Edison Project's Future Hinges on Financing

COME up with a million dollars by February or leave town. That's what a Colorado Springs, Colo., elementary school last week told the Edison Project, a New York City-based effort to run public schools for profit.

``There's lots of questions as to whether or not they can do it,'' says Jim Barren, the principal at Roosevelt Elementary School, which will become one of the first Edison schools if the venture can prove its financial mettle. ``I will feel better if they come up with the money.''

Skeptics say survival of the entire Edison Project - launched in the spring of 1992 to merge entreprenurial energy and efficiency with the latest in education at no extra cost to a community - hangs on the success of current, frantic efforts to find adequate financing in the next few weeks.

The original vision of project founder Christopher Whittle was 1,000 private schools built from scratch. But with financing possibilities limited, the current goal is to open several schools by the end of next summer. Yet, local administrators worry about the financial viability of the program and are reluctant to sign up. And some, such as Roosevelt Elementary, want to see money upfront - in an escrow account - before they sign a contract.

At the center of the uncertainty stands Mr. Whittle, the one-time master of a vast and growing media empire, Whittle Communications LP, with $200 million in annual revenues. Now, financial troubles have forced Whittle to shut down or sell off virtually all his advertising-driven media properties, including Channel One, which broadcasts news and commercials into nearly 12,000 schools.

Whittle is confident

Despite recent difficulties, Whittle exudes his trademark exuberance about the project. ``As we speak, we are putting the finishing touches on the financing, which we call the launch financing, which actually is the money that opens the schools,'' he said in an interview. ``We're pretty optimistic about that and think we will have something to announce soon.''

Whittle has enjoyed notable past successes. His first big splash came in the 1980s when he nursed Esquire magazine back to fiscal health. He then invented Channel One, which has profited tidily from advertisers' desires to appeal to schoolchildren.

These successes funded the trappings of his empire. In 1991, Whittle opened a $50 million colonial-style corporate headquarters in Knoxville, Tenn., where waiters served the boss in a private wood-paneled dining room. Comforts also extended to top executives, whose annual salaries ranged from $500,000 to $1 million, according to ex-Whittle executives.

By the 1990s, however, Whittle's two major health-related ventures - magazines in doctors' waiting rooms and a medical TV channel - were losing between $1 million and $2 million a week, a former Whittle executive estimates. ``In a nutshell, our education businesses fared fine, and our health businesses hit the wall and cost us lots of money,'' Whittle says.

Adds Tom Ingram, a former Whittle vice president: The firm ``grew too fast without enough capital backing and without proper management, in some cases.''

Insiders say Whittle, himself, deserves much of the blame because he did not smell trouble until it was too late. ``He always thought he could sell his way out of trouble,'' says one former top Whittle executive. ``That, of course, created financial drain since many of these properties lasted longer than they should have.''

Pressure on Edison venture

The failures put more pressure on the last, most-ambitious venture - the Edison Project, for which investors Whittle Communications, Time-Warner Inc., Philips Electronics North America, and Associated Newspaper Holdings have already spent $45 million, 80 percent of which went to research and development and 20 percent to marketing for the project.

``They shouldn't have hired so many of us to work on things; they should have saved more money for start up,'' complains Cornell University professor John Bishop, one of several hundred consultants on the Edison program.

Whittle's other troubles have hampered efforts to raise new start-up monies for Edison. ``The atmosphere has been affected ... by the mostly negative press about the other Whittle ventures,'' says Chester Finn, a former assistant secretary of education who joined Edison in 1992.

Defections and layoffs have also damaged the firm's reputation. For example, one of the best-known Whittle hires, Hamilton Jordan, President Carter's White House chief of staff, has grumbled privately that his years at Whittle were a waste of time.

And Whittle's relations with Benno Schmidt, a former Yale University president now heading Edison, are said to be strained. Some reports say Mr. Schmidt seeks to run Edison without Whittle. Schmidt did not return calls placed to his office.

For his part, Whittle denies the reports and says he is glad to have Schmidt aboard. ``When you have strong personalities in the company, you do have bumps,'' he says. ``Your option is: Don't have strong personalities. I've never thought that's smart policy.''

Often lost in the discussion is the school program, which experts have praised for innovations, such as keeping students in class from Aug. 15 to July 1, giving them computers for home, and stressing language training.

Praise and impatience

But with praise comes impatience to see the program in action. ``You have to open a school to show people what you can do,'' says Diane Ravitch, a New York University historian who has written several books on education.

And, thus, finances become critical. Because of high capital costs, such as providing computers, each school will cost roughly $1 million or more just to open, Mr. Finn says.

A few years back, Whittle seemed focused less on the costs and more on his vision to create 200 for-profit schools by 1996. Wall Streeters responded that they wanted more details before handing over $2.5 billion he wanted at the time. ``What they came out with is the Grand Plan without details,'' says one investment banker who Edison solicited unsuccessfully for financing.

Now Edison is building from the ground up. ``We're not very focused on a particular number,'' Whittle says. ``The most important thing we're focused on is opening schools in the fall of '95 - opening as many as we can reasonably handle,'' Whittle says. ``Then, from there, we grow it as rapidly but reasonably as we can.''

So far, two five-year contracts with Edison have been signed: with the Martin Luther King School in Mount Clemens, Mich., and the Boston Renaissance Charter School. If Whittle can come up with the cash, Roosevelt Elementary could become the third, and more may follow - the first sparks of what Whittle hopes will be an ``education revolution.''