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Cable Key to NBC-Uni Deal

Oct 6, 2003  •  Post A Comment

The definitive merger agreement that General Electric’s NBC and French conglomerate Vivendi Universal are expected to sign this week, combining NBC’s broadcast and cable networks with Vivendi Universal Entertainment, is expected to create a show business behemoth with synergies that promise to alter the complexion of the entertainment industry.
The $14 billion all-equity deal will not actually be final until the second quarter of 2004, following regulatory approval in the United States and France. However, that is not expected to be a major roadblock. The key was for the two sides to reach agreement on a number of thorny issues, including satisfying minority holders. In general, the solution was found when Vivendi agreed to take responsibility for dealing with Vivendi Vice Chairman Edgar Bronfman Jr. and his family, Liberty Media and Barry Diller-all of whom could affect how much cash Vivendi walks home with after the closing. Liberty and Mr. Diller also have pending lawsuits against Vivendi.
What makes the deal historic is that it marks the long-awaited final chapter of the marriage between broadcast networks and movie studios. NBC was the last major broadcast network not under the same corporate ownership as a major movie studio.
The new company, which is expected to be called NBC Universal, will be a powerhouse on several fronts. It will own coveted cable properties, including USA Network, Sci Fi Channel and Bravo; a film studio that has had a string of hits this year and has a substantial film and TV library; a syndication operation that includes “Maury” and “The Jerry Springer Show”; and a TV production operation whose assets include the “Law & Order” franchise.
But it is likely going to be the cable channels, and how NBC Universal develops them, that will be the most powerful future growth engine and will ultimately determine the real success of the combination, observers said.
In an interview last week in his office in the brand-new, sprawling NBC Cable complex in Englewood Cliffs, N.J., NBC Cable President David Zaslav outlined a streamlined and powerful organization that has some unique ideas about how to win in cable. Essentially, Mr. Zaslav said, cable viewers’ taste boils down to 10 and 14 channels they watch consistentl.
“Our challenge as a company is to make our brands these favorites,” he said. “What we bring to that is strong programming skills and marketing. NBC is much stronger today than anybody predicted it would be.”
Another area where the new company could realize some benefits is with the “Law & Order” franchise. Ownership of the original series is split between creator Dick Wolf, who holds a majority stake, and Universal Television, while spinoffs “Law & Order: Criminal Intent,” “Law & Order: Special Victims Unit” and “Law & Order: Crime & Punishment” are controlled by Universal, with Mr. Wolf holding the minority stake. With much of what NBC pays to carry all four programs now going back into its own pockets, the network will realize significant savings as the new owner in the franchise.
When the deal is completed, NBC will control 80 percent of the merged company, with NBC Chairman and CEO Bob Wright running the combined operations, while Vivendi gets the remaining 20 percent.
Vivendi is going to get $3.8 billion in GE stock that it can monetize immediately. Vivendi is also able to transfer $1.6 billion in debt to NBC Universal. Vivendi will then have to wait until between 2006 and 2008 before it will have the option to sell off its 20 percent stake.
NBC Universal’s first order of business, those sources added, will be intertwining its broadcast and cable groups in a manner almost unprecedented in television. For the first time, a single executive will have overall responsibility for programming a major broadcast network and a group of cable networks. That executive will almost certainly be NBC Entertainment President Jeff Zucker, according to various sources. The business side of NBC Universal, including affiliate marketing and advertising, will likely be centralized under Randy Falco, president of NBC Television Network, and Mr. Zaslav.
Other likely executive appointments, discussed in an interview in September with Mr. Falco, have the company’s sales effort being run by Keith Turner, president of sales and marketing at NBC Television Network, while promotion would be handled by John Miller, president of The NBC Agency. It is highly likely that the new company’s combined syndication operation would be run by NBC Enterprises President Ed Wilson.
That means several top VUE executives, especially those with overall responsibility for TV and syndication operations, may be likely to leave the company. However, Ron Meyer, president of VUE, and Stacey Snider, Universal Studios’ chairwoman (who oversees film, an area in which NBC has no experience), are widely considered safe, at least initially.
Officials at Vivendi and NBC declined to discuss the matter.
While there is some overlap of broadcast and cable operations at other companies, most are separate fiefdoms. For example, Tom Freston, chairman of Viacom’s MTV Networks, oversees all cable channels and reports to Viacom CEO Mel Karmazin. Leslie Moonves, who heads CBS’s entertainment division, rarely gets involved in cable. At The Walt Disney Co., ABC Entertainment President Susan Lyne stays out of ABC Cable. Only at News Corp., where the film and TV units report to President and Chief Operating Officer Peter Chernin, are there combined responsibilities: Tony Vinciquerra, president and CEO of the Fox Networks Group, has responsibilities for cable and broadcast.
Mr. Zaslav believes bringing cable and broadcast under a single management umbrella makes sense. “In the early ’90s there were only 30 channels,” Mr. Zaslav noted. “There was a sense of entitlement in the analog slot. Every year, your audience grew through wider distribution and a higher profile.” Today, he said, nothing can be taken for granted, but size does count.
“We have certain scale advantages, including a broad ad platform,” he said. “We have been very effective in cross-platform selling, using the relationships of NBC. NBC helps all of our cable networks on the advertising side. We have the best ad sales team in the business.”