In a flurry of leaks that had the cellular phones ringing on the beaches, it was disclosed that Time Warner Inc., the movie, cable and publishing giant, has started exploratory talks to buy the NBC network. And Disney, sources said, was sniffing at both CBS and NBC. The Disney report surprised no one; the company had been rumored to be shopping for a network at least as often as a 5-year-old watches its videos.
The Time Wamer-NBC talks caused more of a rush, even as they stirred fresh concerns about the media’s increasing consolidation. Begun just a few weeks ago, the talks have been conducted at the highest levels, involving Time Warner chairman Gerald Levin, NBC president Robert Wright and Jack Welch, chairman of General Electric, which owns NBC. While an agreement is iffy at best, they are focusing on a deal in which Time Warner would acquire NBC’s television network and much of its cable interests. The deal would give Time Warner a network of more than 200 affiliated stations and more to the point -an assured outlet for its TV programs.
Why is that important? Like most Hollywood studios, Warner Bros, sells programs to the TV networks, including such hits as “Murphy Brown” and “Full House.” But Warners and other studios (like Disney) are worried about next year, when the TV networks will be permitted to produce and own far more programs; the networks will also be able to sell their programs as reruns, reaping the syndication profits now pocketed by the studios. Fearing its market could diminish, Time Warner wants control over the distribution of its product-in this case, a TV network. (Disney president Jeffrey Katzenberg made much the same argument, a position that may have led to his ouster two weeks ago by chairman Michael Eisner, who favors a go-slow approach.) A Time Warner executive says control brings enormous financial advantages. “The more you extend your tentacles into distribution, the more you control your destiny,” he says. indeed, Time Warner in trying, with the Tribune Company, to develop another network. But analysts say it may be easier to buy a network than to start one.
For General Electric, this wouldn’t be the first time it’s tried to unload NBC. Critics have often called the network a bad fit for the industrial giant; its ratings have tumbled from first to third since GE bought it in 1985. But the deal would allow GE to keep the most profitable part of NBC -the six local stations it owns.
That’s the theory, at least. Numerous obstacles could cause the idea to unravel as quickly as the proposed CBSQVC merger did in July. Any synergy may be illusory; the network would still need to buy programming from other studios. It’s also unclear whether rival networks would relish forking over licensing fees to Time Warner for, say, “Murphy Brown.” There’s the further question of whether Time Warner, already $9 billion in debt, can afford the deal, pegged at about $2.5 billion. Finally, Time Warner would face regulatory restraints designed to prevent a cable operator from owning a network.
Given the huge size of the two companies, antitrust regulators will likely take a look at any transaction. A deal would only strengthen Time Warner’s position as a media powerhouse. it’s the nation’s second largest cable operator and owns HBO and part of Turner Broadcasting System. Warner Bros. is the biggest TV producer. But here’s the irony. The Feds reekoned the networks could better compete against studio and cable barons if they were freed from programming constraints, Trouble is, it now looks as if those good intentions could allow the likes of Disney and Time Warner to swallow the nets instead.
