NBC’s cable vision

Bravo buoys Peacock platforms, revenues

NEW YORK — NBC is charging aggressively into the general-entertainment cable business, clinching its deal with Cablevision (Daily Variety, Sept. 23) to buy Bravo for a relatively modest $1.25 billion.

The debt-burdened Cablevision formally agreed on Monday to sell Bravo to NBC, marking the first asset sale in many years by Cablevision’s chairman and CEO Chuck Dolan, and affording potential relief to the company’s unhappy investors. Cablevision has quelled some of its detractors for now, having proved it has the mettle to sell an asset to patch its funding gap and reduce debt. Attention now shifts to the fate of rest of the Rainbow portfolio and its most valuable property, American Movie Classics (AMC).

NBC says the addition of Bravo creates strategic opportunities across many divisions including multi-platform ad sales and cross promotions, news, entertainment and sports programming. Although NBC has not spelled out its exact plans for Bravo, which reaches 68 million cable and satellite homes, industry observers speculate the Peacock could use Bravo the way ABC uses ABC Family and the Fox Network uses FX, by cross-pollinating TV shows between the two networks.

However, NBC chairman and CEO Bob Wright told Daily Variety Monday he intends to stick with Bravo’s upmarket artsy schedule and even enhance it with more commissioned documentaries and entertainment-related fare from NBC’s in-house production operation and from other suppliers.

“Over time, more programming will probably gravitate from Bravo to NBC than the other way around,” said Wright, clearly playing to the concerns of NBC’s TV-station affiliates, who will not be thrilled if NBC starts funneling some of its primetime programs to Bravo as a secondary platform for repurposing (the industry euphemism for reruns) of series and movies.

“This will always be a specialized network with programming focused on the arts. Advertisers should love this as it complements our audience,” Wright said, noting that commissioning and producing original shows will end up being less expensive than buying big-ticket off-network series.

Bravo has direct experience of bidding up the price for reruns, having ponied up a humongous $1.2 million an episode for the off-network rights to Warner Bros.’ “The West Wing.” That series has begun to lose large numbers of its young-adult viewers this year, causing Bravo to worry that the reruns may not score big ratings when the network gets them for five-a-week play in the fall of 2003.

Bill Carroll, VP and director of programming for Katz Television, who represents dozens of NBC affiliates throughout the country, said NBC already has a track record of getting approval from its stations to repurpose “Law & Order: Special Victims Unit” and “Law & Order: Criminal Intent” on the USA Network, and “The Weakest Link” on the Pax TV Network.

NBC owns 32% of Pax TV, but a lawsuit against NBC by Bud Paxson, chairman of Pax TV, has caused a breach between the two companies. The breach probably rules out any further repurposing of dramas, comedies or movies from NBC to Pax, fueling speculation, denied by NBC, that one of the reasons NBC has bought Bravo is to create a substitute for Pax.

Valued at $20 per sub

The total purchase price of $1.25 billion values the arts and entertainment net at around $20 per viewing sub. In what amounts to a tax advantageous deal for all parties concerned, NBC will swap 53.2 million of its own Cablevision shares (equivalent to 16% of the company), along with around $500 million worth of highly liquid GE stock for the 80% stake in Bravo that it does not already own. To complete the deal, NBC agreed to buy out Bravo minority shareholder MGM for a tidy $250 million in cash.

The stock swap effectively amounts to a cash-free buyback for Cablevision, and reduces the number fully diluted shares outstanding to 280 million from 333 million. The reduction will have the effect of increasing Cablevision’s earnings per share. Cablevision implied that it will monetize its GE stock in order to pay down debt and bridge an anticipated funding gap.

NBC is forecasting Bravo to funnel an immediate $70 million in operating income to the bottom line next year, and about $160 million in revenues. That would represent a sale multiple of 18 times earnings.

Wright said Cablevision will continue to handle technical operations for Bravo for the next 12 months, but added that announcements about staffing, including the fate of senior programming executives, will be determined and announced in the near future. “We have a large sales and distribution team and will supplement that with some Rainbow people,” Wright said.

Launched in 1980 as a destination for film and the performing arts, Bravo has more recently added some mainstream movies and series into its arts-skewed shows such as “Inside the Actors Studio.” In addition to “The West Wing,” Wright said roughly half of Bravo programming will continue to be movies drawn from the film packages NBC will absorb as part of the acquisition. NBC owns minority stakes in Arts & Entertainment Network and History Channel, which it says will not pose any competitive issues with Bravo.

The Peacock anticipates joint efforts for movie acquisitions and major events (including awards shows) along with NBC/Bravo crossover projects for reality shows, new series and specials. NBC News archives could also be enlisted to create new docus or support ongoing Bravo series such as “Bravo Profiles.”

Done dealing?

But the question of whether Dolan will seek additional asset sales (beyond planned disposals of the Wiz and Clearview Cinemas) in order to help fund his dream of launching a national DBS service next year, remains unanswered.

MGM is known to be angling for control of AMC, of which it already owns 20%. MGM has noted in the past that it is interested in buying control of AMC if it were to become available, but that there were other likely buyers who would be willing to pay more than it could afford.

“Bravo was a very successful investment for MGM,” MGM CEO Alex Yemenidjian said Monday, noting that the cash windfall will be used to further strengthen the Lion’s balance sheet by bringing cash on hand to more than $600 million. MGM said it expects to record a gain in excess of $20 million, based on its original investment price.

Viacom eyeing AMC

Viacom has also expressed broad interest in buying AMC, but the company is loath to overpay for anything.

But a more pressing matter for Cablevision is to resolve the future ownership of its Regional Programming Partners joint venture with Fox Sports Network, which has a put option on its 40% equity stake in the venture. RPP includes regional sports nets in Ohio, Florida, Chicago, San Francisco and New England, as well as Madison Square Garden assets and the Metro channels. The two parties also jointly own National Sports Partners and National Advertising Partners and their national sports networks.

Fox has the option to force Cablevision to buy out its stake on Dec. 18, while Cablevision holds a similar option to put its 50% stake in the national sports and advertising partners to Fox. Cablevision can either pay Fox in cash or stock for its share of an estimated $550 million in assets or else try to launch an IPO of the unit. Alternatively, Cablevision could issue a three-year promissory note. News Corp. sources have stated in the past that they would be willing to take control of the sports franchises and leave the MSG assets for Cablevision, but talks have ground on over relative valuations of the two options. Fox’s put is believed to be worth considerably more than Cablevision’s and gives Rupert Murdoch the upper hand in negotiations. Certainly the sports channels could provide prime exclusive program fodder if News Corp. were to buy control of satcaster DirecTV in the future.

Investors relieved

Anxious Cablevision investors nevertheless breathed an audible sigh of relief as Dolan rewarded NBC for its patience. Still, the receipt of GE stock rather than cold cash, had some nervous, as did Cablevision’s recent statements that it continues to pursue an expensive national DBS satcasting service.

Credit Suisse First Boston has warned investors off of Cablevision stock as long as the company flirts with the idea of investing in a national DBS business and more worryingly, proposes to divert proceeds from any asset sales into the project “CVC’s pursuit of this enterprise has been, and continues to be, a source of serious friction with investors,” CSFB analyst Lara Warner said in a recent note.

Already down nearly 80% from its 52-week highs, Cablevision shares rebounded Monday up nearly 17% to $11.80. MGM, the sole beneficiary of a cash windfall, also saw its shares rise 6% to $13.57 in an all-around buoyant day for media stocks.

(John Dempsey in New York contributed to this report.)