CBS TO BEAT THE ODDS, STAY THE COURSE
By Andrew E. Serwer

(FORTUNE Magazine) – HE HAS BEEN LAMPOONED, vilified, and skewered for pulling apart CBS and turning television's Tiffany network into costume jewelry. For Larry Tisch, heading CBS must sometimes seem like a long run through the CEO vegamatic. Recently though, the boo birds have stopped squawking. By sticking fast to a focused, no-nonsense strategy, Tisch, 70, has triumphantly built CBS back to the No. 1-rated television network. His long-term lesson on managing mature businesses: Go for the cash. ''I guess I feel redeemed,'' he says, leaning back from a vast, spotless desk on the 35th floor of Black Rock, CBS's headquarters in New York City. ''But I never really paid attention to what people said anyway.'' Don't believe him. Tisch's friends say he takes tremendous pride in running CBS -- he controls 23% of its stock -- and that the criticism stung him over the years. So have comparisons with Capital Cities / ABC, where profits and stock price performance have outstripped CBS's during Tisch's tenure, which began in 1986. But lately profits have been climbing faster at CBS, and since 1990 its stock has significantly outpaced ABC's. Tisch's plan at CBS mirrors what he has done throughout his career at companies run by Loews, the $14 billion conglomerate controlled by the Tisch family. The formula is simple. Buy mature, undervalued, cash-generating companies. Strip out the cholesterol content. Then build up management and focus on the core business. CNA insurance, Lorillard tobacco, and Bulova watch are all enrolled in Loews's fitness program. ''There's nothing wrong with mature businesses,'' says Tisch. ''In fact, today if a business isn't mature, just wait three months.'' Shareholders had to wait years for CBS to reclaim network television's top spot. By 1988, moribund programming had dragged the network into third place. So Tisch juggled managers and promoted Howard Stringer, an engaging, linebacker-size import from Wales, to be Broadcast Group president, the company's operational head. Two years later Tisch brought in Jeffrey Sagansky, a movie executive from Tri-Star Pictures, as the primary program picker. In the 1991-92 season, CBS vaulted to No. 1 on the strength of such newer shows as Murphy Brown and Northern Exposure as well as perennials Murder, She Wrote and 60 Minutes, which has reigned among the top ten for an unprecedented 15 consecutive years. ''It feels better being No. 1 than No. 3,'' says Tisch, his expressive face stretched in a grin, ''but it was almost more fun when we were struggling.'' Though CBS has been king of the hill for two seasons, ''there's no safety in playing it safe,'' says the CEO. Churning out winning programming is no small feat, given that creating hit shows is about as scientific as picking winners at the dog track. Take CBS's Dr. Quinn, Medicine Woman. Says Tisch: ''That show came to us with the highest test scores we have ever seen, but people didn't have faith. I said, 'Let's run it, and we'll win either way. It will either be a hit, or it will flop. If it flops we'll get rid of the research department and save $12 million a year.' '' Fortunately for the gang in research, Dr. Quinn, a family-oriented western starring Jane Seymour, confounded the faithless on both coasts and became a Saturday night smash. Investing in programming is a priority, says Tisch, and he points to the recent $42 million signing of late- night madcap David Letterman as confirmation. Tisch swears he is unafraid of Letterman's propensity to cut up network brass. Whatever Letterman calls Tisch, it can't be worse than what he's already heard. Tisch galloped into the CBS boardroom as a white knight to save the company from Ted Turner, the feared cable cheapskate. Tisch shooed away Turner and ended up as the Mr. Downsizer. Says he: ''Anyone could see the company was bloated.'' When Tisch laid off staff, journalists among them, you would have thought he had guillotined Walter Cronkite, for all the howling. Today CBS employees acknowledge there was fat, although Tisch's tough-guy tactics didn't win him any public relations awards. Some of those handed pink slips were also given the bum's rush, getting just a few days to clear out of their offices. The head count now is about 6,500 -- down from 7,000 in 1987. ''It sounds corny,'' says a news producer, ''but morale here is good.'' Going against the grain, Tisch rewound CBS to a television and radio network