For NBC Chairman and CEO Robert Wright, who also is vice chairman of GE, the agreement announced last week with Vivendi Universal to create a $42 billion media giant is a career-capping deal that ensures the continuation of NBC’s hefty contributions to GE’s bottom line and is the biggest transaction yet under new GE Chairman and CEO Jeffrey Immelt.
After meeting with Universal Studios and Vivendi Universal employees on the West Coast last week Mr. Wright discussed the deal’s promise and challenges with Contributing Editor Diane Mermigas. An edited transcript follows:
TelevisionWeek: After meeting with Universal’s West Coast employees, what do you think needs to be done to put people at ease and to prevent this pending deal from interfering with the creative process?
Robert Wright: I think we just need to be ourselves. They know us. We have to figure out smart things to do to get some synergies out of this transaction. We have tremendous facilities all over the world. We just have to go about our business. The biggest risk we run is people slowing down on their projects. They get concerned about whether their projects are going to be approved. We don’t want people thinking this is a period of uncertainty. That is a big issue. But the only way that can be resolved is with very good communications. Both Ron Meyer [the Universal studio chief] and I each gave that speech to combined groups of people.
TVWeek: What is the payback you expect on the on-demand services you plan to launch once you own the Universal Studios library and cable networks such as USA?
Mr. Wright: We do not have a secret plan to do something dramatically different. We intend to use the product that we have available to help popularize on-demand. But we have to work with cable companies and satellite companies. We have to pay attention to our network affiliates. This is not something we can run out and do unilaterally. Many of the programs have commitments against them and are licensed to other people.
We aren’t going to be able to do anything dramatic on day one. But over a period of time, I think there is great opportunity out there for people getting more programs on-demand. This is what you see with TiVo today.
TVWeek: How much more control will you have over `Law & Order,’ which you pay dearly for now, to use in some limited way in an on-demand offering?
Mr. Wright: I did talk to Dick Wolf (`Law & Order’ producer), and he is very positive about the merger. Dick Wolf’s position is that this is great because he can join the back-end and the front-end of the process together. This presents great opportunities because we’re aligned. But whatever we do will be subject to existing limitations. There is a long-term syndication deal on `Law & Order.’ I don’t know what the conditions of that are. In Europe, Universal just launched a French `Law & Order’ channel.
TVWeek: Could you do that here?
Mr. Wright: I don’t know if we could do that here. We could certainly launch a crime channel, which is what Dick would like to do. I have no idea if we could do that.
TVWeek: How much is this merger a hedge against an inevitable decline in NBC’s ratings, revenues and profits after 2004, when some of its hit series retire? How much of that decline can be offset by merger cost cuts and new revenues?
Mr. Wright: This deal is driven entirely by the fact that this company is available, and that was dictated by Vivendi. Will [VUE] be useful and valuable to us in the next few years? I hope so. But you are making the assumption that all of a sudden, we’re going to forget how to make hits. I never think that way.
TVWeek: What are your plans to revamp or rebrand Vivendi’s USA or Sci Fi cable network?
Mr. Wright: It’s too early to know. Sci Fi is a clear example of a niche channel. It has to stay pure to its audience. We can support that. We can help promote it. I’m sure we can make it better in a number of ways. But we’re not going to be putting tennis on Sci Fi. We’re going to use our creative energies and get cost-efficient and reasonable programming, and we’re going to pay attention to what that audience wants.
In the case of USA, it is a broad-based network, and a lot of people are afraid of that. But combined with NBC, it’s fine. They have to have programs distinctive enough to attract attention to the network, and because they are broader-based, they are more in line with what we do at NBC. So I am sure in the ordinary course of business, we will see programs at NBC that, for whatever reason, might not be a perfect fit for the network but might be a great fit for USA.
TVWeek: So none of your pilot development will go to waste?
Mr. Wright: I think we’ll have more leverage there. With MSNBC, CNBC, Bravo, Trio, Sci Fi, USA and NBC, I think that just about anything we would ever produce we could find a home for, whether it’s news-related, fiction or nonfiction or even sports, since USA does some sports.
TVWeek: Does that mean you are going to get back into the live sports business?
Mr. Wright: No.
TVWeek: And how much better will you be able to amortize spiraling program costs and sell advertising?
Mr. Wright: Just look at what has happened with Bravo. Its prime-time ratings this summer were up 123 percent over last year because of `Queer Eye,’ `Boy Meets Boy’ and other changes at the network. We sold 10 percent more upfront cable advertising with Bravo in the mix.
TVWeek: What about the $500 million you are looking to save over five years?
Mr. Wright: The number I am looking for is $400 million over four years. Of that, about one-third to one-half will be increased revenues. More than half of the $200 million or more that is cost savings will come from facilities; things we buy and lease. The remainder, which represents only 1 percent of the company’s total cost base, is from personnel.
TVWeek: You’re only paying $5.4 billion up front for this company: $1.6 billion in assumed debt and $3.8 billion in a combination of cash and General Electric stock. If you cut costs and generate new revenues totaling about $400 million, that amount will help to offset whatever it costs GE and NBC to buyout Vivendi’s 20 percent beginning in 2006. Does that mean that at the end of the day you could walk away with these assets for not much more than about $6 billion?
Mr. Wright: We still have to buy out Vivendi’s 20 percent, which is a big ownership position.
TVWeek: Have you given Vivendi any guarantees about what it will get for that?
Mr. Wright: No. They will get it and sell it at market, and they will come out rich people. They have a limitation as to how much they can sell every year. But they could be out by 2009, if they wanted to sell everything they had.
TVWeek: And you would buy Vivendi’s stake because you would not want to take the company public?
Mr. Wright: That option remains very viable. There have been no decisions made on whether to do that. GE has three options. We have an option to do an [initial public offering]. And we have the option to pay cash or to pay stock for their stock.
TVWeek: Is it a fait accompli that Vivendi is buying out the 7 percent stake in VUE held by Barry Diller and his InterActive Corp.?
Mr. Wright: Vivendi cannot buy him out unless he wants to be bought out. But Vivendi is obligated to deal with any buyout of Barry. It’s their responsibility, not ours. Nothing may happen on this until we sign a final agreement, which could be in three weeks. He’s really just trying to get the money that is owed to him from the original transaction [Mr. Diller’s sale of USA Networks to Vivendi Universal last year.]
TVWeek: Would you like for Mr. Diller to remain a minority shareholder in the new company? After all, you almost had a deal with him several years ago to merge NBC with his then-USA Networks Inc. (now InterActive Corp.)?
Mr. Wright: We are neutral on that.
For more of the interview and exclusive detail on how NBC will use the VUE assets, see Mermigas on Media, a weekly e-mail-delivered newsletter published by Crain Communications, by going to www.tvweek.com/onmedia or calling 708-352-5849.