Two TV networks may get new owners


In moves that could lead to a change of ownership for one and perhaps even two of the three major television networks, Time Warner Inc. is negotiating to buy NBC Network and Walt Disney Co. has apparently contacted CBS Inc. about buying that company.

Time Warner, which already has extensive holdings in cable television, has held talks in recent weeks with General Electric Co. about buying its NBC Network subsidiary and some of NBC's cable services for about $2.5 billion in stock and cash, according to several people familiar with the negotiations.

To hear its critics, NBC has never been a good fit for General Electric, which acquired the network in 1985 and has seen it slip to third place from first place in the prime-time ratings since then.

Meanwhile, Disney has expressed interest to CBS about a buyout, according to a person familiar with the talks. Earlier this summer CBS nearly merged with QVC Inc., a cable-channel home-shopping company.

A senior industry executive familiar with NBC's side of the negotiations said, "It's all true. Time Warner has held talks both with Jack Welch and Bob Wright."

He was referring to John F. Welch Jr., the chairman and chief executive of General Electric, and Robert C. Wright, the president of NBC. He added that as of the end of last week Time Warner had decided to "go to the next step and see what happens."

Representatives for General Electric and Time Warner declined to comment on any talks, as did Judy Smith, an NBC spokeswoman. And a person close to Time Warner noted that he would give the deal less than a 50-50 chance of happening.

As for CBS, the company's chairman, Laurence A. Tisch, denied that there were any discussions with Disney. Disney declined to comment.

Two executives with knowledge of the discussions said that Disney had also held talks recently with Mr. Wright of NBC about buying NBC, although neither person put a date on the discussions. Disney again declined to comment.

Merger discussions are extremely delicate -- particularly in the television business, which is subject to complex government regulations -- and can easily come unraveled, as did CBS' recently planned merger with QVC.

Whatever the outcome of the discussions, they reflect an intense interest on the part of Time Warner and Disney, both leading producers of television programming, in entering the network business.

Companies such as Disney and Time Warner, which owns Warner Brothers Television, have in the past enjoyed significant profits from the sale of programs they make to the networks and later from the sale of rerun rights of those shows to television stations across the country.

Changes coming

But that will change with the lifting next year of federal regulations that have prevented television networks from producing much of their own programming and selling the lucrative rerun rights. The networks will need to rely less on the big studios to produce programming.

Unless the studios control the networks, that is. "The studios want to own networks so that they assure themselves of a guaranteed outlet for their product," said David Londoner, an analyst at Wertheim Schroder & ASSOCIATED PRESSLaurence TischCo., the Wall Street investment firm. "Owning a network and controlling an average of 12 million viewers every night gives them an enormous amount of clout."

Television network companies have two operations: the networks themselves, which produce some programming and buy even more, and the television stations the companies own and operate, which broadcast that programming along with many affiliated stations.

What Time Warner and GE are discussing, according to people familiar with the talks, is a deal in which Time Warner would acquire the NBC Network, as well as a host of cable television services, including CNBC. But it would not acquire the seven television stations that NBC owns and operates.

GE would benefit

That structure could work well for GE, which acquired NBC as part of a takeover of RCA in 1986. Wall Street analysts think that the company is valuing NBC on its books at about $4 billion.

Because NBC has not done well in recent years, there is some doubt that it would fetch that price in the market. If GE chose to sell NBC for less than $4 billion, it would have to take a loss.

Coupled with a recent trading Welchscandal at the Kidder Peabody investment unit of GE, that would dolittle to help the company's reputation. But because the seven stations are the more profitable part of any network company, GE, in keeping them, might be able to sell them later at a profit.

Time Warner, analysts said, would undoubtedly attempt to strike a long-term deal with GE in which the seven stations GE would keep would carry NBC network programming it produces.

The overall deal would involve cash and stock. But there were few details yesterday.

Regulatory issues

Perhaps a larger hurdle is the regulatory one. According to William Johnson, deputy chief of the cable services bureau at the Federal Communications Commission, there are a host of barriers to cable operators, including Time Warner, owning more than 5 percent of any network.

For example, they cannot do so if they control more than 10 percent of the cable subscribers in all cable homes. That would not be a problem for Time Warner, because its 7.3 million subscribers represent less than 10 percent of the 92 million homes that can receive cable.

But a cable operator also may not own a network if the cable operator controls more than 50 percent of the homes receiving cable within a single television market. Time Warner, analysts said last night, controls more than 50 percent of the homes in a number of major markets.

Mr. Johnson added that if one company owns 51 percent of a network, then the other owner, even if it is a cable operator, can go as high as 49 percent.

If Disney does pursue CBS, it could handily finance such a deal. There are roughly 12.5 million shares of CBS stock outstanding. The stock closed yesterday at $321.375. Assuming a sale at $350 a share, the total acquisition price would be $4.35 billion.

But is Mr. Tisch interested in selling? While he initially embraced the notion of a merger with QVC, he later seemed to grow unhappy with the idea, and how open he is to a sale now is unclear.

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