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GE says it's preparing for possible shake-up at NBC Universal

The industrial conglomerate says it wants 'to be ready for several scenarios,' of which one could be a decision by Vivendi to divest from the entertainment company.

October 17, 2009|Meg James

General Electric Co. Chief Executive Jeffrey Immelt, sounding less committed to the entertainment business, said Friday that his company was getting its peacocks in a row for a possible change in ownership at NBC Universal.

The industrial giant has mostly kept quiet about plans to sell part of its stake in NBC Universal as its broadcast TV and movie studio have faltered amid an advertising recession, its programming has missed at the network, and a string of costly box-office duds has prompted the ouster of two top film executives.

GE has been in negotiations with Comcast Corp. about forming a joint venture in which it would own 49% of NBC Universal and the cable TV operator would control 51%. And for the first time Friday, media titans Rupert Murdoch and John Malone expressed interest in the entertainment company.

Immelt, who this month acknowledged that GE was mulling over its options about NBC Universal, said in a conference call with financial analysts that GE was making preparations in the event that its current partner, French telecommunications firm Vivendi, decides to sell its 20% stake.

Each year, Vivendi has a three-week window during which it can exercise its option to divest. The window opens Nov. 15.

"This year, we just wanted to be ready for several scenarios. One might be an IPO or another strategic partnership like the one we have had actually with Vivendi," Immelt said.

GE has the right to buy Vivendi's stake, but Immelt seems unwilling. To do that, the company would have to come up with billions of dollars in cash at a difficult time. GE has been laboring for the last year to clean up after the markets meltdown, which walloped its capital finance and real estate businesses.

Underscoring how it has been hammered by the recession, the Fairfield, Conn., conglomerate Friday reported a 45% drop in net income to $2.5 billion for the quarter ended Sept. 30. Revenue fell 20% to $37.8 billion. GE shares closed down 71 cents at $16.08 after the weak earnings report.

For years, Immelt has faced criticism from investors who have questioned the need for GE to hold on to NBC Universal when heavy manufacturing industries such as jet engines, wind turbines, train locomotives, water systems and medical imaging equipment dominate the company's business.

"Every day that GE owns this asset, it destroys value," Laura Martin, a media analyst with Soleil Securities, said this week. "NBC management continues to make disastrous programming decisions, like moving Jay Leno into prime time," she said. "I don't see that being fixed. The best hope is in getting new management."

More volunteers stepped up Friday.

News Corp. Chief Executive Rupert Murdoch, during his company's annual shareholders meeting in New York, said he was taking a look at the deal. But regulatory restrictions probably would pose problems for Murdoch.

Separately, Liberty Media Corp. Chairman John Malone, during a meeting with investors, said he would be interested in the deal but that he wasn't in talks with GE.

Immelt has long pointed to the billions of dollars that NBC Universal has generated as a good reason to keep the entertainment company.

"NBC Universal is a great franchise that has consistently delivered income growth and cash, pre-recession. It's been a solid performer," Immelt told analysts. But he signaled that a change may be forthcoming.

"It's a good time to talk about the portfolio," Immelt said. "I don't have a specific pronouncement or a specific need for cash. In many ways, we plan to operate NBC U over the long-term or partner if that accelerates the growth of the franchise."

NBC Universal, like its parent company, had a lackluster quarter. The entertainment unit generated $4 billion in revenue, down 20% from last year. In the year-earlier period, NBC benefited from more than $1 billion in revenue from its broadcast of the Beijing Olympic Games, GE Chief Financial Officer Keith Sherin said.

The profit picture was brighter, however. NBC Universal posted $732 million in operating income, up 13% from 2008, when it incurred substantial costs from its Olympics coverage. The entertainment company also benefited from a one-time pretax gain of $550 million from selling much of its stake in A&E Television Networks, which includes the Lifetime cable channels.

Cable television, led by the top-rated USA Network, once again saved the day. Cable TV generated $1.2 billion in revenue, up 8%, and operating profit increased 11% to $552 million. The broadcast television unit, which includes NBC and its stations, had $1.4 billion in revenue and was flat when Olympics advertising was excluded. Operating income for broadcast was up slightly.

Universal Studios, the movie arm that released recent disappointments such as "Public Enemies" and "Bruno," had "a very tough" third quarter, Sherin said. Revenue for the division was down 20% to $1 billion and operating income fell by more than $120 million, he said.


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