The hottest new show in TV-land these days is Bravo's Queer Eye for the Straight Guy, where five gay men give hapless heteros style makeovers. Now the company that owns Bravo looks as if it is about to get a major makeover all its own. Having shaken off a decade-long aversion to the big deal, General Electric Co.'s NBC (GE ) unit has emerged as the front-runner for the Hollywood assets of French conglomerate Vivendi Universal (V ) which include Universal Pictures, Universal Television Group, and the Sci Fi and USA Network cable channels.
After weeks of negotiations, GE and Vivendi seemed to be moving closer to merging NBC with the latter's Hollywood assets. The deal, which could be announced after Vivendi's planned Aug. 26 board meeting, would transform NBC from a network into a vertically integrated media giant rivaling the likes of Viacom (VIA ), News Corp. (NWS ) and AOL Time Warner. Fact is, with network TV viewership declining and NBC worried about life after Friends, GE needs to diversify its entertainment revenues. Moreover, NBC Chairman Bob Wright is mindful that size increasingly matters in the broadcasting industry. "We'd like to be bigger," he says. "Without Vivendi Universal Entertainment, we will look for other opportunities but won't be compelled to buy unless it is the right opportunity."
For years, GE resisted buying Hollywood studios, arguing that the potential for big-budget bombs made them inherently risky, and that owning one would limit NBC's ability to choose among other studios' hottest TV projects. But today, each of the other five big networks is owned by companies with studios, ensuring them a constant supply of new shows. Distributors are stronger, too: Comcast Corp. (CMCSK ) now controls cable TV in one-third of the country, and Rupert Murdoch's News Corp. is in the process of buying satellite service DirecTV, with its 11.5 million subscribers. To make sure their programs get carried, programmers need heft.
NBC's new boldness may say more about GE, where earnings fell 14% in the second quarter on weakness in its power systems and plastics businesses, among others. NBC, by contrast, racked up the highest growth of the quarter with a 26% jump in earnings. That may be one reason why GE Chairman Jeffrey R. Immelt has pushed to do more deals in the broadcast unit than his predecessor, Jack Welch. In the past two years, NBC has diversified its operations by spending $4 billion in cash and stock to buy Spanish-language broadcaster Telemundo Communications Group Inc. and Bravo. "The combination of Vivendi assets with NBC would be an incredible powerhouse," says Michael Holland, chairman of New York investment firm Holland & Co., a GE shareholder. "They have the possibility of creating major cash flow out of this thing."
The big lure for NBC is Vivendi's cable channels, which would provide a source of new profits. NBC projects all of its assets will generate operating earnings of $1.9 billion this year, a 18.7% jump from 2002. But programming costs are rising fast. Uber-producer Dick Wolf, whose Law & Order franchise provides 20% of the NBC prime-time schedule, is demanding a huge fee increase. Owning Universal, which produces the shows, would allow NBC to air reruns on its own cable channels and scoop up extra revenues.
GE's hard-nosed style still could prevent a deal from happening. Rival bidders John C. Malone's Liberty Media Corp. (L ) and a group headed by Vivendi Vice-Chairman Edgar Bronfman Jr. are offering cash up front. GE would instead give Vivendi as much as 25% of a joint venture, with a guarantee that the French company could cash out for GE stock or through an initial public offering later. Still, people close to the talks say Vivendi Chairman Jean-René Fourtou figures he may generate a bigger payday down the road with GE's buttoned-down managers. That would give him a front-row seat for NBC's ongoing makeover.
By Ronald Grover in Los Angeles, with Diane Brady and Tom Lowry in New York