NBC/Universal:  Deal of the century?

General Electric/NBC has been declared the winner in the Vivendi Universal auction

NBC/Universal:  Deal of the century?

General Electric/NBC has been declared the winner in the Vivendi Universal auction. The final terms have yet to be determined, but GE has been declared the last bidder standing. Most of the Vivendi media assets would be merged with NBC, and the resulting company, with assets of over $13 billion, would be 80% owned by GE and 20% by Vivendi. To be negotiated are the size of the cash payment to Vivendi stockholders.

According to Forbes:

It would thrust GE into the media conglomerate limelight, merging NBC with Universal Television, the maker of its Law & Order franchise; combining cable networks like Bravo and Trio with USA and Sci-Fi; and adding Vivendi's movie-making capabilities–Universal Pictures made the summer films Seabiscuit and 2 Fast 2 Furious.

The idea is already being termed “the deal of the century.”. Of course, that entails three or four years in a worldwide recession. Still, it's quite a deal. It's not yet clear what will happen with Universal Music Group.

In an interesting Wall Street Journal article (“Behind the Feathers at NBC,” Sept. 2, 2003), Andy Kessler indicates that GE's possible takeover of Universal is a little surprising. Many had thought that GE would be interested itself in spinning off NBC, which it acquired in the late '80s. NBC has had its ups and downs, but it's clearly not as profitable as other GE divisions. Kessler jokingly suggests, “Perhaps Jennifer Anniston is more fun than gas turbine engineers?” (After all, Hollywood glory seems to have been the reason both Seagram and Vivendi initially got into trouble with the Universal properties.)

More seriously, NBC is at a disadvantage now with its rivals. Since the early '90s, the other big TV networks have produced an increasing number of their own programs. 18 of CBS's shows are produced or co-produced by Viacom/CBS. Disney/ABC produces 14 of its shows, as does Fox. But NBC produces only three shows and co-produced six others. In other words, they are not very well vertically integrated with an owned studio.

This hurts in two ways, Kessler writes. First, it misses out on syndication revenue. Second, it loses control over costs. NBC hits like Friends and Law and Order keep demanding more money each year, reducing NBC's margins.

So the point is to get Universal Studios production arm, which will allow GE/NBC to rival the other networks in self-produced shows. One immediate saving: Universal produced Law and Order. But even with all this, Kessler is convinced that after improving the performance, GE will eventually sell out and get the media business.

One side note: Kessler indicates a potential new problem for cable channel owners. “Right now, if you get even basic tier cable, part of your monthly bill goes to each of the channels in your service. Your cable company pays 39 cents per month per subscriber for the USA Network, 18 cents for Lifetime, 12 cents for Bravo, 13 cents for Sci-Fi, whether you want that channel or not.”

But with rising cable rates, there is a growing demand for a la carte choices, where you specify just those channels that you actually would watch. That wouldn't affect the cable providers much, but would hurt some cable channels a lot. [Oligopoly Watch]

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