NBC, AOL TW eyeing options

Aug 26, 2002  •  Post A Comment

NBC and AOL Time Warner are seeking to benefit from the current industry upheaval by talking to each other-and to companies including Vivendi Universal, MGM and Cablevision Systems-about buying, swapping and merging entertainment assets.
NBC and AOL Time Warner executives say their talks are “very preliminary,” that exploratory meetings are scheduled, and that there is new impetus to pursue growth opportunities available only now because of restructuring by other companies.
NBC and AOL Time Warner, separately, have begun discussions with Vivendi Universal, which may consider spinning off some of its entertainment assets (including the USA Network, Sci-Fi Channel, Universal Studios and Universal Music), and with MGM, which has been straightforward about its interest in gaining greater scale.
Talks between NBC and AOL Time Warner, and those that they are having independently with other media companies, range in topic from simple promotion and programming partnerships to more ambitious alliances such as combining some of their assets into new, stand-alone entities, sources said.
For instance, NBC has been in discussions with its partner Cablevision Systems about buying the Rainbow Media Group, a former tracking stock that the cable operator has abruptly taken private. MGM has a 20 percent stake in the Rainbow cable networks.
As reported exclusively by Electronic Media, Cablevision has rejected NBC’s offer to buy Cablevision’s share of Rainbow, and NBC now is considering other means to protect its 27 percent Rainbow stake, sources said. NBC would rather acquire and own some or all of the Rainbow assets rather than hold stock in Cablevision, which could use the funds NBC offered Cablevision to pay down its own debt. Cablevision previously spoke with interested parties about possibly selling Rainbow, which is valued by analysts at between $3.4 billion and $4.4 billion.
AOL Time Warner Chief Executive Officer Richard Parsons and NBC CEO Bob Wright had casual discussions in the spring about somehow aligning some of their entertainment assets, possibly including Turner cable networks, mirroring a deal AOL Time Warner Vice Chairman Ted Turner tried to accomplish several years ago.
AOL Time Warner now is free to negotiate deals that could involve Warner Bros. studios, The WB and HBO, which it soon will once again wholly own as a result of the recently announced Time Warner Entertainment restructuring. It also regains 50 percent ownership of cable networks Court TV and Comedy Central, which it may sell as it needs cash to reduce its $28 billion debt.
“We haven’t talked to anybody about any of our assets,” Mr. Parsons said in an interview last week. “We’ve been doing an internal review of all of our assets to see which are non-core and non-strategic.”
He added, “There is nothing teed up and ready to take off now. [But] now I’ve got the flexibility to operate these things in a more integrated fashion in-house and to explore creative opportunities that, before, were too complicated to explore.”
For his part, Mr. Wright recently told Electronic Media, “We are not in a position at the present time where we want to give up control of NBC in any form.”
However, Mr. Wright, who was on vacation last week, has said he would be interested in acquiring entertainment properties from companies such as AOL Time Warner, even if it meant sharing ownership and management of some combination of cable networks and other entertainment assets in a new entity under the right conditions. In the past, NBC, AOL Time Warner and others have dashed such plans over control issues.
Control might not be as big a sticking point in a plan to spin off Vivendi Universal Entertainment assets in a stand-alone entity that also would include some assets from John Malone’s Liberty Media Group (such as the coveted Discovery Communications and Starz Encore service). That plan would likely welcome the addition of NBC. It also is believed that Vivendi Universal would want to retain some ownership stake in a new entertainment entity, which could be valued at more than $40 billion, sources say.
VUE Chairman Barry Diller, with whom NBC had serious merger talks several years ago, has a large financial stake in those entertainment assets. Mr. Malone is a 4 percent shareholder in Vivendi Universal and a 22 percent shareholder in Mr. Diller’s separately owned and controlled USA Interactive. Both Mr. Diller, who has a 1.5 percent stake in VUE, and Mr. Malone might be more interested in protecting their stakes than in managing or controlling a newly formed entity that includes their assets, according to sources close to the companies. However, other players such as NBC, Viacom, AOL Time Warner and Walt Disney would likely be interested in acquiring all or some of the VUE assets, sources said.
Vivendi Universal, which needs the proceeds from asset sales to reduce its nearly $19 billion debt, also would want to retain at least an initial 51 percent stake in any newly formed entertainment entity, sources said.