At GE, New Pride in the Peacock

CEO Immelt has big plans for NBC beyond the Telemundo buy

For most of the 15 years that General Electric Co. (GE ) has owned NBC, rumors have swirled that the network was for sale. There were some close calls: Paramount, under CEO Martin S. Davis, came close to striking a deal in the early 1990s. Walt Disney Co. (DIS ) almost became NBC's partner. Then Ted Turner made overtures, and Barry Diller made two subsequent runs at the network. Talks broke down over one issue or another, but NBC continued to be fodder for deal prognosticators.

Then came the announcement on Oct. 11 that NBC was paying $2 billion in cash and stock for Spanish-language TV network Telemundo. That news all but squelched any notion that GE is looking to cut the Peacock Network loose. Acquisitions by NBC are rare, and the Telemundo deal, which includes taking on an added $700 million in Telemundo's debt, is the priciest in NBC's 61-year history. So the deal sent a loud and clear signal from new GE CEO Jeffrey R. Immelt, successor to recently retired Jack Welch: The conglomerate's only media unit will be getting some care and feeding. "I don't see NBC as an eroding asset," Immelt told BusinessWeek: "There are some real opportunities there."

Immelt says he is ready to green-light more deals to help jumpstart revenue growth across all of NBC's properties. The network's revenues have doubled in 15 years, to $6 billion, not quite on par with some of GE's other units. "Jeff is on the warpath for growth, and he's being extremely supportive," says NBC CEO Robert C. Wright, who was elevated last year to GE vice-chairman.

LARGER SLICE. What's more, Immelt seems determined to keep NBC in the fold as part of his overall vision of GE as an information-driven company. A cable company or a movie studio doesn't interest him, but more cable channels do, and, he says, "I would like to get more stations." That and other investments could help expand NBC's portion of GE. The network's revenues account for just 5% of the parent's $130 billion in total sales.

Immelt's approach is certain to be liberating for NBC, which Welch kept under tight rein, especially when it came to dealmaking that might dilute earnings. "Jack liked having the network, for sure, but he certainly laid down the law on what it could and couldn't do," says an ex-NBC exec. After the 1997 football season, for example, Welch refused to pay the billions to keep NBC's NFL contract. Welch also faced pressure from investors concerned that NBC wasn't a good fit as the lone media asset in a vast conglomerate. So Welch kept NBC on the sidelines of last decade's megamergers, making smaller investments instead in cable channels such as A&E, American Movie Classics, and Bravo. His boldest moves were internal, launching business channel CNBC in 1989 and all-news channel MSNBC with Microsoft Corp. (MSFT ) in 1996. It cost NBC about $500 million to get both networks up and running, including buying FNN and folding it into CNBC.

By most accounts, Immelt got lucky with his first deal as CEO. The price tag for Telemundo and its 11 stations, say sources, was $1 billion less than when a bid was first discussed six months earlier, due to the weakening ad market. Even so, NBC beat out rival bidders Viacom (VIA ) and Spanish Broadcasting System Inc. (SBSA ) for the No. 2 Latin network in the U.S. after Univision (UVN ) . Telemundo reaches 88% of the 35 million Hispanic TV viewers in the U.S., a market that is expected to grow to 43 million by 2010. And even though $2 billion is the most NBC has ever paid for an asset, Wright predicts that the deal won't end up diluting earnings. That's partly because of changes in accounting rules that will no longer require companies to reduce earnings by amortizing goodwill, the excess of a purchase price over an acquired company's net assets.

As at most media companies, though, times are tough at NBC. Ad revenues are expected to drop 6% this year, to $5.6 billion, vs. 2000, excluding last year's one-time gain from the Olympics. Still, viewership at NBC is up 7% since the start of the fall season, thanks to such stalwarts as Friends, West Wing, and Frasier, and healthy ratings for newcomers Crossing Jordan and Scrubs. Most network audiences are down. And the Winter Olympics in Salt Lake City in February promise big numbers.

Even as the ad climate worsens, NBC, with its new acquisitiveness, may find some bargains. Network President Andrew R. Lack and Chief Financial Officer Mark W. Begor have been chatting with investment bankers about available properties. They're said to be eyeing assets of the TV-production unit that Sony Corp. is shutting down. NBC owns just two of its prime-time shows, Will & Grace and Providence, and owning more prime-time fare would lower the fees it pays other TV studios for shows. Another target: local TV stations, which can be cash cows. Regulators are looking at loosening station-ownership restrictions for networks just as the poor economy has many cash-strapped smaller station groups looking to sell. Wright says he is interested in exercising an option in February to up NBC's 32% to a majority stake in Paxson Communications Corp., owner of network PAX TV and 65 stations.

On the news side, Wright says he'd like to add to MSNBC and CNBC. Some analysts figure that means taking a stake in a news service such as Reuters Group (RTRSY ) or Bloomberg, or even Dow Jones (DJ ), parent of The Wall Street Journal, which co-owns CNBC's operations in Asia and Europe and shares content and revenue with CNBC in the U.S. Wright declined to comment on specifics. But clearly, he and other NBC execs have a new boss who sees the benefits of Big Media--and figures NBC can't help GE long term if it doesn't gain some heft.

By Tom Lowry, with Diane Brady, in New York

— With assistance by Diane Brady

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