Staff Reporter

From the outside, the 27-story highrise looks like any other buttoned-down business emporium along the Miracle Mile skyline.

But inside, men in suits are extremely scarce.

On a third-floor sound stage, Steve Kmetko dishes out gossipy Hollywood news bits on a set that features a goldfish tank shaped like an exclamation point, with the letter “E” etched into it. Meanwhile, the “Talk Soup” crew is wandering through the building looking for anybody willing to put on a ridiculous costume; one recent week, a group of volunteers was spotted in the building’s parking lot dressed up as a mob of Abraham Lincolns, assaulting spacesuit-clad host John Henson with butterfly nets.

Yes, this is the headquarters of E! Entertainment Television, a company whose president and chief executive is known for having shaved the corporate logo into his head Mohawk-style to celebrate the network’s launch in 1990.

E!’s growth curve since then has been steep and it’s expected to get even steeper now that Walt Disney Co. owns a big chunk of the company. That is, if E!’s CEO Lee Masters can elevate the channel’s substandard ratings out of the Nielsen netherworld.

From about 15 million subscribers when Masters took over a flailing cable channel called Movietime and transformed it into E! seven years ago, the network now reaches 42 million people.

Revenues have grown from an estimated $3 million in 1990 to an estimated $97 million in 1996, according to analyst Derek Baine with Paul Kagan Associates. Baine estimates the network’s 1996 operating cash flow was $29 million and will reach a projected $36 million this year.

(E! doesn’t disclose financial figures; Masters said the numbers from Kagan, a Carmel-based research firm that specializes in the cable industry, are a bit high for 1996 and bit too low for 1997.)

Any way you measure it, E! is a network on the rise. And although many observers predicted a change in programming and direction after Disney and Comcast Corp. teamed up in January to buy a 58.8 percent stake for $312 million, Masters said that isn’t going to happen.

“We anticipate, over the next few years, greatly increasing physical production,” said Masters. “I don’t know that it’s a change of direction as much as ramping up and going more aggressively in the direction we have been. If anything, we’ll be more of what we are.”

He also dismisses speculation that Disney would sanitize E!’s sometimes edgy, sexually explicit programming including Howard Stern’s TV show.

“After seeing the box-office receipts (from “Private Parts,” Stern’s recent motion picture debut, which took in more than $15 million in its first weekend), I don’t think that’s a big concern. I’m absolutely certain that if Disney had the opportunity to have that picture, they’d jump at it.”

E!’s success has happened almost in spite of itself. Masters has a reputation as a creative programmer who is able to produce viable shows on a tiny budget. “Talk Soup,” for example, one of the network’s most popular shows, is produced for about $10,000 an episode next to nothing relative to the $40,000-to-$50,000-per-episode cost of the sensationalistic talk shows “Talk Soup” pokes fun at.

The clips of talk shows parodied in the half-hour “Talk Soup” show are supplied for free by their producers in exchange for a brief promo.

Other E! offerings include reruns of “Melrose Place” and a few classic sit-coms, occasional lingerie contests or other “sexploitation” extravaganzas, Kmetko’s entertainment news show, the TV version of Stern’s radio show taped at Stern’s studio in New York, and various Hollywood gossip and fashion shows hosted by such notables as Joan Rivers and Downtown Julie Brown.

But the problem with cheap, throwaway programming is that few people watch it. Although Stern’s show, the network’s highest-rated program, manages an average rating of between 0.8 and 0.9, E!’s average prime-time rating during the fall season was 0.3, according to Baine.

A 0.3 rating is infinitessimal by broadcast network standards and considered fairly low for a cable network the size of E!. The top-rated cable network, TBS, averaged a 1.95 prime-time rating last fall. In the middle range are networks such as Comedy Central, which averaged a 0.48 rating.

The only networks with as many subscribers as E! that pull down a comparably low rating are two channels usually banished to the upper reaches of the cable dial: Country Music Television and Headline News, Baine said.

“The only way they’re going to be able to boost their ad revenues is to get the ratings up, and the only way to get the ratings up is to put on more-costly programming,” Baine said.

Masters confirms that is precisely what he plans to do this year, although he provides few specifics.

Disney’s presence on E!’s board of directors is expected to boost the network’s subscriber base because of the entertainment giant’s immense leverage with cable operators. Because it also owns such highly successful cable networks as ESPN, the Disney Channel, Discovery and A & E;, Disney is in a position to put pressure on cable operators that want its other channels to pick up E! as well.

While E! is targeting domestic markets for most of its growth Masters said there is room for the channel to expand into about 25 million more American homes it is also ramping up for a major overseas expansion. Last summer it launched its first international division, a Latin American network stretching from Mexico to Argentina.

Meanwhile, E! channels are slated to launch in Canada and Spain this year, in England, Germany and Japan in 1998, and in France and Italy in 1999.

The 400-employee E! also has a major online presence, with an Internet division employing 38 workers. Masters acknowledged that the channel’s advertising-sponsored Web site is losing money but then, he said, so did cable networks in the early days of the industry.

“We think the Internet and Web sites are going to lose money for a while, but it’s really small potatoes from a losses standpoint, and the upside is significant,” Masters said. “At its worst, it’s a great marketing tool.”

E! may well be growing too fast for the building that houses it. With four years left to go on its 10-year lease at 5670 Wilshire Blvd., E! recently hired real estate brokerage Metrospace/CRESA to help it explore options, which might include taking up more space in its existing building or moving elsewhere.

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