Smaller Players Gain From Battle of Giants For Paramount Inc.

SMALLER players in the United States entertainment industry could be the big winners in the financial battle to gain control of Paramount Inc.

Paramount is one of the last two major US entertainment companies to remain independent of a financial takeover: The other is the Walt Disney Company. But with Paramount likely to be part of an acquisition soon - either involving QVC Network Inc. or Viacom Inc. - that means that future bidders for entertainment conglomerates will have to turn to smaller producers and distribution firms.

The bidding war is already on for these smaller companies - Disney, for example, snapped up a smaller distribution company earlier this year. The stepped up competition for multimedia firms reflects the desire of companies to be part of the emerging ``information highway'' of computer and cable television linkups expected to reshape the global information/entertainment sector.

While Disney is not expected to be an immediate takeover candidate (it might cost more than $40 billion), some analysts say that Disney might some day merge with a company that could provide new distribution channels for its products.

QVC, which by midweek appeared to have an edge in acquiring Paramount, has seen its stock fall. That is indicative, analysts say, of what happens to a ``winning company'' in a bidding war as its debt load increases. QVC, a cable shopping network, raised its cash and stock offer for Paramount earlier this week to about $92 a share for 51 percent of Paramount's outstanding stock, which works out to about $10.4 billion. Viacom's bid going into last weekend - which had been favored by Paramount board chairman Martin Davis, a close friend of Viacom's chairman Sumner Redstone - was around $9.6 billion.

Many analysts say that this week's slump in QVC stock - which fell over $2 a share on the NASDAQ market - suggested that the company had made the higher offer for Paramount and was getting close to acquiring the company. When financial analysts think that the bidding for a company is too high, the ``winning'' company often sees its stock price fall. Conversely, share prices for Viacom rose on the American stock exchange.

A number of analysts say that Paramount is not worth more than $8 billion to $9 billion. Nonetheless, Viacom is reported to have asked Paramount for more time to put together a new offer for Paramount to compete with QVC.

In any case, polling of shareholders usually takes several weeks. But no matter who ``wins,'' major changes are expected at Paramount. Paramount's Mr. Davis is considered by analysts to be in trouble, since it was he who originally sought the merger with Viacom and opposed a QVC takeover. Davis is also on the outs with QVC's Barry Diller, who was a former employee of his at Paramount.

If QVC wins, Mr. Diller, who put together the Fox Television Network for Rupert Murdoch, is expected to move quickly to establish a fifth TV network. Paramount owns stations, programming, and a cable channel - the USA Network.

Business plans at Paramount, some analysts say, are currently ``on hold.'' Several of its holiday films have failed to win large audiences. (Some analysts wryly suggest that Paramount's new ``Addams Family'' film aptly describes the zanny dealings by the rivals seeking to gain control of the company.)

Moreover, there is speculation that a number of Paramount subsidiaries, including Madison Square Garden and Paramount's profitable publishing divisions, could be spun off to help pay for the takeover. Madison Square Garden encompasses not only the sports center, but a cable network, the New York Knicks basketball team, and the New York Rangers Hockey team.