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The NBC You Don't See

The golden rule at General Electric: Be first or second in every business you're in. When it comes to medical equipment, engines, plastics and financial services, GE is. And NBC, GE's TV division, can boast that it has the No. 1 broadcast network with adults 18-49 and, potentially, with overall audience. NBC brushed off the recession and is expected to finish the year with $4.9 billion in sales, up 12.5% from 2001.

But the rest of the NBC TV portfolio flunks that stringent test. The homegrown cable networks—MSNBC and CNBC—have sunk badly. And acquisitions and investments like Telemundo, Paxson Communications, ShopNBC and Bravo are all fixer-uppers in need of help.

Yet NBC Chairman Bob Wright and his troops make no apology for its collection of Nielsen cellar dwellers. They ask only for patience. "These are platforms. If you nurture it and develop it, it's going to grow," Wright says during an interview at GE headquarters in Fairfield, Conn. "You can initially have a low rate of return and watch it grow, if you're doing the right thing."

Wright certainly retains the confidence of the corporation. That became apparent when he got the greenlight last month to purchase Bravo from Cablevision for $1.25 billion. And, a year ago, NBC was able to plunk down $2.7 billion for Telemundo, a distant second in the Spanish-language broadcast-network race.

After watching most acquisitions from the sidelines in the 1990s, NBC President Andrew Lack says, GE "didn't buy wrong; we bought smart. The open checkbook that brought Telemundo and Bravo into the house will be a huge driver of NBC's growth in next three to five years."

According to Wright, the NBC division as a whole is a winner, delivering a 25% annual return on investment, well within GE guidelines. he also points out that cable networks do not have to dominate the Nielsens to prosper. Unlike broadcast networks, he says, they enjoy a dual revenue stream: advertising and affiliate fees from cable operators.

Of course, NBC executives say, they'd like improved viewership marks. MSNBC, Bravo and CNBC are in the bottom-third of primetime Nielsen-rated cable networks. In November, the three combined averaged 743,000 households in prime, according to Nielsen Media Research. Basic-cable leader ESPN alone averaged 2 million households.

NBC is up to the challenge, says Lack. "We are an execution-driven culture here. We play hard with the hand we're dealt.

"The big discussion around NBC the last several years was: 'Are we big enough to compete?'" he recalls. "I think 2002 gave you the answer. We have exactly the right size to compete."

Says one securities analyst who follows the company, "They've picked up the pieces. Now they have to make all of them profitable."

NBC emerged from the November sweeps as the No. 1 broadcast network in total households and the key 18-49 demographic (see story, page 24). Here's a look at NBC's other TV properties, which are all far from No. 1.

MSNBC a 'parody'

No one at NBC disputes that there's trouble at MSNBC. Once the model for marrying broadcast and cable news, MSNBC is now "almost a parody of itself," says an executive at a rival network.

While its rivals Fox News Channel and CNN retained some viewers gained during 9/11 and its aftermath, MSNBC's marks slumped backwards. In prime time, it has been mired around 0.4 in recent months. Its ballyhooed "fiercely independent" relaunch last July—headlined by the return of Phil Donahue—has been a bust.

"We tried to get in the middle, with CNN on the left and Fox News on the right. It proved trickier than we thought," Wright admits.

NBC—tops in broadcast news—clearly is uncomfortable with third place, says NBC News President Neal Shapiro, adding, though, "We would be foolish to be paralyzed by it. We need to keep tweaking and tinkering."

Low-rated shows with Alan Keyes and Ashleigh Banfield have already been sacrificed. A news hour with anchor Lester Holt was added. Now Donahue, clearly on the ropes, has moved back into his old studio in NBC's Rockefeller Center digs to perform before a studio audience.

Some media buyers are leery of MSNBC, especially since the summer. Says John Rash, chief negotiating officer for Interpublic's Campbell Mithun, "The promise and the premise was to tap into NBC News' leadership position and deliver younger, affluent viewers, and they've fallen short."

NBC execs assert that every network—broadcast or cable—goes through programming slumps. Wright points to NBC itself, which spent years casting aside Sunday-night flops before this year's success with American Dreams.