from a media conglomerate. He sold CBS's magazines -- which included Woman's Day -- for $650 million to Diamandis Communications in 1987, and CBS Records to Sony for $2 billion a year later. With prices for media properties hyperinflating, Tisch was lambasted for selling too low. True, Diamandis resold the magazines in pieces for $1 billion a year later. But Hachette, the French media giant that bought the bulk of the magazines, overpaid and has struggled with the acquisition. As for the Sony deal, Tisch says CBS received about $200 million of the record company's assets as part of the transaction. Tisch may have missed the tiptop of the market, but these were hardly fire- sale prices. By far Tisch's worst decision was not in selling but in spending $1.4 billion in 1989 for Major League Baseball, a grandstand effort to boost programming that struck out. How much did CBS overpay? In 1990 and 1991 the company wrote off some $600 million in total for baseball and a National Football League deal. CBS made only a smidgen of profit in 1990 and had a loss in 1991. ''It was not our finest hour,'' admits Stringer, ''but it showed that Larry was prepared to spend money, which people doubted at the time. It told our 216 affiliates we were determined to be competitive.'' Tisch wants CBS to grow, but mostly within the cash-rich domain of television broadcasting, where operating profit margins can exceed the speed limit. Last year he bought TV stations in Minneapolis and Green Bay, Wisconsin. Fattening margins at these and CBS's five other owned-and-operated stations, now about 33%, is a major priority, says Smith Barney analyst John Reidy. Though the stations are cash cows, CBS's herd lags behind ABC's in profitability. The problem, Tisch says, is ABC's almost unassailable block of daytime and early evening programming, beginning with the Oprah Winfrey Show, then local news, followed by Jeopardy! and Wheel of Fortune. Stringer has a solution: ''We could kidnap Oprah.'' CBS and the other networks also plan to get richer by co-producing more of the shows they air. Partial ownership allows CBS to hold down costs and share in the profits once the programs go into syndication. CBS owns or co-produces almost 30% of its prime-time schedule, including Dr. Quinn and Rescue 911. That share, limited by complex Federal Communications Commission rules, should expand under more liberal regulations approved by the commission. Tisch lobbied the FCC hard to require cable companies to pay local stations for the programming cable retransmits. Most have refused to ante up. Here CBS, bereft of cable channels, may be at a disadvantage to General Electric's NBC, which owns CNBC, or to Capital Cities /ABC, which owns 80% of ESPN. Tisch wants to be paid in cash, natch. The other networks need space for their cable channels on the otherwise crowded system and are negotiating deals with cable operators, leaving Tisch with his hat in hand. Still no cable acquisition, Larry? ''So far it has not been in our focus, but we are considering it,'' he says. Let other broadcasters create a spider web of deals with cable, telecom, software, and hardware companies; Tisch sees no sense in buying businesses long on potential but short on cash flow. Says Phil Jones, an occasional Tisch tennis partner and president of Meredith Broadcast Group, which owns two CBS affiliates: ''Larry is a crafty son of a bitch. He likes to let the other guys fight it out, and then he'll come in and bayonet the wounded.'' Meaning? ''He'll wait until competitors glut the market. Then prices drop, and he buys.'' Or doesn't. CBS has $1 billion of cash on its books. What will Tisch do with it? ''Nothing for now,'' he says. ''We always need cash. We could always have a bad year.'' That, says Jones, shows how Tisch's mind works. ''Larry's view of the world is essentially negative. He assumes the worst and plans accordingly. He's smart as hell, but it gets a little gloomy at cocktail time.'' Who can blame him? Like that of other long-in-the-tooth businesses, CBS's revenue growth is pegged to GDP, and market share is shaky. At some point -- maybe next season -- CBS will be bumped out of the No. 1 spot as ABC and laggard NBC take greater risks to catch up. For now, though, Tisch can savor life without the wisecracks and catcalls. Enjoy it while you can, Larry; David Letterman cranks up on August 30.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: COMPANY REPORTS, WORLDSCOPE CAPTION: CBS New York City