The Business of TelevisionNBC still rates at GECEO Immelt knows there are problems at the network but looks forward to growth at the entertainment unit
By Meg James Los Angeles Times
Staff Writer June 4, 2007
Not long ago, one of the brightest lights within General Electric Co. was NBC.
But for the last three TV seasons, the once-dominant network has finished fourth place in the prime-time ratings and watched its advertising revenue drop by nearly $1 billion.
This spring, NBC posted embarrassing multiyear lows in the ratings, prompting frustrated NBC Universal executives last week to sack the network's programming head, Kevin Reilly, just three months after extending his contract for three years.
Now, some investors are urging GE Chairman and Chief Executive Jeffrey Immelt to shed his news and entertainment empire, NBC Universal, to streamline the industrial conglomerate and boost its stalled stock price.
"GE stock has basically gone sideways for five years despite solid underlying execution," Citigroup analyst Jeffrey Sprague wrote in a recent report. The troubles at NBC Universal are partly to blame, Sprague said.
Nevertheless, Immelt seems resolved at least for now to hold onto NBC Universal. The entertainment division, which last year brought GE $16 billion in revenue, includes the NBC and Telemundo broadcast networks and a group of TV stations; Universal Studios theme parks and film studios; cable TV channels MSNBC, CNBC, USA Network, Bravo and Sci Fi; and Internet sites including iVillage.
"There are more reasons to hang in there and see the business improve and see how the next hand gets played as it pertains to changes in the industry like digitization and globalization," Immelt said in a wide-ranging interview recently.
"If I thought that content was going to be less valued in a digitized age, I would say, 'Boy, now might be the time to get out,' " Immelt said. "I don't feel that way."
The 51-year-old executive, who replaced GE's legendary chairman Jack Welch just four days before Sept. 11, 2001, conceded that NBC Universal was not a snug fit with the rest of his company, which produced $163 billion in revenue last year. GE manufactures appliances, jet engines, wind turbines, locomotives, healthcare products and more. It also owns a web of financing and consumer credit services.
"Whereas a business like aircraft engines fits 100%, I would say with NBC, it may only be 70%," he said.
It's the remaining 30% that can be vexing because of the hit-and-miss art of picking, making and scheduling television shows and movies that resonate with audiences. Managing the creative process is different from anything else GE does.
But Immelt sees more upside than down. Several of the entertainment units seem poised for a turnaround. NBC finally has a few building blocks, with such hits as "Heroes" and "The Office." Universal Pictures is expected to have a flush summer after a dry spell at the box office with its latest movie, "Knocked Up," opening big this weekend.
What's more, NBC Universal continues to bring GE nearly $3 billion a year in profit. The operation does not have a large profile in foreign markets, so there is room to expand beyond the U.S.
There are other financial implications, too. Spinning off NBC Universal would leave GE a less-diversified company, with financial services contributing more than half of earnings, Sprague said. That's not an attractive option, especially because Wall Street tends to assign less value to those businesses than to manufacturing or entertainment assets.
GE has another major incentive to keep NBC Universal: next year's summer Olympics in Beijing. In addition to providing hundreds of millions of dollars in TV advertising revenue, Immelt said GE's sponsorship of the Games should generate $700 million in sales of GE products in China.
Universal Studios and NBC also provide a glitzy storefront in the "economy of perception," so valuable in today's media-saturated world.
That's one reason Immelt invited several hundred clients to Universal Studios in Los Angeles last month to experience GE's "ecomagination" initiative for developing "green" products such as hybrid locomotives and compact water heaters. The theme: "Green is Universal."
Although it's important for Immelt to get NBC back on track, the GE chief said he can't afford to be sentimental and won't rule out eventually dropping the curtain on Hollywood.
"I don't fall in love with any business inside the company," he said. "I have to be tough-minded. Businesses have to perform, and I'm not in it just to be in it. I'm in it because I think it is a good economic fit for our investors."
What follows are some highlights from the interview with Immelt:When General Electric acquired Universal Studios three years ago, a lot of people asked: How is GE going to manage a volatile business that runs on creativity?
Within NBC, there has always been this sense that GE was the suits, they are in the appliance business, they are square and they don't understand it. But in our history we've been able to get past that, both by being successful financially and most years, from a ratings standpoint. We were able to use our financial strength to a great advantage: the Olympics deals, the NFL deals and making acquisitions in a timely fashion.When GE does business in foreign countries, dignitaries and foreign businesspeople often ask about NBC Universal. Is NBC Universal a door opener?
It's a positive. There is a high level of interest, for instance, in the theme parks, and there's always an interest in how the entertainment model, which is still highly revered as being very successful, can be copied or what kind of role we want to have in Germany or in India or places like that. International growth may for content players like us be as big or bigger than what's going to happen online.Are those people interested in such things as how you make movies?
No, but I think they understand the brand. It's different in different countries. In China, it's all about the Olympics. India has a vibrant entertainment industry. It's about, "Can you put some shows here?" In Europe, it's increasingly about the Internet. People in Germany say, "Hey, can I take iVillage and Germanize it?"GE sold its plastics unit to a Saudi Arabian company last month. You worked in plastics for 12 years. Was that sale difficult for you?
It breaks your heart. But I get paid to sort through stuff like that. The Saudis have access to the raw materials, they can run that business a lot better than we could. If I believed the GE team was not a good steward of the NBC Universal assets, I'd sell it immediately.How is Jeff Zucker doing since he became chief executive of NBC Universal four months ago?
So far, so good. What I've always loved about Jeff is he is completely invested in this industry. It's in his blood, he's competitive, he is passionate, he lives it 24-by-7.How involved are you? Were you helping pick pilots for NBC's new fall schedule?
I've always had a hand in how NBC worked. I usually watch all of the pilots and I'll watch the shows that made it and didn't make it, but not for the purpose of picking. But for the purpose of saying, "Hey, I really like 'Chuck.' " Like any other business of GE, I want people to know that I care about them.NBC's prime-time problems continue to dog the entire company. What portion of NBC's prime time goes to the bottom line of GE?
I think it's less than 1%. You just never want to rationalize the lack of success. There are very few things inside the company that are as important to me as making sure NBC restores and returns to its levels of performance, both financially, which we will do quickly, but also in terms of perception, which will take time.Could you discuss the NBC rebuilding?
On the creative process, you've got to pick people you like and really empower them to do the job. Look at Les Moonves from CBS. Patience was his virtue. His willingness to stick with shows in the early days when he was really on the bottom served him well. When you are in the position that we are in, you're going to have to take the things you are building on and stick with them for a while.Why change leaders at NBC now? What went wrong?
I would rather not go into that. The timing was awkward but sometimes it works out that way.You met with Ben Silverman, the newly hired co-chairman of NBC Entertainment. What impressed you?
What I liked about Ben was his breadth and his leadership capabilities. He has a good sense of globalization and the digital world. He has an exceptionally good way about thinking about shows like "The Office" and "Heroes" and how they play on the network and online and how you can go between the two.http://www.calendarlive.com/tv/cl-fi...cl-tv-features