This article was updated at 4:49 p.m.
General Electric and Vivendi Universal made it official Wednesday, unveiling formal plans to merge NBC and Vivendi Universal Entertainment into what GE management hopes will be a lean, mean, content-driven machine.
The resulting $43 billion entertainment giant should be up and running by the middle of next year, pending regulatory approvals in the U.S. and Europe. GE vice chair and Peacock chief Bob Wright described the new behemoth as “cleaner” and more profitable any of its competitors, which now include the likes of Viacom, Disney, Fox and AOL Time Warner.
Wright wouldn’t talk about mangement structure, but reiterated his strong support for Universal Studios topper Ron Meyer and Universal Pictures head Stacey Snider and their staff.
“We have a lot of other decisions to make as to how the pieces fit and so forth,” Wright told Daily Varietyduring a conference call that included Meyer, NBC entertainment chief Jeff Zucker and NBC network prexy Randy Falco.
TV drives company
Television will be the engine of the new company, with NBC adding Universal Television to its already thriving empire, including U’s production studio and USA Network, made up of USA, Sci Fi and Trio.
The NBC-VUE deal brings Dick Wolf’s Universal-based shingle under the Peacock banner — one of the greatest coups in television history.
Any cuts and big consolidation moves are more likely in TV than in film, since there is clear duplication between NBC and U’s television operation. Zucker is expected to head up all TV entertainment.
Terms of deal are roughly similar to those announced in early September, when the partners entered exclusive negotiations to combine the NBC Television Network and cable channels with Universal Studios, Universal Television and Universal Theme Parks.
GE will own 80% of the new NBC Universal; Vivendi will hold the remaining 20%. GE will give VUE shareholders $3.8 billion worth of GE stock that can be cashed in immediately — with most of that flowing to VUE’s largest holder Vivendi. GE will also assume $1.7 billion of VUE debt.
As a result, Vivendi will have a cleaned up balance sheet with only $5 billion in debt. At its worst point last year, the French conglom’s debt stood at over $30 billion.
Vivendi Universal will hold three seats on NBC Universal’s board of directors and, according to Viv U chief executive Jean-Rene Fourtou.
If it wants, Vivendi will be able to start cashing out its 20% interest in NBC Universal in 2006, either through an initial public offering or a sale to GE. If Vivendi stays in, GE has the right to buy out its stake starting in 2009. Vivendi will consider the IPO option in 2005.
Wright hosted a show and tell conference call with analysts and investors early Wednesday, outlining the cornucopia of new content riches and capabilities the new company will be working to exploit — $13 billion in sales, a library of 5,000 film titles, some choice cable nets, a TV production studio and a studio enjoying a nice string of hits. “These are popular, profitable products that are well-positioned for opportunities in the digital world,” Wright said.
Wright said it was too soon to disclose how a combined TV programming, sales, distribution and cable operation would look and under whose command but noted that an announcement on management structure will likely precede the actual close of the deal early next year.
Wright told Daily Variety that the existing heads of the four major functional areas – advertising and affiliate relations (Falco), TV stations (Jay Ireland); TV/entertaiment (Zucker) and movies and theme parks (Meyer) — will report directly to him.
NBC Sports and Olympics topper Dick Ebersol also will continue to report to Wright.
Zucker is widely believed to be in line to head up TV enterprises under a combined Universal Television/NBC TV structure.
Wright did say that Falco will likely take on “additional responsibilities” in managing the “monetization” of the NBC Universal properties.
Wright rejected the notion that the feature film business was dangerously volatile, stressing that “the issue is not to see how many films you can produce but produce the right mix.” Wright also reminded investors that theatrical constitutes only a small percentage of total sales and that the big profit pot is in video/DVD and other downstream windows.
Studio chief Ron Meyer insisted U’s essential film production strategy is not likely to change under the new GE regime. “Over the past five years we’ve looked for the best opportunities … we’ve always been concerned about costs and how to manage the risk.” Cost-sharing partnerships, he said, will continue to depend on the films and various opportunities that present themselves. “As long as we can show a profitable and responsible business … we’ll continue to operate largely as we have,” Meyer told Daily Variety.
Wright said NBCU will likely hold onto the theme parks business in the near term, acknowledging that the global recession does not make this an ideal time to try to sell.
Barry Diller, who holds $2 billion of preferred stock in Viv U Entertainment, remains an outstanding issue to be negotiated, but is unlikely to hold up the closing. While Wright said the primary responsibility for untangling Diller and Interactive Corp.’s holding in VUE remains Vivendi’s responsibility, he said there was a good opportunity for Diller to unlock value now. “We just have to sit down across the table and figure out how to do it,” said Wright.
Fourtou said Vivendi and NBC will pool resources “to find synergy” among Vivendi’s remaining entertainment asset, including Universal Music, Universal Games and Canal Plus. “We are in these business and we shall be developing these businesses,” he said.
(Pamela McClintock contributed to this report.)