Entertainment Merger Mania : Mega-Deal II : THE ‘SYNERGY’ QUESTION : When More Means Better--and When It Doesn’t

Will Mickey Mouse and ABC really work together to bring more customers to Disneyland and more prime-time viewers to “Roseanne”?

That’s the vision offered by Walt Disney Co. Chairman Michael Eisner in justifying his $19-billion acquisition of Capital Cities/ABC Inc. Disney’s cartoon characters, movies and theme parks will combine with Cap Cities’ ABC network and 80% owned ESPN to make a more potent whole.

But the idea that such combinations create greater value--that “1 plus 1 equals 4,” as Eisner put it on Monday--has not always proven true in the entertainment industry.

Analysts say one need look no further than the entertainment mega-merger announced Tuesday, the $5.4-billion sale of CBS Inc. to Westinghouse Electric Corp., to find a case in which the so-called synergies may be more elusive than real.

For in contrast to the merger of Disney and Cap Cities--a combination with myriad options for global marketing and distribution--analysts see CBS as a stripped-down domestic network whose most promising elements were sold off long ago by Laurence A. Tisch, the chairman and principal owner. The result is fewer opportunities for making 1 and 1 equal more than 2.

In truth, industry observers say, synergy is often more of a buzzword than a realistic foundation for entertainment mergers.

Over the past few years, the benefits of several such combinations have proven elusive. For example, Sony in 1989 purchased Columbia Pictures and CBS Records with the dream of creating “software”--films, television programming, music--to run on its “hardware”--CD and video players, Walkmans and Watchmans.

But merely housing both elements under the same corporate roof did not save the company from a streak of costly failures. Some of the films were flops (the company wrote off $2.7 billion of its investment last year), and some hardware, such as the recordable mini-disc, failed in the marketplace.

In fact, industry experts say, the key to true synergy is having a great product to parlay across markets. And the past master of that is Disney.

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“Perhaps no company has used synergy like Disney,” says Richard Frank, the former head of its television division. The company starts with perhaps the best franchise in Hollywood: its stable of world-recognized cartoon characters, ranging from Mickey Mouse to Aladdin and the Lion King, all closely entwined with the lustrous Disney name.

Walt Disney himself ushered in the era of synergy when he opened Disneyland, staffed it with “cast members” in Mickey and Donald costumes, and promoted it relentlessly in television programs (aired, as it happens, on ABC).

After a fallow period after Walt Disney’s death, Eisner arrived in 1984 and revived the franchise. He stepped up the marketing of Disney products at the theme parks, opened a chain of successful retail shops to purvey the same merchandise, and jump-started the under-performing animation division to fill the pipeline with a new generation of marketable characters.

Few other companies can call upon such a strong bench. Warner Bros., even with its own army of popular cartoon characters (Bugs Bunny, Road Runner), was following Disney’s lead when it launched its own chain of retail outlets.

Indeed, Warner’s vision of achieving cross-media synergies by acquiring Time Inc. symbolically dimmed almost at birth when Time magazine panned Warner’s 1989 “Batman.”

On the other hand, the strategy took off with a vengeance this year with a corporatewide marketing blitz for the third picture in that series, “Batman Forever.” Scarcely a single unit of the Time Warner empire, from its 110-store retail chain to its 49%-owned Six Flags theme parks, was left out of the loop.

“The movie, merchandise, stores, Six Flags, HBO specials, you name it,” says Robert Friedman, president of worldwide advertising and publicity for Warner Bros. Studios, “across all corporate lines there was some benefit from ‘Batman Forever.’ ”

There is less talk of synergy in the CBS sale to Westinghouse, and not only because there seems little connection between television programs and electric power plants.

CBS’ Tisch has been an overly cautious steward in the decade he has run the company. “He has diminished the franchise by selling assets--notably the music distribution business, CBS Records, in 1989,” says Arthur Rockwell, an entertainment industry investment banker.

CBS has not expanded, unlike rivals NBC, which formed cable channel CNBC and ventured into worldwide distribution of its news shows, and Capital Cities/ABC, which owns major shares of cable channels ESPN, Lifetime and Arts & Entertainment. Last year, the network was diminished even further when a number of affiliate stations abandoned it to join the Fox Network, which had outbid CBS for rights to NFL Football.

Westinghouse, by adding its own TV stations to those of CBS, may make the whole stronger. But it has dramatically fewer opportunities than the combination of Disney and Cap Cities/ABC.

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One benefit from mergers that combine disparate companies, like Disney and Cap Cities, is “leverage,” the more bare-knuckle aspect of “synergy.”

Leverage is another name for market power, which a combined Disney and Cap Cities/ABC, the largest entertainment company in the world, will have to an almost frightening degree.

At its most basic level, analysts say, Disney might promote its family-oriented Disney cable channel on a Saturday morning Disney cartoon block airing, say, on ABC--which is seeking to improve its showing in that time period. ESPN’s potentially global reach might bring advertising for Disney movies, theme parks and merchandise into millions of homes it might not reach otherwise.

Disney “is strong in broadcasting and in cable and in production. You don’t want to mess with this company,” says one industry executive. Cable operators might fear turning down some Disney programming lest they run into difficulty getting rights to proven products such as ESPN.

For all that, there are marketing pitfalls to combining production studios and distribution networks. When Taft Broadcasting, a now-defunct chain of TV stations, owned Hanna-Barbera Productions, top management thought that its station managers would relish the flow of cartoons from the studio.

As it happened, many Taft station managers preferred to run non-HB programming. The same thing may happen if ABC station managers find programming more to their liking than, say, Disney’s lineup of Saturday-morning cartoons.

“Bad product? That’s in nobody’s interest,” says Frank, arguing that Disney productions should not be forced on ABC stations. “But in the great gray area between sure-fire good and sure-fire bad, if it comes down to a choice between two shows, you may as well err on the side of your own product.”