Viacom Inc.'s first big buy since it declared itself on the acquisition prowl was a relatively easy one: the half of cable network Comedy Central it didn't already own.
The $1.23 billion price was between what some analysts thought the stake was worth ($1 billion) and what seller AOL Time Warner Inc. hoped to get ($1.5 billion).
At 32 times Comedy's estimated $76 million in earnings before interest, taxes and other charges (cash flow), the price is no joke. But Viacom figures that with Comedy fully in the MTV Networks fold, the cost savings from combining sales forces and potential marketing tie-ins should pump up Comedy's cash considerably.
How much appetite does Viacom have left for the cable-network acquisitions that chief operating officer Mel Karmazin hinted at months ago? One Wall Streeter last week said it was more a question of supply than demand.
"I think they'll buy every cable network they can get," the analyst said. "But there aren't many out there."
Viacom has been looking at several that might be on the block, including Vivendi Universal Entertainment's Sci Fi Channel and USA Network. But Vivendi likely wants to sell the cable networks in a package that would include Universal Music Group, Universal Studios and its theme parks.
Potentially easier would be a buyout of AMC, the former American Movie Classics, owned by Cablevision Systems Corp.'s Rainbow Media. Cablevision, which is looking to shed debt, sold Bravo to NBC late last year for $1.25 billion (20 times cash flow). At that time, CEO Jim Dolan said he wouldn't rule out selling AMC.
Since then, the pressure on Cablevision to sell assets has eased up. So Dolan might not be as motivated a seller as was AOL Time Warner chairman Richard Parsons, for whom $1.23 billion was worth more than a half-stake in even a fully distributed cable channel.
UBS Warburg cable debt-and-equity analyst Aryeh Bourkoff values AMC at $1.6 billion — well within Viacom's buying range.
A sweet fit
For now, at least, Viacom will concentrate on Comedy Central, as the deal is expected to close before July.
Comedy Central fits nicely with Viacom's stable of youth-targeted networks. In MTV Networks, it joins MTV: Music Television, VH1, Nickelodeon, TV Land and The New TNN (soon to be renamed Spike TV).
On a conference call with analysts to discuss first-quarter results last Tuesday, Viacom officials boasted that once Comedy joins the crew, its cable channels will reach 62% of the 18-to-49 adult audience advertisers crave.
Operationally, things shouldn't change that much at Comedy, officials said. Network president Larry Divney will remain in that role after the deal closes, and is a longtime friend of MTVN chief Tom Freston.
Divney spoke warmly of the fit last week. "The reality is, the network is better under one [owner]," he said. "The good thing about MTV is their culture is creativity equals business. We've always had the same mantra."
Comedy Central has developed some shows that generate respectable ratings, like The Man Show
and Chappelle's Show, in recent years. But it hasn't quite returned to the peak it scaled with the brand-defining 1997 hit South Park.
Network officials have said they were hampered under dual ownership, finding it hard to get the money needed to buy many new original shows.
Not so this year. Divney said both Viacom and AOL Time Warner gave Comedy an extra $30 million for programming, propelling this year's program budget up to around $130 million.
Comedy generated a first-quarter primetime rating of 0.7, flat versus a year ago, according to Nielsen Media Research data supplied by ABC Cable Networks Group.
ended its first season
with an average household rating of 1.7 — or 2 million viewers per episode — and a 1.5 rating in the 18-to-49 demographic. That's the strongest first season for a Comedy Central original series since South Park.
Also last week, Comedy re-signed the host of what is possibly its best buzz-delivering show, The Daily Show with Jon Stewart, for another year, according to the Associated Press.
Divney said Freston's a big believer in program development, and that helps Comedy.
"That's what we do here: Invest in more, better, smarter, funnier programming," agreed Freston. "And now Comedy Central is with a bunch of equals, first in line looking to get money if they have some clever programming plans up their sleeves."
Industry insiders are already speculating shows from Comedy, such as The Man Show
or Crank Yankers,
will find their way onto Viacom's TNN, after it relaunches as Spike TV.
Sharing the 'Man'?
"Certainly, there will be shows developed that can play on Spike and can also play on Comedy Central," one network chief opined. "Their demo is young males 18 to 34.
"You'll see Man Show
repeats on Spike, mark my words. The manliness will be spread."
Divney said those options have been discussed, but such moves must be made carefully.
"I wouldn't want Crank Yankers
on another MTV network while it's on us," Divney said. "But after it finishes its run here, maybe. At the same time, certain shows mean something to a certain brand, so you have to be very careful about that."
Comedy Central has been proud of its standalone affiliate sales team, led by the well-regarded Brad Samuels, executive vice president of affiliate relations. Samuels and his team have taken Comedy to 81.8 million homes.
But affiliate relations is expected to be an area that suffers some deep attrition.
"A lot of people are going to lose their jobs," one cable-network executive said. "They are not going to keep a separate affiliate sales force and ad sales force."
Comedy Central also was handling affiliate sales for startup The Tennis Channel.
Tennis CEO David Meister said it's premature to know what will happen, but he wouldn't mind being represented by MTVN's affiliate-sales force.
Chiefs address troops
In an attempt to allay fears about potential layoffs, Freston and Divney addressed Comedy Central employees Tuesday at a meeting in the auditorium of the John Jay College of Criminal Justice in Manhattan.
"It was very upbeat," one Comedy employee said. "Their culture and our culture isn't that different. We've been slugging it out as an insider against well-financed competitors. Now we'll have a little of that muscle behind us as well."
Freston last week declined to comment on what will happen to Comedy's affiliate-sales team and ad-sales staff, saying it was premature.
"Of course, that's a big thing on people's minds," Freston said. "I really just said [at the meeting] we can't get into it. I did stress the fact that we do run our networks here independently, autonomously.
"We don't have one ad-sales group [for all the MTV networks]. There's going to be some changes, yes, but they're also coming into a company that's a growing company and there are a lot of other opportunities in the company. They may end up working for other networks."
Added Divney: "There'll be some fallout, hopefully minimal. That's the hard part."
Comedy will stay in its current New York offices at 1775 Broadway and will not move to Viacom's headquarters at 1515 Broadway.
Fee hikes coming?
Now that it's fully in the Viacom fold, Comedy might try to raise its license fees, some cable operators speculated last week.
Comedy's monthly, per-subscriber license fee is now in the range of 9 cents to 16 cents, depending on carriage.
MTVN has a history of buying networks and then packaging them with MTV or Nickelodeon, raising the acquired service's rates in the process, some operators said.
That's a worry for Frank Hughes, senior vice president of programming for the National Cable Television Cooperative.
"The NCTC is always concerned when a large, vertically integrated company buys outright a network like Comedy," Hughes said. "It has the result of pushing up license fees at an ever-increasing rate due to the 'bundling' effect with their other networks.
"We have seen it happen in the past and don't see any reason to believe it won't continue with this acquisition. I'm sure our members won't find it very funny."
Freston claimed there are no plans to jack up Comedy Central's license fees.
"We have long-term deals in place with virtually all the MSOs, so I don't see any immediate changes there," the MTVN chief said.
Matt Polka, president of the American Cable Association, which lobbies for independent cable operators, also hopes there won't be long-term changes.
"Comedy Central has been very good and very responsive," Polka said. "They've been very sensitive to our members' needs. I'd hate to see the nature of that change."
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