"If you had to pick one asset that was challenged," Lack says, "MSNBC is the one you'd pick."

Mitigating factors: Under the agreement between Microsoft and NBC, the software giant invests millions into the network every year—regardless of the ratings. MSNBC ad sales benefit from being sold with NBC, and MSNBC helps amortize NBC News' expenses.

Still, MSNBC President Erik Sorenson needs to find the right mix. He is "clearly under pressure" and "trying his best to fix things," says Wright.

Telemundo potential

If MSNBC is a house full of cracks, Telemundo is "like that addition you've wanted to put on your house for 10 years," says Prudential Securities analyst Nick Heymann. "It's a way to expand and leverage your assets."

But Telemundo has a big hill to climb first. Chief rival Univision has an 80% stranglehold on Hispanic viewers and is flanked by its sister network Telefutura.

Still, GE saw enough promise to give NBC the nod to acquire Telemundo last spring for a rich $2 billion in cash and another $700 million in debt, beating out Viacom and other suitors.

The Hispanic population is the fastest-growing demographic in the U.S. and largely untapped by advertisers. Telemundo also comes with stations in large markets, giving NBC the first Anglo-Hispanic duopolies. "No one has played this game before," notes one media analyst.

NBC held onto Telemundo's chief Jim McNamara, who turned the channel around in 1999 by returning to traditional Hispanic formats. NBC has upped Telmun-do's programming budget about 15% to $110 million.

NBC is growing distribution, too, putting up around $100 million to buy four Telemundo stations in major Hispanic markets.

GE and NBC have refocused Telemundo's business, says McNamara. "Now it's drive prime time ratings and drive revenue."

Telemundo has made some gains against Univision in local news, largely thanks to NBC involvement. NBC has pushed Telemundo stations to expand weekend news and increase promotion. Combating Univision's entertainment will be more difficult: Univision draws three times more households than Telemundo does. Plus, Telefutura siphons off even more viewers.

With Univision heavy on traditional novelas, Telemundo is trying to experiment some. "We've broken the mold a little while still being faithful to the form," McNamara says. That means reality shows, police dramas and comedies, scheduled as novelas, every night for several weeks or months.

Says UBS Warburg's Leland Westerfield, "Telemundo still needs to prove it can produce programming that will stand up with audiences."

CNBC story

Wright contends that CNBC's ratings slump—down 60% in prime time in the third quarter this year compared with the year-ago period—doesn't tell the whole story. Nielsen doesn't measure daytime, at-work viewing, when CNBC gets most of its highly educated and affluent viewers. "Prime time for CNBC is daytime," he says.

Still, in the go-go dotcom days, CNBC enjoyed huge ratings in prime and total day. When the economy crashed to Earth, so did CNBC's Nielsens. It now stands with about a 0.2 prime time average. Wright calls the Nielsen audience a "fringe benefit" that CNBC never went hunting for. The core audience, he says, is the financial-services business and a "daytime, at-work audience that Nielsen doesn't measure."

Moving to harder, economy-focused news shows like Capital Report
and The News With Brian Williams
in prime time is something Wright says he has wanted to do for some time. "These are not shows to compete with [Fox News'] Bill O'Reilly."

Top-rated or in Nielsen's basement, NBC execs say advertisers still love the network's desirable audience. "It's like Forbes, Fortune
or BusinessWeek. There's no real television comparison," Wright says.

"CNBC still does well," says Mediacom's Jon Mandel. "It still delivers men and delivers upscale. It's a quality environment."

Blame either the economy or ratings, but CNBC's ad revenue has cooled off as well. This year, the network will likely take in $210 million to $250 million in ad revenue, down from about $300 million last year.

Wright says the pinch matters less to CNBC. While most cablers derive 50% of their revenue from advertising, he suggests, CNBC relies on ads for only about 28% of total revenue. The remainder comes from subscriber fees, programming licensing and direct marketing.

One sign things have changed, though: CNBC's ad sales are being folded into NBC sales.

