Media Deals to Remember from 2001

Vivendi, Comcast, NBC, Disney, and other big names spent billions -- and remade the industry's landscape

By Ron Grover

It's nearly New Year's Day, so I figured it's time to make my list of the Top 10 media deals made -- or attempted -- by moguls in New York, Beverly Hills, and even Englewood, Colo. (yes, that's you John Malone). Here, in no particular order, are the moves that will have far-reaching implications for the future well being of moguls everywhere.

1. EchoStar's planned $26.8 billion merger with DirecTV

While not the largest deal of the year, Charlie Ergen's bold bid for the General Motors-owned satellite service represents the kind of media-upstart-makes-good story that years back would have featured a swashbuckling Rupert Murdoch or John Malone. Ergen may not win this bid -- it still faces federal antitrust scrutiny and opposition lobbying from spurned DirecTV suitor Murdoch -- but does anyone doubt that Ergen hasn't changed the TV landscape forever?

Size really does matter, more than ever, in delivering TV and interactive services to American households. Ergen's brilliance in marketing his satellite-TV services has forced cable companies to spruce up their customer service, moderate future price hikes, and accelerate the rollout of new interactive services. And does anyone think it's merely coincidence that just after Charlie entered the DirecTV bidding in August, Comcast launched its (eventually successful) hostile bid for AT&T's cable unit?

2. Comcast's deal to buy AT&T's Broadband cable unit

Or you could call it the final revenge of father-son team Ralph and Brian Roberts. This deal was payback for AT&T's acing out Comcast in 1999 when both were vying for MediaOne. Provided the deal passes regulatory muster, Comcast will have some 22 million subscribers, approximately one in every five TV households. What next for the father-son tag team? Sooner rather than later, they'll bid to take over a programming company. With visions of creating the next AOL Time Warner, Walt Disney could be their next target.

3. John Malone's European forays

No year would be complete without a deal by Malone's Liberty Media -- or several of them. This year, the dealmaking machine from Englewood, Colo., announced nine different moves that made it clear he intends to become the Continent's most powerful TV operator. He's already on his way to controlling two-thirds of the TV households in German. Expect more overseas deals from Malone next year.

4. Vivendi Universal's $10.3 billion deal to buy Barry Diller's TV assets

This probably marks just the beginning of a frenzy that will ripple through the industry next year. And many of the moves will be made by Diller, for whom doing deals is almost as effortless as breathing. He'll spend much of his time on what Vivendi didn't buy -- USA Networks Interactive, which owns the Home Shopping Network, Ticketmaster, and a long list of travel and other transactional sites. Diller's company has $4.3 billion in sales, $620 million in cash flow, and, most important, when the Vivendi deal closes, $3 billion in cash.

What to do with all that cash? Topping Diller's wish list has got to be Yahoo!, the No. 2 search portal. That would give him the one thing his transactional company still needs -- a way to deliver large numbers of eyeballs to any one of his sites. Yahoo! is still too expensive for Diller, I figure, but when it comes down in price, he'll likely make his move.

5. NBC's $1.98 billion purchase of Hispanic broadcaster Telemundo Corp.

The price was tiny, but not the implications. With this buy, NBC owner General Electric made it clear that it intends to stay in the network-TV business. NBC can use Telemundo's 18 TV stations, which include eight full-power and 10 low-power ones, as it contemplates a digital future. And it no doubt lusts after a big piece of the fast-growing Hispanic TV market.

NBC's Telemundo acquistion has already set off ripples that could prompt a bidding war for Paxson Communications, which owns the low-rated Pax Network and 36 mostly low-powered TV stations. Paxson, 32%-owned by NBC, filed suit after NBC bought Telemundo, alleging that the Telemundo deal would give NBC too many TV stations for the Federal Communications Commission to allow it to also buy Paxson, as NBC had promised. But Paxon needn't worry. Already, film studio MGM says it could see a fit, once Paxson is freed from its NBC contract.

6. Disney's $5.2 billion purchase of the Fox Family Channel

While other media giants were contemplating complicated transactions involving bidding wars and regulatory issues, Disney simply bought a cable channel that is seen in 81 million U.S. homes and has 34 million subscribers in Europe and Latin America. Critics say Disney overpaid, but the company says access to eyeballs in fast-growing foreign countries and a healthy library was more than worth the $5.2 billion.

More important, Disney also says it can defray programming costs by "repurposing" shows from its ABC Network by showing them again on its newly christened ABC Family Channel a few days after they air on ABC.

7. MGM's $825 million purchase of a 20% stake in Rainbow Media

MGM Chairman Alex Yemenidjian is building a full-fledged media company out of the remnants of the once-mighty movie studio. The 20% stake in Rainbow Media gives Yemenidjian the inside track when it's time to peddle MGM's movies to Rainbow's cable channels, which include AMC and Bravo. Yemenidjian's overall plan includes launching cable channels around the world and an alliance with NBC, the only TV network not controlled by a major media company. Parent GE has so far resisted MGM's overtures, but stay tuned. If MGM does a deal with Paxson (see No. 5), that would scotch its NBC plan, but so what?

8. Viacom's $3 billion deal to buy BET

The deal, announced at the end of 2000 but completed in early 2001, was a wakeup call to other media companies that the hottest cable and TV properties would soon be gone. With its 62.4 million households in the U.S., and 24-hour Jazz Network channel that's seen in 14 other countries, Black Entertainment Television has established itself as the preeminent media outlet for the African-American audience. Given BET's steady revenue stream from cable subscribers, the purchase was also a hedge against Viacom President Mel Karmazin's strategy of betting on advertising revenues.

Viacom's BET deal soon sent buyers to Hispanic TV broadcasters Univision and Telemundo, which, like BET, serve fast-growing niche audiences. NBC bought Telemundo, while Viacom is still lusting after the larger Univision. The price BET got from Viacom also prompted Haim Saban, Fox Family Channel's 50%-owner, to force News Corp. to put their jointly owned channel up for bid, which was bought by Disney (see No. 6).

9. Cox's losing bid for AT&T

O.K., this wasn't a winning bid. The fact that Cox Communications stepped up to make any bid at all represents a large step forward for a cable company that seemed content to play on the edges of the merger game. Sure, it has bought systems over the years, but it never took huge bites. Cox is a small fry in the land of giants, and its 6.2 million subscribers are no match for the likes of EchoStar and Comcast, which will each control (more or less) one-fifth of America's TV households if their deals come through.

In 2002, Cox will either be bought by or purchase another cable operator to increase its size. I figure Cox and Charter Communications, Paul Allen's similarly sized cable company, are made for one another. Look for Allen to make a bid.

10. Gerry Levin's planned departure from AOL Time Warner

The soon-to-be-retired AOL Time Warner CEO must have struck a heck of a deal with AOL Chairman Steve Case to induce him to turn over control of the company to Richard Parsons, who had shared chief operating officer duties with Case's hand-picked Robert Pittman. Under the new setup, Pittman will be the sole chief operating officer. When Parsons takes over this spring as AOL Time Warner's new CEO, he'll need all of his legendary conciliation skills to keep the still-warring factions of the former AOL and Time Warner companies from battling.

Pittman, sources inside the company have said, incited some of those battles and was too eager to hand out financial forecasts that were a tad optimistic for a merged company still feeling its way. Levin's final deal was also brilliant in that it followed several smaller ones to put his own folks in control of the hottest pieces of the company. I figure Pittman, for all his pledges of loyalty, cannot last long as Parsons' No. 2. Before long, we'll likely see him running another company somewhere.

Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BusinessWeek Online

Edited by Patricia O'Connell

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