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UPN future in doubt as News Corp. buys Chris-Craft

NEW YORK — Just one month ago, the outlook for UPN seemed a lot better. The 5-year-old network, while still struggling to achieve profitability, had pulled out of a ratings slump, chalked up gains in ad sales and announced a new name and logo to highlight its association with the Paramount entertainment brand.

Corporate parent Viacom Inc., which already owns CBS and had recently taken full control of UPN, was lobbying federal regulators to ease regulations barring one company from owning two networks.

But now that Rupert Murdoch's News Corp. has outbid Viacom in acquiring Chris-Craft Industries Inc., the owner of eight major UPN-affiliated stations, the future of the fledgling network is far more cloudy.

While UPN is affiliated with more than 100 stations, the eight being sold to News Corp. -- owner of the rival Fox network -- cover some of the biggest cities in the country. If all eight drop UPN, it would cut the network's national reach from an average of 87 percent to 67 percent and leave it out of the crucial markets of Los Angeles and New York.

Viacom, which had been in serious talks to buy Chris-Craft, wouldn't comment on News Corp.'s $5.4 billion acquisition, or how it would affect the future of UPN, which is changing its name to the Paramount Network next year. But Mel Karmazin, the hard-charging new Viacom president and former head of CBS, has said he would close the network if it did not become profitable.

Peter Chernin, the president of News Corp., made it clear in a conference call with investors that the company had little interest in the future of UPN or whether the Chris-Craft stations remained affiliated with the network.

"I'm not sure I know what will happen to it. ... I don't think we care enormously,'' Chernin said. "Whether it's to be a UPN affiliate, whether it's to run these as independent stations ... we have multiple ways to go.''

News Corp.'s main motive for buying the stations is to take advantage of recently relaxed federal rules allowing one company to own two stations in the same city, which allows for major cost savings in combining sales forces, news and programming operations. News Corp. already has a profitable two-station combo in Dallas.

In adding the 10 Chris-Craft stations to the 23 it already owns across the United States, News Corp. would have two stations in each of four key cities: New York, Los Angeles, Phoenix and Salt Lake City.

News Corp. will have to dispose of several stations in order to comply with a cap on total station ownership, but chief finance officer David DeVoe told investors on the conference call that the company hoped to use station swaps with other companies to achieve at least five other two-station arrangements, known in the broadcasting industry as duopolies.

Ironically, Viacom had been partners with Chris-Craft in running UPN. But the relationship turned sour and the two companies wound up in a legal battle that ended in March with Chris-Craft selling its half-interest in UPN back to Viacom for a paltry $5 million.

At that time, executives at Viacom were sanguine about UPN, particularly since Viacom was about to combine with the powerful CBS network, which was rated No. 1 then. UPN subsequently bested rival WB as the fifth most-watched network and did very well in its preseason ad sales in May, registering gains of 35 to 40 percent in the rates it charges advertisers.

Despite its rocky patch with Chris-Craft, Viacom had nonetheless come very close to sealing a deal to buy the company until Murdoch interceded personally at the 11th hour with a higher bid, according to people familiar with the matter. Viacom was offering up to $79 a share for Chris-Craft but News Corp. came through with an offer of $85.

News Corp. is paying a total of about $5.35 billion for Chris-Craft, but after accounting for cash held by a Chris-Craft subsidiary and planned sales of television stations to comply with federal ownership limits, the final value of the transaction will be about $3.6 billion.

Chris-Craft's shares have been on a wild roller coaster ride since Friday. At first they plunged 11 percent to $62 following Viacom's announcement that it had ended talks to acquire the former boat builder. Then Monday, after official word of the News Corp. deal came out, the shares soared $17 or 27 percent, ending at $79. Trading was extremely heavy on the New York Stock Exchange with volume of 2.1 million shares compared to average daily volume of 71,000 shares.

U.S. shares of News Corp. rose 37.5 cents to $50.125, also on the NYSE.

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