General Electric's NBC television unit on Thursday agreed to acquire Spanish-language broadcaster Telemundo for $1.98 billion in a deal that would give the venerable network entry to the nation's youngest and fastest-growing market.
"This is the most dynamic television market in the U.S.--the Hispanic television market," said Bob Wright, chairman of NBC and a GE vice chairman. "All the things that you look for in a television business, at a time when things are bleaker than they have been for quite a while, are really here in Telemundo."
The marriage, Wright said, would benefit NBC as much as Telemundo, which lags far behind Los Angeles-based Univision, the industry giant that commands 80% of the Spanish-speaking U.S. television market.
NBC would pay half of the $1.98 billion in cash and half in GE stock. NBC also would assume Telemundo's debt, estimated to be about $700 million.
The union would rewrite play-books for both networks.
"This will change things," NBC President Andrew Lack said.
The deal, which is expected to close in mid-2002, would give NBC a presence in nearly 9 million Spanish-speaking homes and allow the networks to share sports, news and entertainment programming as well as writers and advertising sales staffs.
Hialeah, Fla.-based Telemundo and NBC hope their partnership will help attract the swelling population of bilingual Latinos who divide their viewing time between programs in Spanish and English.
For Telemundo and Latinos throughout the country, the deal underscores an increase in stature and credibility in the business world. NBC's embrace of Telemundo says Spanish-speaking television is a force to be reckoned with.
"This is the most significant day in the history of Spanish-language television," said Jim McNamara, chief executive of the network. "This is the day that Spanish-language television came of age."
Carlos Santiago, co-chairman of Santiago & Valdes Solutions, a San Francisco marketing firm specializing in Latino media, said the NBC-Telemundo deal reaffirms the emerging economic power of Latinos, who now make up nearly 13% of the U.S. population.
"This marks a fundamental change in how corporate America is viewing the Spanish-speaking market," Santiago said. "The big picture is: If you want to be a leader in the media industry, you have to be positioned with key Hispanics, especially Spanish-speaking media outlets, instead of just making some changes in programming and content."
Telemundo, which is owned by Sony Corp., Liberty Media Corp. and some smaller investors, attracted plenty of suitors. But NBC outdistanced rivals Viacom, which owns the CBS television network, Walt Disney Co., which owns ABC, AOL Time Warner and several other broadcasters in its four-month pursuit of Telemundo.
"We started getting offers in late 2000, and we had been exploring some station synergies with NBC, so we had already established a relationship," McNamara said.
The anemic advertising market and sputtering national economy helped NBC strike a deal, Wright said during a news conference at NBC's Rockefeller Center in New York. NBC executives estimated that Telemundo might have fetched 20% to 30% more earlier this year.
"It was a timely opportunity," Wright said. "It would have been quite a bit more expensive if we had done this four, five, six months ago. But times have changed, and it's a much more difficult marketplace."
Officials at Sony and Liberty Media, which purchased Telemundo for $539 million in 1997, declined to comment.
"They had really taken [Telemundo] about as far as they could take it without spending a lot of money," Wright said. "And they were watching the market share of Univision and watching Univision buy more stations."
Industry experts say the Spanish-speaking audience has largely been untapped by advertisers. Although that segment of ad market has grown 15% to 18% a year, experts say the growing population and increased buying power of Latinos should swell from $440 billion today to nearly $1 trillion by the end of the decade.
Univision and Telemundo were among the only television networks to pull in more advertising dollars during this year's advance advertising sales season. While the rest of the industry saw about a 15% decline, Telemundo's ad sales swelled to $200 million, up from about $150 million in 2000.
"This will certainly wake up a lot of advertisers," said Paul Sweeney, a broadcasting analyst with Credit Suisse First Boston. "But NBC will face a challenge that previous owners have faced, and that's how to find consistent programming that can compete with Univision, which has a superior distribution network and superior programming."
Telemundo has consistently been throttled by Univision in programming. Univision has the rights to broadcast the World Cup and Mexican league soccer, and the company has a deal with Mexico's leading producer of soap opera, or telenovela, programming.
NBC executives said they are looking forward to the fight.
"We're going to have a nice, interesting, competitive battle," Lack said.
Lack said the union could mean Spanish versions of NBC hits for Telemundo, including "Access Hollywood," "Weakest Link," late-night shows and "a whole laundry list of stuff." NBC would expand Telemundo's sports repertoire, including coverage of the Olympics, beginning with the Athens summer games in 2004. Although NBC will broadcast the Salt Lake City Olympics in February, the Telemundo purchase will not be complete by that time.
Telemundo's McNamara said his network has been working on a show modeled after NBC's "Dateline." Some of its investigations could air on "Dateline."
"I think it will be a two-way street," McNamara said of the shared programming.
NBC could face regulatory problems because the deal would give NBC three stations in Los Angeles, one more than regulators have so far been willing to approve. Wright said NBC would apply for a federal waiver.
The Telemundo acquisition wouldn't diminish NBC's interest in making further acquisitions, Wright said.
NBC, which owns a third of Paxson Communication's shares, has an option to buy the rest of the company. However, buying out Paxson would push NBC over the federal threshold limiting media concerns from reaching more than 35% of the nation's households.
Wright also said he is interested in buying additional stations in key cities, including New York.
The $1.98-billion sale is a striking turnaround for the underdog Spanish-language broadcaster that eight years ago was forced into Chapter 11 bankruptcy protection by creditors owed more than $300 million.
"It's been a long struggle, a process that has taken much of the last decade," said Chon Noriega, a professor at UCLA's Department of Film, Television and Digital Media. "This may be NBC looking beyond the traditional model of measuring the business and seeing the potential."
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Telemundo at a Glance
Headquarters: Hialeah, Fla.
Reach: 88% of Latino TV households in the U.S.
Assets: 19 owned and operated TV stations in the U.S., including two in Los Angeles and one each in New York, Miami, Houston, Chicago, Dallas, San Francisco, San Antonio and Denver; two cable networks, Mun2 and Telemundo Internacional; 40 broadcast affiliates.
2000 Revenue: $400 million
The Deal: General Electric's NBC network will acquire Telemundo Communications from an investor group that includes Sony Pictures and Liberty Media for $1.98 billion, payable half in cash and half in GE stock. NBC also will assume Telemu ndo's debt, estimated at $700 million. Sony and Liberty Media purchased Telemundo in 1997 for $539 million.
Sources: NBC, Times research