October 13, 2007
Peacock on the Block? NBC Universal Faces a Post-Olympic Sale

Yesterday, a number of media outlets reported that General Electric (GE) was thinking about selling NBC Universal following the anticipated ad sales bonanza of the Beijing Olympics.

In this post, I'd like to explore why GE would sell NBC and who might have an interest in buying it.

What's on offer?

Just like its parent, NBC Universal is a big and diverse conglomerate. Although we often think of "NBC" as the television network, it also has businesses that span the media and entertainment industries. There is Universal Studios in the film space, Universal Parks and resorts covering tourism, and iVillage, among others, in new media. NBC's most notable expansion lately has been into cable; it owns a slew of cable networks from Telemundo to the USA Network to MSNBC.

Back in August, NBC acquired Sparrowhawk Holdings, including the Hallmark channel, and recently announced their intention to buy Oxygen, which includes cable properties like the Sci Fi Channel. There's also been a fair bit of talk from NBC's management about growing the company's presence internationally.

Why sell? The Financial Times account of the contemplated sale said that the sale of NBC Uni had been rumored before due to "lagging performance and the awkward fit with the rest of GE's industrial and financial businesses."

I certainly wouldn't argue the second point, and I think it's a better reason than the first. Although it is a source of a lot of great jokes on 30 Rock, the possible synergies between GE and NBC are somewhat tenuous - GE does make television sets and finance consumer and industrial purchases that could be media and entertainment related. GE can only justify diversification so much to its shareholders, especially when the diversifying businesses aren't perceived as good enough value creators.

Which brings us back to the first point: NBC's performance.

NBC Universal may be lagging, and a little risky now, but it isn't tanking. According to Ad Age's annual survey of the of the 100 leading media companies, NBC Universal was 6th in net revenue in 2006, an 8.6% change over 2005, a rate that lagged four of the five companies ahead of it on the rankings. It actually had the strongest net revenue for TV in the top 10, digital revenues just $5 million less than News Corp (#4) and $100 million greater than Disney's (#3). The change in net revenue is slightly below the median of 8.8% in the top 20.

It remains to be seen if the Beijing Olympics and the new cable acquisitions deliver on the revenue front during 2007-2008, and the company's performance in the next year or two will probably be a better indicator than results from 2006-2007. 

As we saw above, NBC's broadcast network still earns significant revenue, but its slippage in the ratings,  particularly when it was last among the big four networks in the lucrative A18-49 for the second year in a row, has gotten a lot of attention lately.  As an article in Forbes argued earlier this year, the other networks are already sort of tilting towards different core audiences (CBS to older viewers, FOX to younger viewers, and ABC to women), but NBC was not faring well with its implicit target of the young, professional, educated and urbane, a small audience that tends to have TiVos and broadband internet and thus not be a huge ratings draw.  And the network needs more hits soon.  Unfortunately, the sitcom, which formed the backbone of NBC's legendary Thursday night line-up seem to be on the decline across the television landscape.

On the digital distribution front, the future's still uncertain. NBC Universal's decision to get out of its partnership with iTunes and move a lot of content to Amazon's Unbox service, was a risky move that may or may not pay off in the longer term. Then there's Hulu, the joint online video venture with FOX, which could be a really interesting step forward or could barely make a dent in existing audience use of broader aggregation sites.

Overall, NBC Universal isn't losing money, and it has some interesting projects and properties, but it is also facing a set of unknowns and opportunities to redefine its properties, audiences and distribution strategy in the next 1-3 years. If GE does decide to sell, who might be interested in buying?

Any takers?

There aren't any obvious buyers for NBC Universal. If GE does decide to sell, I think it's unlikely another non-media conglomerate will take it on in its current form. A "traditional" media conglomerate looking to access the content and audiences or a new media or software company looking to expand its reach across different media look like the most likely candidates. Sold as is, and valued at about $40B according to the Financial Times article, the buyer would need a lot of ready cash or be able to sell a lot of equity to finance the purchase.

It's hard to say which media conglomerate might be interested in buying NBC Universal. CBS appears to be smaller, and was separated from Viacom relatively recently, and doesn't look that likely. Viacom just got out of the business of broadcast networks when it spun off CBS. Vivendi, a French company, owns 20% of NBC Universal now, but with existing interests in a collection of related businesses, including telcos, in France, the benefits of owning a majority stake aren't obvious, and most reports indicate that scenario is not likely.

News Corp comes to mind because of its financial resources, international presence, recent buying streak and current partnership with NBC on Hulu, but its not the most convincing partnership from a branding standpoint. Disney, even though it already has ABC, does have a strong international and cable presence, as well as existing expertise in film production.

Wayne Friedman, who writes the TV Watch blog for MediaPost, suggested that Google might be interested. That's certainly not outside of the realm of possibility, and makes sense from an ad sales and content distribution perspective. Similarly, if Microsoft wants to try WebTV again, or sell NBC Universal content through its different platforms, or become more of a media-oriented company by creating transmedia storytelling vehicles for NBC Universal and Xbox properties, that move might make sense.

There is also, of course, the possibility of NBC Universal being split into its component parts and sold of in pieces to these and other types of organizations, which would also change the game, certainly in broadcast TV networks and cable.

Stay tuned...