Spelling Entertainment

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Spelling Entertainment

5700 Wilshire Boulevard
Los Angeles, California 90036-3659
U.S.A.
Telephone: (323) 965-5700
Web site: http://www.viacom.com

Wholly Owned Subsidiary of Viacom, Inc.
Incoporated: 1977 as Aaron Spelling Productions, Inc.
Employees: 400
Sales: $568.1 million (1998)
NAIC: 512110 Motion Picture and Video Production; 512120 Motion Picture and Video Distribution

Wholly owned by Viacom, Inc., Spelling Entertainment produces and distributes popular television programs for network broadcast and first-run syndication. Known previously as the Spelling Entertainment Group, Inc., the company divested many of its noncore businesses in the late 1990s, and its television operations were then merged into Viacom’s Paramount Television Group in 1999. Although founder Aaron Spelling was once referred to as “the king of schlock,” there can be no denying his commercial savvy in producing such hit television fare as “Dynasty,” “Beverly Hills, 90210,” and “Melrose Place.”

Company Origins

Aaron Spelling began writing for television in 1956, after serving with distinction in the Army Air Corps during World War II, graduating from Southern Methodist University, and working as an actor for a few years thereafter. As a writer for Four Star Productions, Spelling’s first job was with the television show Dick Powell’s Zane Grey Theater, where he earned $125 a week. By 1959, Spelling was producing the show. When that series ended in 1962, Spelling had already begun producing other series, and in 1968 he teamed up with actor Danny Thomas to form Thomas-Spelling Productions. That year, Spelling introduced a cop show called The Mod Squad, which was picked up by the American Broadcasting Company (ABC) and would run for five years. In 1972, Spelling formed a new production company, Spelling-Goldberg Productions, with a new partner, Len Goldberg. Among that company’s hit fare was the police drama S. W.A. T., which gained notoriety for its violent action sequences.

The 1970s were high point in Spelling’s career as a producer. During this time, he created and produced a bevy of hit shows, including Starsky and Hutch, Charlie’s Angels, The Love Boat, and Fantasy Island. Indeed, Spelling productions propelled ABC to the top of the television ratings charts throughout the 1970s. In 1976, Spelling also tried his hand at producing a relatively new type of show, the made-for-TV movie. The Boy in the Plastic Bubble, starring a young John Travolta, met with popular success.

In 1977, Aaron Spelling Productions, Inc., based in Los Angeles, was incorporated. Under that new corporate organization, Spelling scored another success with the 1981 premier of Dynasty, a night-time soap opera that would run for nine years. Spelling’s behind the scenes debut in the world of motion pictures came in 1983, when he produced the hit Mr. Mom, starring Michael Keaton. Aaron Spelling Productions went public in 1986, while Dynasty and another hit series, Hotel, continued to garner impressive ratings. However, two new series, Finder of Lost Loves and The Colby’s, the latter a spin off of Dynasty, met with lukewarm response and were soon cancelled. During this time Spelling continued to work on major motion pictures, producing three more films, none of which garnered the critical or popular success of Mr. Mom.

Challenges in the Late 1980s

By the late 1980s, Spelling appeared to have lost his “Midas touch.” Annual revenues were on the decline as the company had just one show on broadcast television and two others in production. The company’s stock declined from its initial issue price of $14 per share in 1986 to just $5 per share in 1988, and sales and earnings declined by double-digit percentages.

Spelling foreshadowed a potential merger in a 1988 interview with Mark Frankel of California Business. Therein he noted that producing TV shows had become so expensive that independent production companies such as his would “have to branch out and do other things besides just producing for television—become miniconglomerates—in order to make sure that we can keep doing what we do.” Besides perhaps hoping to secure the resources of a wealthy parent company, the company also targeted the foreign syndication market as an avenue for growth, acquiring Worldvision Enterprises Inc., a global distribution company, in 1989.

Financier Carl Lindner, through his company Great American Communications, had purchased a majority interest in Spelling Entertainment, and in 1991, that 82 percent stake was acquired by the Charter Company, based in Cincinnati, for $189.5 million in cash and notes. Charter completed its acquisition of Spelling with a mid-1992 exchange of stock valued at $44 million. Renamed Spelling Entertainment Group, the merged companies continued to hold on to a few Charter assets through the mid-1990s.

However, Charter was in financial and managerial upheaval, and less than a year would pass before Spelling’s corporate ownership structure changed again. In 1993, Charter sold its controlling (now at 53.4 percent) interest to Blockbuster Entertainment Corporation for $141.5 million. By the end of 1994, Viacom Inc. had acquired Blockbuster and announced its intention to sell Blockbuster’s stake in Spelling to help settle its own debts. The sale, however, never came to pass.

During this time Spelling Entertainment acquired Republic Pictures Entertainment and merged it with its Woldvision subsidiary in mid-1994, creating a library of 7,000 feature films, made-for-TV movies and miniseries, and 15,000 episodes of Spelling-produced television. Global syndication of these programs proved a steady source of revenue that fueled new production efforts.

Making Hits Again in the 1990s

Spelling’s television production business rebounded in a big way in the early 1990s. Beverly Hills, 90210, a prime time teen drama that featured among its cast of rich and beautiful teens Aaron Spelling’s daughter, Tori, was the first in a string of early 1990s television hits. Spun off from that program was another drama, Melrose Place, which was slightly steamier in content and aimed at a slightly older audience. This series become a mainstay of Rupert Murdoch’s burgeoning Fox network.

