Global Players Await GE Move

Hollywood and Wall Street have been hit again in recent days with rumors that General Electric was about to sell the NBC television network. In the latest stories, more than one buyer was featured--Paramount Communications for the network’s entertainment facilities and contracts, with Turner Broadcasting buying NBC News and sports.

Rumors, like gossip, are fun. As on past occasions, the GE rumors apparently have come to nothing. They would not be worth mentioning if you weren’t certain to hear them again--because some change in NBC’s status is imminent. GE is going to do something. And the whole matter raises some fascinating questions about global business today.

Questions such as: If giant Japanese companies are paying big money to buy into TV, would GE be smart to get out?

Also, if GE wants to sell, would Paramount, Turner or anybody be smart to buy?

The answers lie in understanding that business these days is global and demands a major commitment. Truth is, Sony and Matsushita and Toshiba--which recently invested $1 billion to form a cable-TV alliance with Time Warner--could take a tip from what GE decides to do with NBC.

First, a little background. General Electric--the giant diversified company with $57 billion in annual revenue from power plants, medical imaging equipment, jet engines, advanced plastics, kitchen appliances, light bulbs and one of the country’s largest finance companies--has owned NBC since 1986 when it acquired Radio Corp. of America.

For years, the network was a piggy bank. GE used NBC’s high profits to give its global businesses a little extra to help them compete. GE Chairman John F. (Jack) Welch Jr. called them “margin dollars” that might support a low-priced bid on a power plant contract in a foreign country, or tide the medical systems business over a slow period. “If you create an institution to win in world markets, you have to have a lot of resources,” said Welch.

The strategy worked: GE’s electrical generator business survived a 1980s downturn in world markets and is flying high today. Its CT scanner and magnetic resonance imaging business is first in the world, as are its aircraft engines.

But now a time of reckoning has come for the network. The business that only a few years ago contributed more than $500 million a year in pretax earnings is now barely profitable. The problem is fewer viewers but higher costs. NBC, CBS and ABC each spent roughly $1.8 billion last year chasing a declining audience for network programing in a time of falling advertising revenues.

The network blues are the reason CBS is chronically rumored to be up for sale--with Walt Disney Co. the rumored buyer--and Capital Cities/ABC Chairman Daniel Burke has told owners of ABC affiliate stations that if the network goes into the red, it won’t be spared from the auction block.

That’s why GE is confronted with a fish-or-cut-bait decision on NBC. The stock market says sell. By some estimates, GE could get $1.5 billion for NBC if it sold the network along with stations it owns in major U.S. markets. “Sale of NBC would add $10 a share to GE stock,” said one analyst enthusiastically. That would be a big leap for a stock that closed Tuesday at $65.75 a share.

Yet based on his comments as reported in “Three Blind Mice,” Ken Auletta’s recent book on the TV networks, GE’s Jack Welch may be thinking that simply selling out is not the way to go.

Welch knows that communications is one of the emerging global industries, that the marriage of computers and televisions, and a vast expansion in the numbers of cable-TV stations and worldwide distribution of programing are all just around the corner.

But he also knows that just as in medical systems or power plants, a company can’t be a small and vulnerable competitor. The business demands scope. “I am open to an asset play with NBC,” said Welch. “You have to end up looking like Fox”--a reference to Rupert Murdoch’s company that combines the 20th Century Fox movie studio with a television network and TV stations.

Given today’s conditions, why should anyone want to ally with NBC--or any other network? “Because a network can serve as a base for a global entertainment delivery system,” said one industry expert, meaning that NBC with its distribution arrangements with 210 affiliated stations gives a global player 99% of the U.S. market and a running start on linking up the rest of the world.

Looked at that way, NBC or parts of it might well appeal to Ted Turner, who has a worldwide presence with CNN and talks of distributing programing globally. Or it might attract the cable-TV giant Tele-Communications Inc. or Time Warner or Disney or Paramount.

To separate reality from rumor on global TV, watch GE.

It’s certain to do something with NBC. And a lot of people in U.S. business think that it will do something smart. Says the head of a Fortune 500 company admiringly: “They make very few mistakes.”