Why Networks Are Hot Buys
IN September 1926, a full-page ad announced the birth of the first permanent broadcasting network, NBC. It pledged that the network would convert the radio set from a mere ''plaything'' to ''an instrument of service.'' What networks have been serving ever since are primarily the needs of business. As twin transactions worth $25 billion showed last week - ABC's takeover by Disney, and CBS's purchase by Westinghouse - networks have remained massive instruments of commerce, pop culture, and social management. These corporate crown jewels have retained their value despite dips in the business cycle and the competitive challenges of new technology.
In the late '20s, networks spurred the sale of radio sets; in the '40s, they mobilized us for war; in the '50s, they bonded us to TV consumerism; and now, as the spearheads of huge tele-amusement conglomerates, they supply the cash, content, and distribution machinery for the export of the ''American dream'' to the world. Second only to aerospace, screen content is America's main cash crop. The combustive powers of network alliances are nothing new. Westinghouse was a member of the consortium that founded the Radio Corporation of America, which sired NBC. ABC, a struggling network of only 14 TV stations in 1953, was saved by a compact that put Walt Disney's hugely popular ''Mickey Mouse Club'' on the air each Sunday night. In turn, ABC sunk needed capital into a Disney dream called Disneyland.
By the early '90s, many media soothsayers were predicting the demise of networks. Competition from cable and computers, coupled with recessionary cycles, eroded the networks' revenue stream, while their share of tuned-in TV homes slid from 90 percent to 60 percent. Rupert Murdoch, the Merlin of networking, cast miraculous enchantments on Washington that brought his upstart Fox network into the competitive circle. Audience erosion has since leveled off, and the return of good times has resurrected the network business. ''Up-front'' advertising sales for the fall program lineups broke records last year - even for CBS, the invalid of the network business. Networks bring to their buyers:
r Cash. Government policies and legislative ''reforms'' are raising the limits on the number of radio, TV stations, and prime-time programs that networks can own and are extending their prime-time income by one hour each night.
r Reach. Networks still deliver the largest audience to advertisers of any mass medium at the lowest price - some 60 million homes nightly. Their initials are among the most familiar of brand names.
r Stations. Networks bring their affiliated stations to the deal, some of which they own and operate in larger markets. These ''O&Os'' are extremely profitable, with returns of 40 percent to 50 percent common.
r Diverse holdings. ABC, for instance, owns two ESPN cable networks, which loft sports programs to 150 countries, including China and India, as well as eight daily and 140 weekly newspapers.
r Social stability. Networks define acceptable boundaries of taste, trends, ideas and issues, expert opinion, and even self-definition. Their ads legitimatize and reinforce the impulse to buy.
In his 1976 Oscar-winning movie ''Network,'' the late writer Paddy Chayesfky envisioned his fictional Universal Broadcasting System as the spearhead of ''a college of corporations inexorably determined by the immutable by-laws of business.'' With Chayefsky, we're forced to wonder about the beauty of bigness in the commerce of culture. Network content, with all its reach, has hardly ignited a great American renaissance.