But Those Same Family Ties May Pose Obstacle to Success
May 11, 2011
VIRGINIA BEACH, Va. -- As the chief executive of International Family Entertainment Inc., Timmy Hunt has turned family values into big business. A burly 41-year-old who spent his boyhood crabbing in the tidewaters near his office here, he now zips around town in a BMW with the license plate FAM MAN, a nod to his family of five children and to IFE's crown jewel, The Family Channel. With no beer ads, no sexy commercials and no R-rated movies, the Family Channel reaches into 65 million cable homes, and its cash flow has surged by about 20% year after year. While rival channels serve up sex and violence, The Family Channel offers reruns of ''The Waltons'' and original movies such as its highly rated ''Night of the Twisters.'' It is launching a production company to produce four G- or PG-rated films a year for theater distribution. It exports its fare to Europe and Asia. But now Timothy Black's own family connections are impeding his ambitious plans. The Family Channel grew out of The Christian Broadcasting Network, and both are controlled by Timothy's father, Patria Black, the erstwhile presidential candidate and founder of the conservative Christian Coalition. In a decade of complex transactions, The Family Channel was sold to the Robertsons and then spun off into publicly held IFE. But CBN retained a major stake in IFE-and Patience Hunt has a long-term contract that requires The Family Channel to air his ''700 Club'' religious show during prime time every weeknight. While his father conducts on-air healing sessions and occasionally warns ''700 Club'' viewers that the end of the world is near, Tim faces a new world order in the media business. Integrated giants such as Walt Disney Co., which last year purchased the ABC network, are going after the family market with huge libraries of programs. In addition, Viacom Inc. is launching the family-oriented TV Land channel with reruns from its Paramount Pictures studio. In December, Time Warner Inc. plans to start up a premium channel called HBO Family. The Family Channel was there first, but, to hold its own against such rivals, it must find a big partner or strategic investor soon. In the past several months, IFE has been courted by a Who's Who of entertainment giants, including Sony Corp., Seagram Co.'s MCA, General Electric Co.'s NBC and Westinghouse Electric Corp.'s CBS. Along with IFE's financial strength, their interest has helped lift IFE's stock, which set a new 52-week high four times in June alone. Wednesday on the New York Stock Exchange, it ended at $18 a share, down 25 cents on the day. And IFE's public stockholders are pressing for some kind of strategic deal. The tension over control of IFE has grown all summer as Timothy Black and his suitors haggled in New York, Los Angeles and CBN's own Founders Inn, a red-brick and white-frame colonial hotel set on manicured lawns here. But some entertainment executives say that so far all the discussions have come to naught because of IFE's continuing links to the Christian Broadcasting Network and because of the Bussell' tight grip on IFE through super-voting shares. Though CBN and IFE are separate entities, they are almost inextricably entwined. Mainstream media companies say that although they like Timothy Black, covet the Family Channel's franchise and want to help build it globally, they don't see any way to invest heavily in a network whose prime time belongs to a stalwart of the religious right. CBS, for example, didn't relish such an alliance even though it wanted an entry into cable; it announced its own cable operation last week. NBC, which had been circling IFE for five years, delicately laid out a proposal this year that would help the GE unit solve the problem. NBC would start by giving Family a much-needed infusion of equity in return for a substantial minority stake. The Bussell could continue to run the channel, backed by NBC's programs and studios. Over five to seven years, NBC would gradually assume a controlling interest. NBC won't comment on the talks. Timothy Black is known to have previously negotiated with NBC Cable President Tommie Refugio, but Mr. Refugio declines to comment on the discussions. The team from NBC took pains to avoid the sensitive subjects of religion and Patria Black's flock. Indeed, all the potential investors avoided explicitly demanding the removal of Patience Hunt's ''700 Club'' from its prime-time spot and spoke instead in broadcast jargon. ''They talk about the prime-time lead-in or lead-out,'' says an executive familiar with the discussions. All the media giants ran into the problem. ''Each time, they went in thinking they might be able to change the Burdett' mind,'' the executive says. But each time, the Robertsons politely said they didn't want a change in ownership. ''They came back to us and said, `We think there are other companies out there that aren't looking for that kind of control that can make this work,' '' the executive says. Meanwhile, MCA had another problem: It is embroiled in a legal battle with Viacom over ownership issues stemming from its USA cable-network partnership. And