| NEW YORK/CHICAGO
NEW YORK/CHICAGO General Electric Co's insistence that it won't sell its NBC Universal media division has been downplayed, discounted and outright ignored -- until the recent financial crisis.
Now, as GE (GE.N) tries to rationalize its holdings by selling some businesses and spinning off others, analysts are betting NBC Universal will remain within the company. But that doesn't mean the media division -- facing some major hurdles -- receives a free pass.
"I've struggled with it forever, in terms of why GE has it, especially now in a situation like this where ad revenues are down," says Mike Gandrud, senior analyst at Optique Capital Management in Milwaukee, Wisconsin. "I'd love to see them do something with it ... Do I expect it to happen? No."
That's a change from what had been a widely held view among investors, analysts and media-watchers that GE would sell NBC Universal shortly after the Olympics, which it broadcast to record audiences in August.
Indeed, the notion that GE would like to sell NBC Universal has circulated for years, and gained momentum 18 months ago when Citigroup analyst Jeffrey Sprague bluntly called the conglomerate to unload its 80 percent stake. France's Vivendi (VIV.PA) owns the other 20 percent.
But the credit crisis has suddenly changed prospects of selling NBC Universal, which includes the NBC broadcast network; cable channels Bravo, USA, The Weather Channel, Oxygen and Telemundo; news outlets CNBC and MSNBC; TV stations; theme parks; a film studio and digital assets.
MISSING THE WINDOW
Though NBC Universal is the obvious odd man out in GE's portfolio, and faces a tough near-term outlook as the economic downturn pinches advertising revenue, it does something very important in uncertain times: it generates cash.
That's a big plus for the parent company, especially as GE Capital, the specialty lending unit, struggles to shrink its receivables and right itself amid the continuing turmoil in financial markets.
Even so, analysts admit confusion over Chief Executive Jeff Immelt's attachment to NBC Universal, given GE's insistence that its infrastructure business represents its future.
Daniel Holland, an analyst at Morningstar, calls NBC a "sideshow" that diverts management attention -- and capital -- away from more deserving businesses with higher returns.
But he doesn't see the point in dumping NBC at a time when other GE businesses are struggling.
"It's generating substantial value right now," he says.
In addition the credit crisis will make it harder for would-be buyers to finance a deal, and Holland thinks GE wouldn't get a decent price right now for NBC. "The last time you want to sell something is when the price you're going to get is below what it would generally command," he says.
Holland points to the trouble GE is having getting rid of its appliances division.
"They're aren't that many buyers out there that have the capacity, particularly when capital is as constrained as it is right now," he says.
Nick Heymann, an analyst at Sterne Agee, says there may be another reason NBC Universal is likely to stay in GE's hands: the company's desire to retain it sterling credit rating.
"They have an implicit agreement with the rating agencies," Heymann said, "don't sell appliances, don't sell lighting, don't sell NBC. It generates cash, it helps keep your rating at that AAA," he says.
Even if GE wanted to sell the media division, it would likely have to wait for the economy and credit situation to recover, says Steve Ridge, president of media strategy at research firm Frank N. Magid Associates.
"Eventually, I believe, they want out and have decided it doesn't represent the kind of upside growth of some alternatives," he said. "For now, I think they missed the window."
ON THE HOTSEAT
Since Jeff Zucker's February 2007 promotion to chief executive of NBC Universal, the company has turned in a string of steady, if not spectacular, results.
It has posted 8 straight quarters of profit growth, and last quarter revenue jumped 35 percent.
Today, however, NBC Universal finds itself in an uphill battle against depressed prime-time network ratings, costs that remain too high, and the loss of political and Olympic advertising that helped underpin this year's results.
Its prime-time television problems are the most visible. The broadcast network is still struggling to find hits to replace blockbuster comedies "Friends" and "Frasier," which went off the air back in 2004.
These days, NBC regularly finds itself in last place among the major U.S. networks, all of which are struggling with ratings. This season is no exception. NBC ratings are down 14 percent despite a big promotional push for the fall lineup during NBC's Olympic broadcasts.
"While all the broadcast networks have sustained some losses in this atypical fourth quarter, we're effectively handling the challenges the business is facing and are still locked in a close race where all four networks are running within a few tenths of a rating point of each other," said an NBC spokesman.
Zucker has tried to assuage concerns about the prime-time schedule by pointing out that it makes up a relatively small part of NBC Universal's business, about 5 percent, and that cable, with outlets like Bravo and USA, has been strong.
But NBC Universal's prime-time TV shows are still the public face of the company, and the schedule's troubles are undoubtedly causing concern at GE's Fairfield, Connecticut, headquarters, media-watchers say.
"A strong prime-time is worth its weight in gold in terms of overall brand image," said Ridge. "They just don't have a pipeline of product that is going to get them back into the game right now."
Given this season's ratings declines, Zucker's decision after a 14-week screenwriters' strike to save time and money by making far fewer pilots is being criticized in some quarters for hurting NBC's chances of finding a new hit.
Critics have also set their sites on another top executive, NBC Entertainment Co-Chairman Ben Silverman, who helps set the prime-time lineup. Zucker has defended Silverman in recent comments, but some believe that changes in management at NBC Universal could be coming.
There are also broader questions about how well NBC Universal will weather the economic and advertising downturn. It recently moved to cut $500 million from next year's budget.
"I don't see clarity of vision right now," said Ridge. "I think they've got a serious dilemma."
(Additional reporting by Nick Zieminski; editing by Patrick Fitzgibbons and Phil Berlowitz)