In The News

Joining the 'big leagues'

Peacock would be new heavy hitter

Georg Szalai

September 3, 2003, Wednesday

NEW YORK If General Electric's NBC pulls off its proposed merger with Vivendi Universal Entertainment, the company would transform itself overnight from the last major TV network owner without studio affiliation into a major media conglomerate, industry observers said Tuesday.

"It (finally) puts them into the same league as a Disney or Viacom," Barrington Research Associates analyst James Goss said.

Indeed, NBC has in recent years often faced calls for expansion into the content creation business, especially as its peers have formed vertically integrated mega-conglomerates. Most notably for NBC, CBS has become a part of entertainment giant Viacom Inc., while ABC is part of the Walt Disney Co. 

GE management - careful after merger hiccups at AOL Time Warner and others - had argued that they were comfortable about the company's leading position in the TV sector and did not need a major deal to be successful.

However, when VUE came into the market, NBC chairman and CEO Robert Wright obviously convinced his colleagues that a merger could elevate NBC - in both stature and revenue generation.

"This is a fabulous deal for NBC," said Ken Marlin, managing partner at media investment bank Marlin & Associates. "It is a strategic coup at a great price and catapults their entertainment assets into the big leagues."

The merged entity would include the Universal Pictures film studio; TV producer Universal Television, whose hit shows include "Law & Order," which is already carried by NBC; TV broadcasters NBC and Telemundo; cable networks CNBC, MSNBC, USA Network, Sci Fi Channel, Bravo and Trio; and interests in theme parks.

This asset mix is closer to Viacom and especially Disney than to that of fellow entertainment titans AOL TW or News Corp., analysts said. "Disney now has a competitor that (stacks up) well with their key areas" of business, Goss said.

The combined NBC-VUE would lack the stakes in the video rental and radio businesses that Viacom has. It would also not have AOL TW's online component or News Corp.'s interests in satellite TV and publishing.

In a joint statement Tuesday, NBC and Vivendi Uni said their merger would "create one of the world's most profitable and fastest-growing media companies."

Still, on some metrics, the new giant would continue to be dwarfed by its peers.

For example, NBC and Vivendi Uni estimated the merged entity's revenue at $13 billion for 2003. By comparison, analysts project that AOL TW will bring in 2003 revenue of about $43 billion, Disney and Viacom will exceed $26 billion, and News Corp. will come close to $19 billion.

Similarly, analysts Tuesday put a $42 billion enterprise value on a merged NBC-VUE. According to Guzman & Co. analyst David Joyce, AOL TW's enterprise value lies at about $97 billion, Viacom's at $88 billion, Disney's at close to $57 billion and News Corp.'s at more than $51 billion.

NBC and Vivendi Uni have yet to outline how their merged assets would work together. But Vivendi Uni chairman and CEO Jean-Rene Fourtou said the new firm will benefit considerably from "the reinforcement of existing channels" through cross-programming and other measures.

Reif Cohen put the merger synergies at $400 million-$500 million, driven mostly by cost reduction opportunities. However, Wall Street observers said the true merger benefits will depend on how the tie-up is managed and how smoothly it goes.

Shiraz Sidhva in Paris contributed to this report.