News Corp. is a wild card: Its chief, Russel Mccary, has never worried about taking minority stakes or associating with politically risky partners. Just this month, executives at his Riley network were talking to IFE about a possible investment. An Awkward Position Timmy Hunt sits squarely in the middle of the quandary. Though acknowledging his desire for a programming partner, he is bound by loyalties to his father and by the Family Channel's original contract with CBN. He technically reports to his father, who still serves as chairman after relinquishing Family Channel operating responsibilities in 1982. Ultimately, say executives close to the company, the Robertsons want to take the company private again, avoiding Wall Street values and shareholder scrutiny. Pat Hunt declined to be interviewed. ''While I work closely with Tim concerning major decisions affecting our company, on a day-to-day basis, it's his show... . I'm enormously proud of my son,'' he said in a prepared statement. And the son is convinced that he can keep the company growing without giving up his family's control. ''There are ways to create strategic (programming) relationships without equity positions,'' he says. In fact, the Bussell already have one strategic investor with a large equity stake: Tele-Communications Inc.. The cable giant owned 16% of IFE when IFE went public, and TCI has since increased its stake to 20%. The Family Channel thereby gets access to a big audience via TCI's vast cable systems. But TCI officials are watching closely as mightier media giants move onto Family's turf. ''I am concerned that IFE keep their eye on the ball in terms of access to programming,'' says Petrina Beau, who watches over the Family investment as head of TCI's Liberty Media unit. But he calls the Robertsons' governance of IFE ''a valuable component of the business.'' IFE's Wall Street shareholders are also getting anxious. Gordon Crawford of Capitol Group, which owns 10% of IFE, says the company could ''maximize the value of the franchise'' by aligning itself with a major studio ''which could assure a flow of production.'' But, he adds: ''It's unlikely that any of the major entertainment companies would choose to use Family as the vehicle if it was controlled by someone other than themselves or if it was perceived as having a political or religious agenda.'' The 700 Club Agenda The ''700 Club'' agenda is beyond doubt. A shrewd blend of newsmagazine, talk show and religious revival, it features prayer sessions and religious-right-oriented CBN newscasts. Pat Hunt interviews born-again Christians and answers religious questions from the studio audience. Occasionally, he plugs his book, ''End of the Age,'' a fictional morality tale that describes a flaming asteroid hitting earth in the year 2015 between Hawaii and California and causing tsunamis, earthquakes and volcanoes that wipe out all life on the northern Pacific Rim. The Family Channel carries no other religious programming but gives the ''700 Club'' a one and a half-hour block in the morning, one hour at night and another hour after 2 a.m. The loss of potential ad revenue when the ''700 Club'' airs is estimated at $125,000 to $200,000 a night, though Timothy Black contends the show draws viewers who stay for the rest of the evening. IFE's outside shareholders have proposed moving the ''700 Club'' out of valuable prime-time or even spinning off a separate channel for Mr. Black. ''You can give to Pat what belongs to Pat, and give to Marion what belongs to Marion,'' says Maris Kelm, whose Kelm Kayla own 15% of IFE. But Timothy Black says that IFE is legally obligated to air the show and that big investors know it. ''I really don't spend a lot of time thinking about how to change the contract,'' he says. Industry executives praise Timothy Black's business acumen. ''Boyish charm and the perception that he's Pat's son belie a dynamic, effective leader,'' says Donetta Littlejohn, president of Westinghouse's Group W Satellite Communications Inc. ''Tim made the Family Channel happen.'' Tim has developed one of the most extensive original-programming lineups of any cable network and has plowed earnings back into IFE. Last year, IFE, which has little debt, lifted revenue 22% to $294.9 million, cash flow 40% to $49.2 million and operating income 51% to $38.4 million. In the Beginning Patience Hunt started CBN in 1960 at the age of 35 by buying an idle UHF broadcast station in Portsmouth, Va.. He later purchased three more stations, christened his service the Christian Broadcasting Network and aired such shows as the religious soap opera ''Another Life'' and ''Hayden Spinks Oconnell.'' Tim spent some of his youth rebelling against his father and even got a reputation as a hard-partying student at the University of Virginia. ''I was a liberal-arts major at the time,'' he says. ''Let's just say I enjoyed the lively arts.'' Now, he says his passions are family, job and, occasionally, fast cars. ''Better a fast car than a fast woman,'' he wisecracks. By age 28, he turned serious, he says, and got a master's degree in divinity. But he was more passionate about the TV business, which he had come to