20 million, more than most films can recoup in a market currently inundated with pictures. This year the company plans to make 5 movies. Up to now Lorimar has released 24 for a loss of about $12 million.

"Half the loss stems from Lorimar's latest, 'Power', a tale of political intrigue that has been dying in theaters since February (1986). Says Barry Diller, head of the 20th Century-Fox studio: 'Theatrical motion pictures are the big game in entertainment, but not necessarily the most profitable.' By contrast, Lorimar's mainstay of producing TV series for networks has proved a virtually unbeatable business.

"Financially strong, the company is getting stronger. It is exchanging outstanding bonds for newly issued shares; since the bonds have effective interest rates over 19%, retiring them will save so much money that the exchanges will not dilute per-share earnings. Assuming the stock price holds up long enough for the company to retire all its bonds, Lorimar-Telepictures will end up with about $500 million of equity and less than $100 million of debt. That solidity is extraordinary in the highly leveraged entertainment industry.

"When Lorimar went public in 1981, its debt-to-equity ratio exceeded 3 to 1, and the debt was for movies. The next year, bad luck in movies forced Lorimar's profits down 84%. But Lorimar-Telepictures is still missing something every major studio needs. Unlike the studios, the company has no organization to distribute pictures to U.S. theaters, the most important market for films.

"In return for the marketing of a motion picture, which can easily cost $10 million these days, distribution companies typically pocket 30% of receipts from theater owners. In the boom-and-bust movie industry, those fees often make the difference between a profit and a loss - or between a merely handsome profit and a bonanza. To keep from losing the whole 30%, Adelson has carved out a clever deal with 20th Century-Fox. Fox distributes his films at a cut rate; Lorimar-Telepictures has to pay for advertising but controls the marketing strategy.

"The deal will increase LorimarTelepictures' risk, but also its share of what Hollywood types lovingly call the upside. Pressed to discuss the downside, Adelson insists his company cannot lose more than $15 million annually on movies, even if every picture performs as poorly as 'Power'. That amounts to about 20% of Lorimar-Telepictures' estimated pretax income for the fiscal year that ends next March (1987). But the real downside is still incalculable. Adelson knows that to be a major studio, his company must soon establish its own U.S. theatrical distribution. The cost of achieving that, whether through acquisition or by building from scratch, could be enormous."

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