• by Paul Gough , October 8, 2003

When the NBC-Vivendi Universal merger becomes final sometime early next year, Universal's mix of content-creation units will move the combined company away from the mostly-advertising supported revenue base NBC now enjoys.

About $5.8 billion of NBC's $6.7 billion in annual revenues come from the ad- supported NBC broadcast network and its owned-and-operated stations, with $600 million from its cable networks and another $300 million from its production and syndication units. But the merger will create more than just a combined company called NBC Universal. It will double NBC's revenues, with all but about $2 billion of Universal's $6.4 billion annual revenues in non- TV related business. Vivendi Universal's cable networks rake in about $1.2 billion a year in annual revenues along with another $800 million or so coming from television production and syndication.

"They are heavily weighted the other way around," NBC President Bob Wright said in a conference call with analysts Wednesday morning announcing the merger. It means that instead of an NBC that is 95% ad supported, the new company will have about 53% of its ad revenues coming from advertising and the remainder coming from Universal's movie studio, theme parks and the merged television production companies and syndicates.

Wright said the new mixture brings NBC into areas where it hasn't done business before. He noted that it also vaulted NBC closer to the level of other major media conglomerates, though nowhere near CBS parent Viacom ($27 billion in annual revenues), WB parent AOL Time Warner ($42 billion in annual revenues) or ABC parent Walt Disney Corp. ($27 billion in revenues). Even Fox Entertainment, parent company of the Fox TV network that challenges NBC for the adults 18-49 title in TV, has $17 billion in revenues, a few billion more than the combined NBC-Universal company.

Unlike Fox and its parent company News Corp., Wright said that NBC would be very happy to specialize in programming and not invest in distribution. Fox wants to merge with satellite provider DirecTV, theorizing that a balance of content and distribution businesses will immunize the company from downturns on either end. Wright rejected that, saying that NBC wasn't in the theater business or the cable or satellite industry.

"If you have the right content and the right marketing skill to exploit it, I think you can be very successful," he said.

The merger still has to be approved by the Federal Communications Commission and the U.S. Department of Justice plus, since Universal is now owned by Vivendi, by regulators in Europe. NBC expects the merger to be complete by the end of the second quarter. The deal calls for the new company to be 80% owned by GE and 20% by Vivendi, with options for GE to buy complete ownership within the next five years.

Wright acknowledged that there were still some organizational issues to work out with the combined company, including where to place some of the TV assets. Universal's cable TV assets include USA Network, Sci-Fi Channel and Trio. It would join NBC's array of other broadcast and cable networks, including Telemundo, CNBC, MSNBC and the recently acquired Bravo.

NBC thinks it's possible for the merger to be completed by the second quarter, which Wright said would allow it to come to the next upfront negotiations with more assets.

"We'd love to go to that market with a combined company," Wright said.