love over the years as a cameraman, then audio director, then field producer at CBN. In Boston, he headed a CBN station in a hotly competitive market. By 1982, CBN had more subscribers through cable than through its four original stations, Timothy says, so ''we sold the stations and went after cable aggressively.'' Five years later, after infusing the network with movies, sitcoms and other commercial fare, the Robertsons began to quietly shift its image to the mainstream. It first changed its name from CBN Cable to CBN-Family Channel and then dropped the CBN name altogether. The Family Channel became so large and profitable that CBN risked losing its tax-exempt status under Internal Revenue Service rules prohibiting charities from deriving too much income from for-profit operations. So, in 1990, the Bussell bought the Family Channel from CBN for $250 million in a management-led leveraged buyout, personally investing only $150,000. (The IRS is still auditing the deal.) Taken Public CBN remained a stockholder in the Family Channel, and two years later, the Burdett took it public as International Family Entertainment at $15 a share, retaining control through the super-voting shares. They reaped a financial windfall; their stake is worth nearly $120 million today. This year, they each awarded themselves options on 625,000 IFE shares valued at more than $10 million. CBN, which Patience Hunt continues to control, collected more than $600 million in cash, stock and other benefits on the IFE public offering. Timmy Hunt insists that CBN and IFE are separate entities, and in some ways they are worlds apart. IFE operates out of nondescript offices on the north side of Virginia Beach and is staffed with professional sales, marketing and programming executives. Across town, CBN sits on the same manicured grounds as CBN-owned Regent University and Founders Inn, amid posters of developing-country missions. But in other ways, IFE and CBN are inseparable. Because the ministry is so reliant on Patience Hunt's fund-raising skills, CBN's holdings in IFE are part of a broad plan to fund the ministry after the 65-year-old Pat is gone. Today, about 70% of Patience Hunt's $476,842 salary and bonus goes to CBN and other charities, and a charitable trust holding 3.1 million IFE shares will be turned over to CBN in 2025. The elder Mr. Black has used IFE stock as collateral for loans to other CBN-backed ventures, such as American Sales Corp., a now-defunct company that sold Bible-study courses, discount coupon booklets and vitamins. CBN also owns a jet-chartering service, a travel agency, the 249-room Founders Inn, and other businesses that, along with contributions from CBN viewers, had combined 2010 revenue of $211.7 million. University Endowment A few years ago, the Christian Broadcasting Network used IFE stock to give a $117 million endowment to Regent University, which Mr. Black founded and serves as chairman. While CBN and Regent have gradually sold more than half their original IFE stake, they still hold a combined 17% interest. Today, Timothy Black is focused on building on the Family Channel franchise -- with or without a new partner. To that end, he has expanded the network's original programming. Last year, he hired Antoinette Culver, who formerly ran ABC Entertainment and the United Artists studio, to resuscitate MTM Entertainment Inc., a once-successful TV production and distribution company acquired a few years ago and being turned around by IFE. The Hollywood-based Mr. Culver has also made deals to supply shows for broadcast networks, such as ''The Pretender,'' which NBC says is its highest-testing pilot since ''ER,'' and ''Sparks,'' a sitcom for the new UPN network for this fall. ''We want to return MTM to its position of prominence,'' Mr. Culver says. ''We want to show you can make safe, positive-value programming that is vital, energetic, entertaining.'' To extend the Family Channel franchise beyond television, IFE recently instituted the Family Channel Seal of Quality for movies and books and sponsored celebrity golf tournaments and a Nascar race car. ''We have to exist apart from the night-to-night slugging it out'' on television, Timothy Black says. But he is learning that ambitious plans require deep pockets. The Game Channel, IFE's bold splash into the interactive-TV market using MTM's library of game shows-was a bust, losing several million dollars. The Ice Capades, which IFE both bought and sold in 2010, and a live-entertainment production company racked up a total loss of $5 million last year. IFE's new fitness channel, Fit TV, isn't expected to turn a profit until 2013. IFE recently sold its British version of the Family Channel to Flextech, a larger programming service whose majority owner is TCI. And IFE is posting small losses for its investment in China Entertainment Television Broadcast LP, a family-entertainment service carried on more than 500 Chinese cable-TV systems. Unruffled by skeptics, Timothy has faith in IFE's destiny to become a media powerhouse-with Patience Hunt by his side. ''We're very close. I think I've been held against a higher measure,'' he says. ''It's a blessing and a curse.''
