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THE VIVENDI DEAL

GE May Be In for Unpleasant Rerun

The industrial giant's early struggles with NBC cause doubt over how cleanly the network and Universal can merge.

September 08, 2003|James Bates | Times Staff Writer

Few companies know better the perils that can come with mega media acquisitions than General Electric Co.

Shortly after the industrial behemoth ventured into the entertainment business in 1986 by buying NBC, it watched the network tumble from first to third in the ratings as hits such as "The Cosby Show" and "Cheers" ran their course. At one point, GE even issued a press release begging the media to stop using the words "beleaguered" and "embattled" to describe NBC.

Then the network botched highly publicized negotiations with late-night talk show host David Letterman, who gleefully turned GE and NBC into a running gag before departing for CBS. Once asked whether he hated NBC enough to bomb the network, Letterman quipped: "I hate waiting in line."

GE's early struggles with NBC have become distant memories. With its "Must-See TV" mantra, the network launched one of the longest and most successful runs in television history. Its string of hits has included "ER," "Seinfeld," "Frasier" and "Friends."

Now, though, GE faces a new learning curve -- a challenge that in many ways may harken to the early days with NBC.

GE announced last week that it had struck a tentative, $14-billion deal to merge its broadcast and cable assets with Vivendi Universal's U.S. entertainment unit, including its storied movie studio, theme parks, TV production shop, television and film library and cable channels.

NBC Chairman Bob Wright envisions a seamless, bulked-up entertainment operation that will prove "extremely complementary" once meshed.

"We can really do some business together," Wright said.

To be sure, there is some overlap, particularly with TV. But the fact remains that the industrial conglomerate's top managers -- more accustomed to making light bulbs, jet engines and medical imaging equipment -- haven't seen the likes of some of these businesses before.

Some analysts predict that the operations could initially be more disparate than synergistic.

"It's not like they are alien to each other," said Harold Vogel, head of Vogel Capital Management in New York. "But it will take about three years for people to start feeling comfortable with each other and feel like they are on the same team."

Media Deals' Rocky Past

GE's eventual success with NBC makes it easy to forget that the network for years was a problem child. But that acquisition, along with a litany of other media deals involving the likes of AOL Time Warner Inc. and Walt Disney Co., serves as a reminder of just how rocky such ventures can be.

As GE struggled with NBC, it entertained offers from a parade of suitors -- Time Warner, Disney, Sony Corp., cable TV mogul Ted Turner and even comedian Bill Cosby -- to take all or part of the network off its hands.

At a managers' meeting in 1993, then-GE Chief Executive Jack Welch complained that NBC had gone through $500 million in TV development money without anything to show for it. He pointedly asked: "Where are the hits?"

In the movie business, plenty of GE's forerunners have asked the same question.

Film can be an unforgiving sinkhole. It's also a business where slip-ups take center stage. The performance of a movie studio can easily overshadow larger and more successful sister divisions, as companies such as Sony found out shortly after buying into Hollywood.

Until now, GE resisted taking the plunge. Its managers had considered the movie business too volatile and undisciplined, one where a $100-million investment in a film could go down the drain in a single weekend.

"From a financial standpoint, it's a small part of the overall business," former NBC West Coast President Don Ohlmeyer said. "But from a public perception standpoint, it has a larger impact for GE than what happens in plastics, appliances and jet engines."

GE will be under the gun from Wall Street to justify its about-face. In addition, Vivendi shareholders, who for now would retain a 20% stake in the new entertainment enterprise, are impatient for returns after seeing their investment languish, and nearly dissolve, because of Vivendi's financial troubles.

GE also is buying into a company that seemingly has been cursed when it comes to takeovers.

Once Hollywood's most stable studio under patriarch Lew Wasserman, Universal is looking at its fourth owner in little more than a decade. Each entered Hollywood with grand expectations, only to leave humbled.

Japan's Matsushita Electric Industrial Co. bought Universal in the hopes of boosting its electronics business but ended up feuding with its U.S. managers. Liquor giant Seagram Co. then stepped in and installed a trendy "re-engineering" management exercise that turned the company upside down.

Former Vivendi Chief Executive Jean-Marie Messier purchased the unit, talking a good game about melding entertainment with new technologies, but nearly bankrupting the company.

Now, skeptics are asking whether the NBC and Universal operations can cleanly merge.

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