• by Wayne Friedman , December 27, 2005

NBC Universal has purchased a controlling interest in MSNBC, the all-news cable channel, from Microsoft Corp.--a move long anticipated, as the large software company moves away from media businesses with content.

NBC will now have an 82 percent stake in the network, with the option to acquire the remaining 18 percent after two years. NBC and Microsoft will continue to share ownership of the network's Web site, MSNBC.com. The NBC-Microsoft deal is a 99-year deal that began in 1996. Since the network's launch, NBC and Microsoft have been equal financial partners in a venture that has struggled to grow in ratings and overall advertising. NBC totally directed its editorial and advertising sales effort.

Despite years of debt--hundreds of millions of dollars, according to analysts--both MSNBC and MSNBC.com are now profitable. That occurred over a year ago, in July 2004.

MSNBC has 83 million subscribers. NBC Universal does not break out profit and loss of MSNBC--but now as a majority owner it will, according to business analysts.

"Now it can show up as a line item, contributing to revenue and profit," said Dennis McAlpine, managing director of McAlpine Associates. "It could give them a boost."

What is the channel now worth? Analysts say it's hard to estimate. It depends on how much debt MSNBC has been carrying. As a comparison, Hallmark Channel--which isn't as big as MSNBC, with only 68 million subscribers--carries a large debt portfolio, and is struggling to find buyers north of its asking price of around $1 billion. On the open market, MSNBC should command more money.

MSNBC takes in about $150 million to $175 million a year in national advertising dollars, and around $200 million in cable affiliate licensing fees, according to industry estimates.

NBC News has been struggling in recent years to find the right prime-time and daytime programming formula. In recent years, conditions actually became worse when Fox News Channel overtook CNN. Recently, CNN launched a rebranded Headline News, which began to make further inroads into MSNBC.

MSNBC's third-place position in recent months now became a fourth-place spot. MSNBC did make some rating gains last year--during the Presidential race--from coverage of the Republican and Democratic national conventions.

Executives have contemplated that NBC, as a majority owner of MSNBC, might alter the network--possibly even changing the name because the "MS" of MSNBC stands for Microsoft. "Now they might switch to something else," said McAlpine.

While programmers of fully distributed networks have done this in the past--TNN converting to Spike TV; Fox Family turning into ABC Family--executives warn that cable carriage agreements generally prevent media owners from changing content overnight without permission of cable operators.

Microsoft has long wanted to get out of the content business. Last year it sold Slate, its online magazine, to The Washington Post. Now it seems to have modified that position somewhat, as Microsoft is holding to MSNBC.com. Recent positive results point to a growing industry-leading business--more so than the MSNBC cable network side of the business.

"Together, Microsoft and NBC Universal have grown MSNBC.com to the No. 1 news site," said Bruce Jaffe, Corporate Vice President of Microsoft, in a statement.

In November 2005, MSNBC.com drew 22.3 million unique visitors--which the company says for the tenth straight month, topped all other broadcast and cable news Web sites including CNN.com, according to Nielsen//NetRatings. Since March 2005, MSNBC.com has averaged 24 million unique visitors, more than the combined unique visitors of ABCNews.com, CBSNews.com, and FoxNews.com.