When Viacom Inc. announced Tuesday that it was buying CBS Corp., the $38 billion stock deal was hailed as a strong marriage of a TV network and Hollywood studio. By hooking up, the two companies accomplished the same TV-movie blend that ABC has found with Disney, and that News Corp. has created with its Fox network and studios. Even a player such as Time Warner can lay claim to both a major film studio and its WB network.
But what about NBC?
NBC's owner, General Electric Co., stands alone as the only big broadcaster without a partner in the movie business. And although the absolute need for such a pairing might be questioned, there's no doubting that Hollywood and Wall Street believe in indulging the urge to merge. CBS chief executive Mel Karmazin had even said, before the Viacom deal, that he would buy NBC if the Federal Communication Commission's rules would allow it.
NBC declined to comment yesterday on its situation or on its plans. But GE and the network are not standing still; earlier this year, GE was reportedly in talks with Tokyo-based Sony Corp. about linking its TV-production studios in Hollywood with NBC. Since the FCC enforces rules restricting foreign ownership of broadcast networks, however, it's unclear how such a merger could be accomplished without big changes to the nation's broadcast regulatory structure. In March, NBC said it planned to buy nearly 20 percent of the No. 3 cable home-shopping network, ValueVision International Inc.
Analyst Tom Wolzien of Sanford C. Bernstein and Co. in New York City said such discussions often end at regulatory roadblocks. NBC could look to link up with a movie studio such as Time Warner's Warner Bros., for example, but Wolzien said NBC has "talked to Time Warner every year for the last few years," without any results. The FCC also enforces limits on large combinations of network and cable ownership, and Time Warner's extensive holdings could cause problems in any attempted linkup with NBC. That rule, he said, "makes it unlikely that they'll do a deal."
Some analysts also believe NBC, along with the rest of the broadcast industry, faces another challenge. In August, the FCC relaxed its station ownership rules to make it easier for networks to own more than one station in a city. Stations are the cash cows of network systems, so the ability to buy more of them has set off an industry scramble.
The new FCC rules on two-station ownership in one market, or "duopoly," are driving deals, said analyst Jack Myers of New York-based media specialists Myers Consulting. "There's no doubt but that all the players in the TV business are going to be buying, selling, trading, bartering--whatever they need to do to get themselves duopolies. It's an economic imperative," he said.
NBC has reportedly been in negotiations with Paxson Communications Corp. to beef up its network by buying more stations. Although this would do nothing to enhance its ability to produce new shows, it could strengthen the company's bottom line. Paxson officials declined comment.
Myers said the rule changes mean NBC does not need to marry in haste. "They have to work out the economics of the station business so they can take advantage of the new regulations," he said.
NBC has been very active at forging alliances in new media--it formed a partnership with Microsoft three years ago to create the cable-Internet combination known as MSNBC with a Web site that is popular with Web surfers. It also has bought the Xoom.com Web community and the Snap.com portal, a Web site that offers a variety of services in a bid to become a first stop on the Internet for Web surfers; it has brought them together with other online properties to form a company called NBC Internet.
One television industry insider who declined to be named said the network's strategy is working and insisted that NBC doesn't need a studio partner. "There's been lots of dancing between studios and major media companies, but there haven't been a lot of fruitful outcomes to that kind of partnership," the source said.
ABC and Disney have a difficult marriage, with tensions between the movie and TV sides. Mergers such as the one between Viacom and CBS "may look great when the deal is signed on paper, but will it execute in a way that is going to produce fruit?" the executive asked.
Staff writer Paul Farhi contributed to this report.