Peacock picks Paxson partner for $415 mil

Pact gives NBC leverage over affils

NEW YORK — In a deal that could radically redefine the broadcast network television business, NBC said Thursday that it plans to buy 32% of Paxson Communications for $415 million.

The agreement will combine NBC’s powerful brand name and broadcast group with Paxson, the largest station owner in the U.S.

If the FCC relaxes its station ownership rules, NBC could boost its stake to 49% and take voting control of the West Palm Beach, Fla., company for a total of $1.2 billion.

NBC’s game plan is to create additional outlets to air the programming it produces or in which it has an equity stake. Eventually the Peacock plans to rerun its primetime programming hits on Paxson stations — a plan likely to perturb NBC affiliates.

NBC will need its affils’ permission to rerun the broadcast web’s first-run programming on Paxson stations, and CEO Robert Wright acknowledged that negotiations with affiliates could prove difficult in many cases.

Planning on reruns

“In an era where broadcast programming ratings get smaller and smaller each year, rerunning shows on Pax Net may be a great way to increase share,” Wright said.

NBC has equity stakes in about 40% of its shows, so selling its shows in the syndication market could be wildly profitable for the GE-owned company.

In the past Wright has threatened that if new agreements could not be reached with station affiliates, he would bypass them by sending NBC’s programming feed directly to local cable systems.

Leverage over affils

NBC will now have even more leverage to negotiate new deals with affiliates through its large stake in Paxson.

“We don’t really have an interest in switching one broadcast outlet to another,” Wright said. “But if we’re unable to come to an agreement, we would go to the next best outlet. The Paxson stations would be a more attractive choice than going to a third party.”

Industry observers said that NBC’s Paxson deal is not designed to push around NBC’s affiliates, but rather to change the paradigm of network TV.

“I don’t view this as a stick over the affiliates,” said Chris Dixon, a media analyst for PaineWebber. “They’ve got to realize that they’re operating in a world of 200 networks, and the economic model has to change.”

The recently launched Pax Net –which touts itself as a family-values network — will maintain its programming mission until at least Feb. 1.

Taking control in 2002

That’s when NBC can basically take control of the Pax Net and its stations, if the FCC has raised the current station ownership cap from 35% to 50% of the country — a move many broadcasters are banking on.

If NBC does take over Pax Net, it will dissolve the struggling network’s programming model and rebrand and reprogram the web.

For years, NBC has been looking to purchase a general entertainment cable channel but hadn’t found a deal it liked.

The deals comes just over a week after CBS and Viacom announced a $35 billion merger that will combine Viacom’s Paramount studio with the CBS network and stations.

Wright, however, insisted that NBC’s model is different, and it’s unlikely to include a studio partner.

Supplying content

Instead, NBC will depend on program production from its West Coast entertainment division headed by Scott Sassa and Garth Ancier. Pax Net CEO Jeff Sagansky, whose resume includes running Sony’s TV operations and heading CBS’ entertainment division, will join the effort.

“We’re committed to a path of producing and investing to supply ourselves with programming,” Wright told Daily Variety.

Any acquisition on the scale of the CBS/Viacom deal would be out of the question for NBC since its parent, GE, is an earnings-driven company.

Wall Street greeted the deal favorably for GE, as its stock rose $1.25 in a down market.

Paxson shares, however, dropped by 7%. Many investors were disappointed that the company didn’t sell itself outright rather than opting for a partnership.

(Jill Goldsmith contributed to this report.)