All American Trades On ‘Baywatch’ Fame To Raise Fresh Coin
November 1995 – Variety
After six years in the sun and surf, “Baywatch” is showing signs of age. And while the popular show’s producer distributor, All American Communications Inc., has taken steps to diversify, the company has yet to prove it’s more than a one-show wonder.
For the moment, Wall Street is giving All American the benefit of the doubt. Driven by last year’s acquisition of Fremantle Intl. and “Baywatch’s” strip syndication earnings, the syndic’s operating income rocketed from $1.4 million for the first nine months of last year to $13.3 million this year. As a result, All American’s stock price has doubled in the past 12 months, back to its 1993 level of about $11.
The price-jump paved the way for the syndie to announce a $45 million stock offering to beef up its balance sheet last month. All American execs were in Europe last week marketing the offering and are due in New York Dec. 4 to continue the roadshow.
Funds raised from the offering may be used for additional acquisitions or to pay down debt, which stands at $152 million after the purchase of gameshow house Mark Goodson Prods., according to an SEC filing. All American may also use part of the money to buy full control of Goodson; the syndie bought a 50% partnership in the company for $50 million in October. All American revealed in its prospectus for the stock offering that it has an option to buy out partner Interpublic for $25.9 million. The option can be exercised between April and October 1996.
All American hasn’t made a decision about which way it will go. The company said in a prospectus for the offering that it will have heavy demands on its finances in the next 12 months, partly because of commitments made in its recently signed production deal with David Gerber.
The syndie also has to conserve some cash in case its spinoff series “Baywatch Nights” is not renewed for a second season in first-run syndication. Ratings so far on the series averaged 3.6, according to Nielsen’s national syndication barter rankings. “That’s not a barn burner,” said one analyst, although the ratings improved to 4.0 in the second week of November.
“Baywatch,” now in its sixth season, has suffered a 22% slippage in ratings over the past year, Nielsen reported, although it is still a hugely valuable property. Its sale into rerun syndication this year added $33.9 million in revenue out of a total of $160 million for the first nine months. And All American’s deal in May to license “Baywatch” to USA Network for cable ensures the program will be a cash cow for some years to come, said Josephthal Lyon & Ross analyst Dennis Mc Alpine in a recent report.
But given the age of the show, the consensus on Wall Street is that the syndie needs to reduce its reliance on “Baywatch.” “The overriding issue is that the company has to get beyond being a one-trick pony,” said one Wall Street analyst who did not want to be named.
That is particularly important given the recent consolidation in the entertainment industry and growing alliances between networks and producers. The Federal Communications Commission’s decision to repeal the primetime access rule, which provided a valuable window for independent producers, has made life tougher for All American.
Network challenge
“Its more of a challenge because you are competing with the networks,” one analyst said.
All American’s past attempts to develop new hits have failed. Earlier this year, ABC did not pick up the syndie’s pilot “The Colony,” while last year “Sirens” was not renewed, although the deal with Gerber is designed to improve All American’s network programming business. All American took over distribution of “The Richard Bey Show,” but its outlook for next year is uncertain.
What has given investors confidence in the past year – aside from “Baywatch’s” strip syndication revenue – is All American’s $52 million acquisition of international distributor Fremantle Intl. The deal added a second revenue stream to All American and also brought the huge advertising agency Interpublic into the picture. Interpublic, a major buyer of advertising time in Europe, sold Fremantle to All American in a cash and stock deal. Interpublic is now a 37% shareholder in the syndie, although it is selling down its stake slightly as part of the public offering.
To run Fremantle, All American hired the distrib’s chairman Lawrence Lamattina away from Interpublic, giving investors the “sense that there is more professional management now in (All American),” one money manager said.
Fremantle is already helping boost All American’s earnings. While interest expense was up as a result of the Fremantle deal, the syndie still reported a net profit of $4 million for the first nine months, compared with a loss of $2.6 million a year ago. Natwest Securities analyst Paul Marsh noted in a recent report on the company that it was able to pay $7.5 million off its $35 million in acquisition debt on the deal well ahead of schedule.
The October acquisition of Goodson complements the Fremantle acquisition as well as positioning the syndie for an expected return to favor of gameshows in the United States as the popularity of talkshows wanes. Fremantle was the distributor of Goodson’s gameshows in Europe, and All American said in its prospectus that the deal enables Fremantle to expand further distribution of Goodson gameshow formats in Europe.
Gameshow treasure trove
Goodson has only one game show in production domestically – “The Price Is Right.” But its collection of 46 gameshow formats – from “Password” to “What’s My Line?” – positions All American well if the cycle turns.
And if All American buys out Interpublic’s stake in the meantime, all the better. All American said in the filing that it had not decided whether to exercise the options, and execs did not return calls. Wall Street sources say the syndie would like to own Goodson fully, but “they wanted to be careful about not taking on too much debt” in the deal.