Pursuant to its dealings with Fox, Spelling Entertainment acquired Virgin Interactive Entertainment plc, a producer of such interactive games as “The 7th Quest” and “The Lion King.” Virgin Interactive provided Spelling with another avenue for diversification in its growing array of businesses. Thus, from its core in television production, Spelling had expanded into large-scale domestic and international distribution of television, film, and video material, interactive games, and licensing and merchandising. By the end of 1994, the company’s domestic television production and distribution contributed less than 25 percent of annual revenues. The diversification strategy was appearing to have paid off in increased sales and net income. Revenues nearly quintupled, from $122.75 million in 1991 to $599.84 million in 1994, and net income almost doubled from $12.96 million to $24.11 million.

Spelling Entertainment pursued television production opportunities for both network broadcast and syndication. In addition to placing reruns of Beverly Hills, 90201 and Melrose Place in syndication, the company formed Big Ticket Television to produce first-run comedies for syndication. In 1996 Big Ticket Television launched Moesha and its most successful syndicated show to date, Judge Judy, a real-life courtroom series in which a curmudgeonly California judge decided small claims cases and offered advice and opinions along the way. New shows for broadcast on the Warner Brothers WB network included the 1995 launch of Savannah, about four young southern women in New York City, and Club Paradise, a teen-drama set at a year-round resort. While the family drama Seventh Heaven received low marks from the critics, a solid viewer following kept the show in production.

While Viacom had Spelling Entertainment Group up for sale, Spelling’s subsidiaries provided mixed results. Virgin Interactive lost money though sales increased annually, showing a $14.8 million loss in 1995 on $212.2 million in revenues. Worldvision acquired the rights for Carolco movies for overseas distribution, supplying a new source of steady revenue to its film library. Following the success of an earlier Beverly Hills, 90210 novelization and the Melrose Place Companion Guide, Hamilton Projects licensed promotional paperback publication rights for Savannah.

Merging with Paramount Television Group

When Spelling Entertainment did not attract a satisfactory bid, Viacom took the company off the market and began to restructure. Spelling was refocused on television production as Viacom closed the feature film and direct-to-video production divisions and sold off assets, including TeleUNO, Spelling’s entertainment channel in Latin America, which was sold to Sony Pictures in 1998. Moreover, Viacom put Virgin Interactive on the auction block. Overall losses of $52.3 million in 1997 improved to a loss of $7.3 million in 1998 on revenues of $586 million. In addition to improving the financial stability of the Spelling group by divesting noncore businesses, Viacom also sought to make the company fit well into its vast entertainment holdings.

Company Perspectives:

The largest independent supplier of one-hour dramas in the industry, Spelling Television achieves success year after year with the production of one-hour drama series, movies-for-television and miniseries created and developed under the leadership of the industry’s most prolific television producer, Aaron Spelling.

Spelling added several new shows to its production schedule in the late 1990s. New shows for 1997 included Sunset Beach, a daytime soap opera, and the syndicated Love Boat: The Next Wave. Four new network series in 1998 included Charmed, a witchcraft comedy, Rescue 77, a paramedic action-drama, Buddy Faro, a detective drama, and Any Day Now, an odd-couple comedy. Syndicated shows included TAG-I: Real Heroes, a reality-based series of real-life heroism produced by Worldvision. Big Ticket Television capitalized on the success of Judge Judy with a Tennessee-based courtroom series, Judge Joe Brown, which began syndication in 1999. While production of Beverly Hills, 90201 continued into the 2000 season, the final episode of Melrose Place aired in May 1999. In a new venture into the world of e-commerce, Spelling Entertainment worked with its web page designer Artist Direct and Amazon.com in offering an online auction of the props and wardrobe used on the set of Melrose Place. Proceeds from the auction went to charities.

After a successful restructuring, divestment of 43.9 percent of Viacom’s interest in Virgin Interactive, and a return to profit-ability for Spelling, Viacom decided to acquire the remaining 22 percent interest in Spelling Entertainment. In March 1999, Viacom offered $9 per share when the stock selling at $6.75 per share. After completing the acquisition in June, Viacom placed Spelling Entertainment Inc. and Big Ticket Television under Paramount Television Group. The film libraries and licensing company were merged with Paramount subsidiaries. Viacom discontinued Worldvision as it shifted Judge Judy and all off-network production to Paramount Domestic Television. In October 1999 Viacom sold its remaining shares of Virgin Interactive. Although its individual corporate structure had changed dramatically, Spelling Entertainment remained a vital production company and legacy of the prolific producer Aaron Spelling, who in 1999 had no plans to retire.

Principal Competitors

Time Warner Inc.; The Walt Disney Company; Fox Entertainment.

Key Dates:

1956:: Aaron Spelling begins writing scripts for television.
1968:: Thomas-Spelling Productions is founded; The Mod Squad debuts on ABC.
1977:: Aaron Spelling Productions, Inc. is founded; the Love Boat series premiers.
1981:: Debut of popular Dynasty television series.
1986:: Company goes public.
1990:: First teen-drama Beverly Hills 90210 debuts.
1993:: A majority stake in Aaron Spelling Productions is acquired by Blockbuster.
1994:: Viacom acquires Blockbuster, including its stake in Spelling Productions.
1999:: Viacom completes acquisition of Spelling’s outstanding shares, and Spelling operations are merged into Viacom’s new Television Group.