GE May Be In for Unpleasant Rerun

Few companies know better the perils that can come with mega media acquisitions than General Electric Co.

Shortly after the industrial behemoth ventured into the entertainment business in 1986 by buying NBC, it watched the network tumble from first to third in the ratings as hits such as “The Cosby Show” and “Cheers” ran their course. At one point, GE even issued a press release begging the media to stop using the words “beleaguered” and “embattled” to describe NBC.

Then the network botched highly publicized negotiations with late-night talk show host David Letterman, who gleefully turned GE and NBC into a running gag before departing for CBS. Once asked whether he hated NBC enough to bomb the network, Letterman quipped: “I hate waiting in line.”

GE’s early struggles with NBC have become distant memories. With its “Must-See TV” mantra, the network launched one of the longest and most successful runs in television history. Its string of hits has included “ER,” “Seinfeld,” “Frasier” and “Friends.”

Now, though, GE faces a new learning curve -- a challenge that in many ways may harken to the early days with NBC.

GE announced last week that it had struck a tentative, $14-billion deal to merge its broadcast and cable assets with Vivendi Universal’s U.S. entertainment unit, including its storied movie studio, theme parks, TV production shop, television and film library and cable channels.

NBC Chairman Bob Wright envisions a seamless, bulked-up entertainment operation that will prove “extremely complementary” once meshed.

“We can really do some business together,” Wright said.

To be sure, there is some overlap, particularly with TV. But the fact remains that the industrial conglomerate’s top managers -- more accustomed to making light bulbs, jet engines and medical imaging equipment -- haven’t seen the likes of some of these businesses before.

Some analysts predict that the operations could initially be more disparate than synergistic.

“It’s not like they are alien to each other,” said Harold Vogel, head of Vogel Capital Management in New York. “But it will take about three years for people to start feeling comfortable with each other and feel like they are on the same team.”

Media Deals’ Rocky Past

GE’s eventual success with NBC makes it easy to forget that the network for years was a problem child. But that acquisition, along with a litany of other media deals involving the likes of AOL Time Warner Inc. and Walt Disney Co., serves as a reminder of just how rocky such ventures can be.

As GE struggled with NBC, it entertained offers from a parade of suitors -- Time Warner, Disney, Sony Corp., cable TV mogul Ted Turner and even comedian Bill Cosby -- to take all or part of the network off its hands.

At a managers’ meeting in 1993, then-GE Chief Executive Jack Welch complained that NBC had gone through $500 million in TV development money without anything to show for it. He pointedly asked: “Where are the hits?”

In the movie business, plenty of GE’s forerunners have asked the same question.

Film can be an unforgiving sinkhole. It’s also a business where slip-ups take center stage. The performance of a movie studio can easily overshadow larger and more successful sister divisions, as companies such as Sony found out shortly after buying into Hollywood.

Until now, GE resisted taking the plunge. Its managers had considered the movie business too volatile and undisciplined, one where a $100-million investment in a film could go down the drain in a single weekend.

“From a financial standpoint, it’s a small part of the overall business,” former NBC West Coast President Don Ohlmeyer said. “But from a public perception standpoint, it has a larger impact for GE than what happens in plastics, appliances and jet engines.”

GE will be under the gun from Wall Street to justify its about-face. In addition, Vivendi shareholders, who for now would retain a 20% stake in the new entertainment enterprise, are impatient for returns after seeing their investment languish, and nearly dissolve, because of Vivendi’s financial troubles.

GE also is buying into a company that seemingly has been cursed when it comes to takeovers.

Once Hollywood’s most stable studio under patriarch Lew Wasserman, Universal is looking at its fourth owner in little more than a decade. Each entered Hollywood with grand expectations, only to leave humbled.

Japan’s Matsushita Electric Industrial Co. bought Universal in the hopes of boosting its electronics business but ended up feuding with its U.S. managers. Liquor giant Seagram Co. then stepped in and installed a trendy “re-engineering” management exercise that turned the company upside down.

Former Vivendi Chief Executive Jean-Marie Messier purchased the unit, talking a good game about melding entertainment with new technologies, but nearly bankrupting the company.

Now, skeptics are asking whether the NBC and Universal operations can cleanly merge.

Rival suitor and Vivendi board member Edgar Bronfman Jr., the Seagram heir who oversaw Universal when his family owned it, went public with his doubts, expressing qualms to the Financial Times last month that NBC has never run a studio, lacks experience running entertainment cable networks and has never operated theme parks.

At Universal, the film unit has performed well through the ownership chaos, but its new managers face daunting challenges nonetheless.

Production and marketing costs in Hollywood continue to soar, digital piracy threatens all studios and the DVD boom that has fattened coffers could ease when sales of disc players finally plateau. The theme park industry also is suffering from the soft economy and travel slowdown.

Weary employees who have endured a string of wildly different corporate cultures are about to be immersed in yet another.

In GE, Universal can expect a tightfisted operating style that leaves no operation safe from review -- and potentially the knife. At NBC, one area targeted by GE was the network’s expense- reporting procedures. The company’s “GE Workout” has been the subject of entire books aimed at teaching people how to weed out bureaucracy, dissolve inefficient hierarchies and cast aside traditional business practices.

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GE Execs More Familiar

To be fair, GE’s button-down managers in Fairfield, Conn., lacked any exposure to the corporate culture of entertainment when NBC was acquired as part of the purchase of network parent RCA. Since then, Wright, who once ran GE’s financial services group, has become one of television’s most respected executives. He is unlikely to repeat the early faux pas he made at NBC when he takes over the NBC-Universal venture, analysts say.

These included an ill-fated Wright memo saying NBC employees should donate to a political action committee he was considering forming and questioning the dedication of those who might choose not to.

A less-than-stellar performance by the Universal entertainment group is hardly a threat to GE’s overall health. GE takes only about 17 days to generate the revenue its prospective new businesses produce in a year.

Still, media mergers often prove problematic in unexpected ways.

AOL Time Warner -- born of the marriage between America Online and Time Warner -- has written off more money than some entire countries’ annual gross domestic product, largely because of troubles at the Internet division. Although it struck gold buying sports cable channel ESPN, Walt Disney has been befuddled trying to shore up the ABC network it also acquired.

University of Illinois communications professor Robert McChesney said it’s too easy to generalize about media mergers, some of which, such as Viacom Inc.’s acquisition of CBS, have worked well. The bad ones are more about poor timing, overpaying and taking on too much debt, he said.

“A major recession, an overpriced company and a big debt will test any deal,” he said. GE, he added, doesn’t appear to be making those mistakes in the way it is structuring this one.

Ohlmeyer, who was brought in to turn around NBC in the early 1990s, said he too was confident that GE managers can make it work.

“These are smart guys,” Ohlmeyer said. “This isn’t finding a cure for cancer, or stamping out world hunger. It’s business.”

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Times staff writer Richard Verrier contributed to this report.