What went wrong with Paxson, NBC

Dec 10, 2001  •  Post A Comment

The honeymoon between Paxson Communications and NBC was long over by October of this year, when NBC announced it was buying the Spanish-language network Telemundo, an acquisition that set up insurmountable regulatory obstacles to Paxson’s NBC dreams, such as triopolies in a handful of major cities.
Paxson and NBC constantly argued over programming. Under the deal, NBC is supposed to be able to rely on Pax TV stations picking up NBC
programs pre-empted by a local NBC station. That didn’t happen in Memphis, Tenn., last month. On Nov. 1, the first Thursday of the sweeps period, WMC-TV, the Raycom-owned NBC affiliate there, was contractually bound to carry a Memphis Grizzlies basketball game.
Pax said it could indeed carry NBC’s powerhouse Thursday night lineup-except for “Will & Grace,” the hit that revolves around the lives of two gay men-on WPXX-TV. Pax didn’t think the show fit its family-friendly programming mission. Eventually, it was decided that WPXX would air the Nov. 1 hour of “Friends,” an hour of Pax’s regular programming and “ER.” “Will & Grace” and “Just Shoot Me” ended up running after 11:30 p.m. the following Sunday on WMC.
The Memphis disagreement is just one example of how the 2-year-old relationship soured. When Lowell “Bud” Paxson agreed to sell 32 percent of his company to NBC in September 1999 for $415 million, it seemed like a win-win situation.
The company, which in 1998 launched the squeaky-clean Pax TV network on the 72 TV stations it owns or otherwise controls, got an infusion of quick cash and joint sales agreements that handed a lot of the back-office drudge work to NBC stations. The bigger payoff was the long-term prospect that the trial marriage might eventually lead to Paxson becoming a full-fledged member of the NBC family after the expected lifting of federal ownership caps and auction of digital spectrum had occurred.
Under the strenuously negotiated prenup, NBC could opt out of the relationship in September 2002. Paxson would have to wait until 2004 to walk away.
But now 2004 can’t come soon enough for Paxson, and Dr. Phil could do a week’s worth of he said-she said “Oprah Winfrey” shows about how the relationship went bad.
Rewind to May 16, 2001, the day of Pax TV’s upfront in New York, which was attended by a phalanx of top NBC brass. The big synergistic announcement of the day was that Pax’s 2001-02 lineup would include near-instant replays of NBC’s upcoming drama “Crossing Jordan.”
But in July, a Variety scoop informed Pax executives they weren’t getting “Jordan,” reportedly because Pax TV couldn’t afford the per-episode, six-figure fee. To add insult to injury, this broke on the same day they were scheduled to meet with the consumer press gathered for the summer Television Critics Association tour.
By Dec. 4, when Paxson went public and made two filings to the Federal Communications Commission complaining about NBC, the only current examples of a once-grander plan to share programming were “Weakest Link” and the troubled NBC freshman comedy “Emeril”-both shows that Pax TV President and CEO Jeff Sagansky had turned NBC onto.
The acrimony didn’t stop with programming.
Paxson and NBC argued over money. NBC didn’t want Paxson to take on debt that would become a burden for NBC should NBC take over the family-friendly programmer. Paxson argued that this had a chilling effect on its strategizing.
Paxson and NBC argued over issues of control. By last week, all three NBC appointees to the Paxson board had resigned, but not before Paxson enumerated the ways in which it thought the NBC executives had been pawns in their bosses’ long-term strategies instead of caretakers of Paxson’s long-term good. Paxson also argued that the absence of the NBC trio made it easier for NBC to veto any Paxson plans because the agreement makes it impossible for NBC to veto any proposal an NBC-appointed director voted for.
Paxson argued over definitions of commitment and what constituted violations of the companies’ pledge of allegiance to each other. NBC said it had an option-not an obligation-to eventually buy Paxson. Paxson said NBC had an obligation to act, in the short and long terms, in the best interests of Paxson and its shareholders.
“I think that they felt that doing anything for us was going to increase Paxson’s value,” said Mr. Paxson, who had protested NBC’s courtship of Telemundo from the get-go and who initiated “intense” but doomed settlement negotiations with NBC as November was coming to a close.
By Dec. 4, both sides were acting like any other high-profile couple having a divorce spat in public.
Paxson described itself as a spouse who had been “put on ice” and then humiliatingly jilted when NBC swept Telemundo up in its arms. NBC described itself as puzzled by it all.
Now Paxson wants the Federal Communications Commission to make NBC be either a good partner and dump Telemundo or set Paxson free, and in a related move on the same day it also requested a binding arbitration proceeding, which could have the same result-in addition to perhaps awarding damages.
NBC Chairman Bob Wright, a man who likes to keep his options open, said, “Bud is a wonderful guy, but he is very frustrated by the delays in the broadcast regulatory reform. He is clearly outside of Pax family values on this complaint.”
NBC Chief Financial Officer Mark Begor declared that Paxson has “zero” chance of winning its case.
In broadcasting circles, where Mr. Paxson’s soapbox speech about unsold spectrum being the mother lode of untold revenues is well known, nobody expects any of the fallout to set any precedents that will affect the way they do business. Nor does anyone expect anything to come of MGM Chairman and CEO Alex Yemenidjian’s comment at the UBS Warburg conference in New York last week that “Paxson is an asset that would fit very well with MGM under the right circumstances and at the right price.” Said one network executive familiar with the intricacies of the situation, “If they unwound from NBC, it [would] cost Paxson a lot of money.”
David Boies, the high-profile lawyer hired by Paxson, said the non-FCC proceedings could take several weeks or several months.
However long it takes, it’s clear that this is one marriage Paxson doesn’t want to save.
“If the best we can get out of them is either the FCC or the arbitrator telling NBC to divest itself of its investment in Paxson, then we would be free to go forth and contemplate transactions which would increase shareholder value, either by selling the company or taking on other strategic partners,” Mr. Paxson said. “We’re worried about what their [NBC’s] intentions are.”