Look Into Crystal Ball Reveals a Bevy of Media Deals Unfolding in 2001

2001 will be another big year for the media-business deal makers, at least that’s how we read the tea leaves. Industry analysts, investors and executives tell us to expect the sale of Yahoo; NBC to be cut free from its parent, General Electric; and Comcast to buy AT&T;’s cable systems. And that’s just for starters.

Skeptical? Many of our annual predictions have come to at least partial fruition.

For example, a hostile takeover of Time Warner by America Online was in last year’s forecast.

On the other hand, prognosticating is tricky work.

Barry Diller’s USA Networks agreed to sell its station group to Univision, the leading Spanish-language broadcaster, instead of, as we predicted, forming a partnership with the Walt Disney Co. (although Disney was a bidder for the stations.)

As of New Year’s Eve, however, there seems to be some good bets for 2001. The stock market will continue to give media investors vertigo. The average entertainment stock dropped 40% in 2000, with top-performer Disney off by 9%. A slowdown in the economy and advertising could bring another choppy year on Wall Street for media stocks.

But sluggish stock prices won’t slow the merger frenzy. Several deals, including the expected sale of music giant EMI to Germany’s Bertelsmann, already are teed up.

Some bolder predictions:

Comcast Buys AT&T; Broadband

The nation’s third-largest cable operator spent December huddled with allies Time Warner and Cox Communications trying to figure out how to buy AT&T;’s cable group, the industry leader, which is due to be spun off to the public in 2002. To come up with the estimated $60-billion-plus purchase price, Comcast would sell off some of AT&T;’s 16 million cable subscribers to other cable operators. John Malone, AT&T;’s largest shareholder, appears to be encouraging Comcast, whose chief, Brian Roberts, relishes becoming the nation’s leading cable operator.

AOL Retreats From Cable

After completing the acquisition of Time Warner, expected momentarily, the company will lock in long-term deals with other cable operators to guarantee the future of its new AOL high-speed Internet service. Later, AOL will take Time Warner’s cable group public. Over several years, AOL will reduce its controlling stake in the cable properties to more easily expand AOL’s high-speed access and interactive-television services via DSL and satellite distributors, cable’s key competitors.

GE Spins Off NBC

NBC parent GE is studying a plan to spin off NBC to its shareholders. GE’s outgoing chief executive, Jack Welch, will take the helm of the newly public NBC, freeing his appointed successor, Jeffrey Immelt, to concentrate on GE’s core business and the pending $45-billion acquisition of Honeywell International. NBC could then more easily eat or be eaten. Media moguls Diller and Ted Turner, Time Warner’s disgruntled shareholder, have long coveted NBC.

Disney, NBC Go Shopping

New accounting rules make deal making attractive to media companies that have been reluctant to pull the trigger. Disney and NBC finally step up to the plate after standing on the sidelines as Time Warner, Viacom and News Corp. have grown. NBC, whose CNBC and MSNBC cable assets have swelled its value, has come close to buying Discovery Communications and merging with Sony and USA Networks, while Disney has toyed with DirecTV, the Family Channel and AOL.

Disney Buys Scripps

Disney will acquire E.W. Scripps in a $5-billion-plus deal that will round out the studio’s television station group and add Home & Garden Television and TV Food Network cable channels to its stable, which includes the Disney Channel, ESPN and interests in A&E;, Lifetime and E! Entertainment Television.

Fox Shops Family Channel

News Corp. will try to interest Disney in buying the troubled Fox Family Channel, which it bought five years ago for $1.9 billion with partner Haim Saban. But Disney isn’t likely to pay much for a struggling channel in a competitive children’s arena that Disney already serves. News Corp. will end up buying out Saban, who already has triggered a provision in the partnership forcing News Corp. into a costly deal.

News Corp. Buys DirecTV

With no other buyer in sight, General Motors sells DirecTV to News Corp. in a $40-billion-plus deal. The purchase, pulled off with partners Microsoft and Liberty Media, gives News Corp. the leading national pay-television brand and unparalleled worldwide distribution clout.

Yahoo Is Sold

Disney will look, but Viacom will buy Yahoo despite Chief Executive Tim Koogle’s stated eagerness to retain the company’s independence. The company’s value has declined to $20 billion from $100 billion last year, making it an irresistible target. Viacom will use Yahoo as a marketing tool to extend household brands such as CBS, MTV, Nickelodeon and Paramount Pictures.

Diller Buys Rainbow

USA Networks beats out Comcast, MGM and Viacom in a bidding war for Rainbow Holdings, the programming arm of Long Island, N.Y., cable operator Cablevision Systems Corp. The purchase, for close to $4.2 billion, gives the owner of Home Shopping Network, USA Networks and Sci-Fi Channel four additional networks--Bravo, American Movie Classics, Women’s Entertainment and Independent Film Channel. And Diller is buttering up his new partner, Vivendi, which holds a 45% stake in USA, so he can pursue an even larger target: MGM, whose movie library would feed AMC.

A Harrowing Hollywood Strike

A strike by TV and film writers, and a separate action by actors, will shut down production for the new fall television prime-time season. The major broadcast networks will reinvent prime-time TV by relying on cheaper fare such as movies, reruns, news and reality programming and, increasingly, on international suppliers. But looking more and more like cable channels could deflate advertising rates during a soft market, bringing a settlement more quickly than might have happened during boom times.

Broadcast Bankruptcies

The advertising downturn will wipe out some weak broadcast groups that made acquisitions when values were at a peak and are now struggling to make debt payments. Analysts and industry pundits are closely watching Granite Broadcasting, whose stock has plunged to $1 from $13 in the last 10 months. However, further deregulation of television station ownership caps that are expected to be pushed by the Bush administration could prevent such a blood bath.

Liberty Is Set Free

AT&T; receives a favorable tax ruling from the Internal Revenue Service that allows it to spin off Liberty Media Corp., the investment portfolio that now trades as a “tracking stock” of AT&T.; Though Liberty’s controlling shareholder, John Malone, considers making a run for AT&T; to salvage his sinking stake in the ailing telecommunications giant, he backs away, wary of returning to day-to-day management.

UPN Survives

Owner Viacom strikes an agreement to operate broadcast network UPN as a partnership with News Corp. for at least two more years.

Last Cable Independent Sold

Eager to seize on the record prices that programming assets are selling for, the owners of Discovery Communications put the largest independent cable programmer up for sale, with a price tag of $12 billion. The largest shareholder, Liberty Media, which holds a 49% stake, has apparently given Discovery founder John Hendricks a green light.