"You have a ratings freefall and a network that has been difficult to deal with in the marketplace," says one ad-sales executive. "They can't really stand alone anymore."

But Lack sees the combined sales force as an NBC synergy, not a slight to CNBC. "The leverage that the broadcast network brings to cable is unique. I'd like to see more of it."

Fighting Paxson

Paxson Communications is suffering from lower advertising revenues and programming that hasn't hit a mark. NBC would like to solve Paxson's troubles, but it can't. NBC has a 33% stake of the group's television stations and the Pax TV network and has options to buy the rest, but control rests with Pax Chairman Lowell "Bud" Paxson.

The FCC's cap on station ownership is not the only obstacle to NBC's stepping up its involvement. Another major barrier is Paxson himself.

"You have a fellow who is extremely frustrated," Wright says. "He wants to sell the whole thing to someone tomorrow."

Pax lost an arbitration dispute with NBC in September over its Telemundo acquisition, which could have rid it of NBC. Also, the Republican-dominated federal government that many thought would raise—or outright remove—the station-ownership limits hasn't done so.

That, Wright says, would have "raised the value, and it would also put us in a position to exercise our rights. If we didn't, someone else could come in."

Now, observers say, Wright holds all the cards. "They've got Pax locked up with all the keys," says Prudential's Heymann.

NBC can now count on other assets to deliver what it expected from Pax, another outlet for its programming. With Telemundo came a collection of big-market stations and new duopolies. And now there's Bravo. Program sharing never really worked with Pax TV, Wright says, because Pax wouldn't pony up for NBC shows like Providence
or Crossing Jordan.

Paxson executives would not comment for this story.

Analysts say NBC can be patient with Pax. But Wright isn't necessarily staked out for good. "If [Paxson] wants to bring us a credible buyer or an investor who really wants to take us out," he says, "I'll listen to him."

ShopNBC: No control

As with Pax TV, NBC may have ideas for ShopNBC, but it lacks control to execute. GE and NBC control 40% of ShopNBC, formerly ValueVision. While synergy opportunities seem endless—like generating sales of NBC-related products and increasing value for advertisers—few have materialized.

"We'd like to see them be more successful and be broader-based," Wright says. He likes the model but says ShopNBC's revenue hasn't grown as rapidly in the past two or three quarters as expected.

ShopNBC is building more programming around personalities and benefits from the NBC association. It's currently the No. 3 shopping channel behind QVC and HSN and still relies heavily on jewelry sales.

Home shopping is "not a 100%-proven concept," said Heymann. But, he adds, NBC has a potentially lucrative position. "Everyone else has to go to Barry Diller for this capability." HSN is part of Diller's USA Interactive, and Diller was QVC's CEO in the early 1990s.

Reinvent Bravo

With Bravo, NBC gets the entertainment cable outlet it has been coveting for years. But it's buying an old-skewing network with lower ratings than the Game Show Network or the Hallmark Channel.

When the $1.25 billion deal closes, likely by Christmas, Wright aims to make Bravo a little younger and add more flash, but he likes the high-brow branding. Most important for NBC, "[Bravo] is a platform, a distribution business and a programming business," he says.

In time, though, NBC intends to beef up original programming to about 50% and use Bravo as a network farm team. "They had no money there before," Wright says. "You don't need money to be creative, but you need it to execute ideas."

Wright envisions launching a show on Bravo and bringing it to NBC if it looks like a broadcast-network winner. While NBC will explore repurposing its shows, he insists it will happen only when the deals make financial and strategic sense.

Bravo's ratings clearly need some resuscitation. Prime time numbers hover around a 0.3, and, Wright acknowledges, the network has to sell advertisers on its prime time marks. Like other desirable niche networks, he notes, "it doesn't need a big number to be successful." (GE already owns a 25% stake in A&E and the History Channel.)

Programming Bravo will fall to NBC Entertainment President Jeff Zucker and NBC programming whiz Jeff Gaspin. NBC gets pitches all the time for reality shows and other programs that don't fit the broadcast net. Some of those shows could be perfect for Bravo.

Says Lack: "You'll start to see some of that coming out of the pilot season in May."