The Journal News from White Plains, New York • Page 58

jjiyf-'lijTi i Money 110 Sunday, August 14, 1994 Rockland Journal-News Whstile to sell Channel One to avoid bankruptcy ceivers. In return, teachers show students a weekday TV newscast that includes advertising from sponsors such as Levis, Snickers, Head Shoulders shampoo, Wrig-ley gum, and Maybelline cosmetics. About 12,000 schools, with over 8 million students, participate. But ground. This venture was designed to deliver medical information and pharmaceutical advertising to doctors via their computers and TVs.

"Had we launched it two years earlier or 18 months later it would have been extremely successful," Whittle says. In tests, the company discovered that "physi- cians liked it tremendously." But too few pharmaceutical companies bought ads. "The pharmaceutical industry has been in enormous turmoil," Whittle says. He notes, for example, that four of the top 10 drug companies have been involved in major mergers -over the past 18 months, and the other six were at least involved in takeover talks. Pharmaceutical companies also were nervous about the growth of managed health care -and nagging fears that doctors might not be free to prescribe expensive brand-name drugs under the Clinton-proposed health care plan.

"You put them all together, and you couldn't find a rock to put your foot on," Whittle says. Despite his problems, Whittle remains a believer in the big, and I controversial, idea that made him famous: People will accept adver Using pitches in the most unlikely -places through what Whittle calls media." "It has succeeded in supermarkets and schools," he says. "I'm convinced that it will succeed in health, although not with us. And it will probably succeed in other venues." He adds, though, that "like anything, these things take time." ing and testing out ideas for ventures he refused to name but which never flew. "If we had less on our plate, Special Reports may have succeeded.

We should have been focusing." Whittle's critics say he refused to acknowledge that Special Reports wasn't working even when it was obvious to others. His bankers became nervous about the operation in 1993 when it failed to make the undisclosed profits that they had agreed were needed to keep it going. The issue wasn't the magazines, which ran articles and advertising tailored for patients sitting in doctor waiting rooms. The losses mostly came from the Special Reports video venture: As with Channel One in the classrooms, Whittle offered to give doctors free TVs and VCRs if they would show his programs in their lounges. Many physicians balked.

And advertisers were reluctant to buy time because they feared patients might be offended by sales pitches aimed at them while they anxiously waited for their doctor's appointments. Whittle was confident doctors and advertisers would drop their objections if Special Reports worked out in the offices where it did appear. So his bankers agreed to his requests to keep Special Reports going for 18 months in the hope that the enterprise would -turn around. It never did. His other doctors' office project, Medical News Network which he once predicted could generate revenues of $500 million a year didn't even get off the Edison is owned by Philips Electronics NV, Britain's Associated Newspaper Holdings PLC and Whittle but is not a part of Whittle Communications.

Still, the project will benefit if K-III buys Channel One, Whittle says. "It will clearly demonstrate that in the education sector we've had an enormous amount of success, and we can build a big asset and realize the value on that pretty quickly." If K-III gets cold feet, Whittle might have to revive a lucrative deal: Goldman Sachs offered a package of debt and equity worth $200 million for all of Whittle Communications in exchange for 55 percent of the media company. Although Whittle has a personal stake in the outcome he's still a major shareholder in the company he doesn't have to worry about going bust. He pocketed about $40 million six years ago by selling some of his Whittle shares. He wouldn't discuss other details about his private wealth.

In fact, finance seem to be less important than ego now to Whittle as he, his financial backers, and observers try to figure out who or what is to blame for the demise of Special Reports and Medical News Network. He takes responsibility for Special Reports. "I just don't think we executed (it) as well as we should have," he says. "Our distribution and our product were good. Our advertising selling side was not what it should have been." He says that was partly because he was distracted.

In addition to the company's media projects, Whittle says he was shap By David Lieberman USA TODAY Christopher Whittle's words are upbeat, but his voice betrays him: Times are tough for the onetime media wunderkind and founder of Whittle Communications. The man who earned his reputation by devising novel ways to expose us to advertising, now spends time most days negotiating with investment bankers to raise cash for his foundering businesses. "We did try to do too much," Whittle, 46, says. Now the process of setting things right is "a little sloppy and a little painful. It's a real combination of pain and pleasure that's kind of how I go through my day now." Whittle is dismantling much of his Knoxville, based company and with it his 1980s dream of a media empire that would produce advertiser-supported books, magazines, television shows and computer services for distribution in schools, doctors' offices, supermarkets, and other places where people gather.

He once imagined his success would propel him to the governor's mansion in Tennessee, or the U.S. Senate. No more. Revenue at the private company, which has about 625 employees, reportedly have fallen sharply from $230 million in the fiscal year that ended June 1993. Losses piled up including an estimated $25 million from Special Reports, a collection of magazines and TV shows for doctors' waiting rooms.

Whittle veered dangerously close to bankruptcy. In June he is said to have defaulted on a $100 million bridge loan that had kept the company going since 1992. (Whittle denies this, but won't comment further.) To recover, he recently shut down Special Reports; his book publishing operation; and Medical News Network, a computer and TV information service for physicians. Soon his company may only consist of a collection of small businesses including the Colorado Silver Bullets, a women's professional baseball team, and a company that gets consumers to sample products. Whittle blames himself for some failures.

He had bought and revived Esquire magazine with college pal Phillip Moffitt in 1979 and started several small magazines in the 70s and '80s. But he says he didn't realize what it took to get into electronic media in the '90s. "We thought that we could launch large electronic businesses with the same velocity and quantity that we had launched small print ones. I think that was a mistake." Now Whittle is trying to salvage his two biggest projects and remain at their helm: He plans to sell Whittle Educational Network to K-III Communications Corp. for $300 million.

K-III, which is run by leveraged buy-out specialists Kohlberg Kra-vis Roberts reportedly has agreed to keep Whittle on as chairman. The centerpiece of the division is Channel One. The much-debated, yet profitable, venture offers high schools a deal: Whittle provides free TVs, VCRs, and satellite re v.vXXvXX' jijijlx'ixj The best Merchandise Who owns Whittle Philips JJ.me Electronics NV warner Whittle and Associated other limited Newspapers partners Holdings PLC Source: Whittle Communications Sam Ward, USA TODAY critics have blasted the advertising appeals to students. Whittle's bankers, Dillon, Read plan to raise about $50 million in private markets for The Edison Project, a company that expects to make a profit on schools it will operate in conjunction with local districts beginning in fall 1995. Whittle says the Edison Project, led by former Yale President Benno Schmidt, has deals with 24 communities.

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