Paxson to NBC: Free Me!
Lowell "Bud" Paxson figures he has been touched by an angel. The 66-year-old entrepreneur made a fortune by starting -- and then selling -- Home Shopping Network in the '80s and a slew of radio stations a decade later.
Now, Paxson's big score could come from Paxson Communications, a ragtag collection of 65 TV stations and the seven-year-old Pax Network, which airs family-friendly shows like Miracle Pets and reruns of Touched By An Angel. Pax's network ratings aren't much, but the company's lucrative stable of TV stations is drawing longing looks from media giants clamoring to strengthen their distribution in a fast-consolidating industry.
Just one problem: Paxson is married to NBC in a programming agreement he'll have to undo if he hopes to have new suitors at his door. And NBC Chairman Robert Wright, in his first public comments on the idea, says nothing doing.
BLOCKING THE WAY.
With help from satellite and cable providers, Paxson's TV stations reach 64% of U.S. homes, delivering enough of an audience to entice potential suitors such as Walt Disney, Viacom, and MGM. The stations, says MGM Studios Chairman Alex Yemenidjian, "would fit very well with" his studio's huge library of films and TV shows.
Standing in the way is Paxson's 1999 deal with NBC parent General Electric, which paid him $415 million in exchange for a minority stake in Paxson Communications, with an option to take full control. NBC has until September, 2004, to exercise the option.
Now, Paxson wants to wriggle out of that deal. In mid-April, he's scheduled to try to persuade a New York-based arbitrator to void the agreement, which would free him to seek other deals. The case he'll make: that NBC's pending deal to buy Hispanic TV network Telemundo for $2.7 billion has reduced the value of Paxson Communications and thus the amount the network would pay for control of his company (see BW Online, 3/1/02, "Pax TV's War with the Peacock").
The Telemundo acquisition, Paxson charges, would give NBC three TV stations in each of four big markets, New York, Los Angeles, Chicago, and Dallas. That in turn, he says, would force Paxson to sell his stations in those markets to conform with federal rules forbidding a company from owning more than two stations in a market. "We agreed not to put regulatory obstacles in each other's way," he says.
Paxson's bold gambit may be a legal Hail Mary play, but the timing couldn't be better. Companies that own TV stations are about to become the hottest takeover targets in the media world. That's because, under pressure from a federal appeals court, the Federal Communications Commission is expected to lift another ownership cap, which prevents a single company from owning TV stations that reach more than 35% of U.S. homes. Under FCC rules for UHF, Paxson's stations reach only 32%, but by getting carriage on cable and satellite systems, they extend to nearly 65% of the country.
Currently valued at about $2 billion, including market cap and debt, Paxson Communications would be a bargain for one of the media giants. In fact, the stock is up 40% since last fall on speculation Paxson will extricate himself from NBC.
Nonetheless, NBC gives no indication it plans to let Paxson go. "We're in this for the long haul," says Wright. There's plenty of sniping between the two sides. Paxson insists that NBC refuses to honor an agreement to share TV shows. And he says the one they do share, the hit game show The Weakest Link, was discovered by his programmers in London, who brought it to NBC. "I gave them a hit show, and they give me nothing," fumes Paxson.
NBC says it offers Pax all its shows. And Wright figures Paxson is simply looking for a better deal. "It's the circumstances of the marketplace," says Wright. "Paxson's programming hasn't worked as well as they thought. On top of that, the ad markets are soft, and that doesn't help them either."
Maybe. But Paxson Communications is backed by several savvy investors, including fund manager Mario J. Gabelli, whose Gabelli Asset Management owns 11%. "Clearly, Paxson is for sale," Gabelli told investors in a recent report. "The ideal thing would be for NBC to sell back its position, unwind it." Given NBC's strong commitment to its 1999 deal, that may be hoping for a miracle. But Bud Paxson is a believer.
Edited by Douglas Harbrecht