Soon-to-be NBC Universal chairman Bob Wright gave analysts last week more glimpses at plans that include using NBC's considerable broadcast and cable muscle and VUE's cable and film studio properties to create new content, exploit new technologies and drive new revenue.
He spoke after final terms were fixed for the General Electric Co. TV unit to buy out Vivendi Universal Entertainment for $14 billion. The deal should close in early 2004.
Wright's NBC Universal combines the NBC Television Network, cable channels Bravo, MSNBC and CNBC and Spanish-language broadcaster Telemundo with VUE's USA Network, Sci Fi Channel and Trio cable networks.
It also owns the Universal movie studio, the Universal television production unit and Universal Studios theme parks. NewsWorld International, another VUE cable channel, was not part of the deal.
Wright spoke of the future: 2006, when federal mandates requiring TV stations to go all-digital would allow broadcasters to split their channel spectrum into five separate digital channels.
NBC Universal's content could sustain a national broadcast network; a local broadcast channel; an alert channel providing news and weather; a sneak-preview channel for movie and TV fare; and a movie channel that draws on the 5,000-film Universal Studios library.
The movie channel would likely be in an on-demand format, for which NBC needed to secure content rights.
"You can't do all these things tomorrow, because people have rights that cover this ownership, but they roll off," Wright said. "It's just like commercial real estate, the leases roll off."
NBC already has been working with cable operators Comcast Corp. and Time Warner Cable on VOD. "This is going to be a business over time that could be quite significant," Wright said.
Wright mentioned one USA Network property —The Dead Zone
— as one show that could "easily be sold on an on-demand basis."
Just what kind of revenue stream NBC Universal will be able to derive from a VOD service has yet to be determined. Most cable operators offer VOD at no charge: It is used as either an enhancement to pay-per-view or as a retention tool.
Advertising would be key. "There's no reason in the world why on-demand would not have advertising wraparounds in it, and it's just a question of the cleverness of matching the marketing needs of an advertiser with a program that has the same audience attraction," Wright said.
Shoring up USA Network — and its cable license fees — is emerging as one priority. USA's per-subscriber rates run from 32 cents to 42 cents, depending on the size of the operator, according to a previous report in Multichannel News.
Vivendi chairman Jean-René Fourtou, in another analyst call, didn't specifically address USA or affiliate fees, but hinted that future talks might have been tricky.
"Our own assets in L.A. were at risk," Fourtou said. "We had two good channels, but small in the world of U.S. TV. We could have had difficulty in renegotiating with cable operators."
Wright hinted that NBC could use its considerable broadcast muscle to gain long-term deals with cable operators.
"We have a good relationship with the cable industry," Wright said. "We have long-term agreements, we have some short-term agreements that they have. We will work hard to turn them into long-term agreements as we get past the closing."
Final terms of the deal did not deviate much from the original proposal announced on Sept. 2.
The combined entity has a value of $43 billion. Shareholders in VUE parent Vivendi Universal get $3.8 billion of cash: $3.3 billion goes to Vivendi for its 86% VUE stake.
NBC Universal assumes $1.7 billion in Vivendi debt. Another $8.5 billion in valuation comes from Vivendi's 20% stake in NBC Universal.
Vivendi can begin cashing out of the partnership in 2006, for $3 billion, or in 2007, for $4 billion. It also could participate in an initial public offering of its stake.
Should Vivendi continue to hold 20% of NBC Universal in 2009, NBC can buy it out at fair-market value or the current value of the transaction, about 14 times cash flow.
Vivendi chief operating officer Jean-Bernard Levy said the deal confirmed VUE's value "because after due diligence there is no change in the value of the business."
NBC Universal expects to have revenue of $14 billion in its first full year, growing to $15 billion the second year.
Cash flow, expected to be $3.5 billion in the first year, would grow 10% in the second, the company estimated.