NBC To Pack Up Paxson?

By Dave Marino-Nachison (TMF Braden)
September 9, 1999

Shares of upstart television network operator Paxson Communications (NYSE: PAX) moved back a bit today despite reports that General Electric's (NYSE: GE) NBC network was close to buying a 32% stake in Paxson in a move widely considered a first step to an outright purchase. (Disclaimer: I own shares of GE.)

News stories pegged NBC's offer at around $400 million; based on yesterday's closing price for Paxson shares, 32% of the company is worth about $326 million, so NBC's purported price represents about a 23% premium.

The rest of the company will have to wait. According to Bloomberg, Paxson Chairman Bud Paxson said last month that new FCC rules allow networks to buy as much as 32% of a broadcaster before bumping up against FCC rules that limit the amount of reach station owners can have into one market.

NBC would pick up access to Paxson's network of television stations. As of August 16, the company owned, operated, or was affiliated with more than 123 stations; it owned or had an economic interest in 72 of those stations.

At the end of last year, NBC owned and operated 13 VHF and UHF television stations located in Birmingham, Ala., Los Angeles, San Diego, Hartford, Miami, Chicago, Columbus, Ohio, New York, Raleigh-Durham, N.C., Philadelphia, Providence, Dallas, and Washington, D.C. It also has equity interests in several well-known cable channels, including Bravo and A&E.

Paxson, historically acquisitive, would add exposure in Boston, Atlanta, Houston, Cleveland, Sacramento, Orlando, Nashville, Kansas City, New Orleans, Memphis, West Palm Beach, Fla., and Greensboro, N.C. (There would also be considerable crossover in some markets.)

With last month's federal decision allowing companies to own multiple stations in the same major U.S. markets, networks will probably be looking for station purchases with gusto in coming months. So there's good reason for NBC to consider the purchase very seriously as it would have more avenues through which to distribute programs, and give it better national clout with advertisers.

Expanding reach becomes ever more crucial as cable creeps into an increasing number of households with frequently better and more sharply focused programming and ramped-up marketing. Certainly with the price of premium programming -- like NFL football, which the network lost in 1998, and the top dramas and sitcoms -- skyrocketing, every ad dollar helps.

Of course, Paxson has also posted deep losses for years now and is probably best known as the current home of the coveted "Likes To Watch 'Highway to Heaven' And 'Dave's World' Reruns" demographic. Ahem.

And that's one area where Paxson could certainly benefit from a deal with the National Broadcasting Company, since it would presumably get access to NBC's advertising sales department and other connections.

What the acquisition of Paxson wouldn't address is something GE investors have been hearing more these days than it would probably like: the network's lack of affiliation with a production studio. With the recent elimination of federal regulations prohibiting a network from owning its own programming, many companies have moved to join the production fray. The Disney (NYSE: DIS) linkup with ABC started the ball rolling in this department; but things hit a feverish pitch this week when Viacom (NYSE: VIA) agreed to buy CBS Corp. (NYSE: CBS) for $34 billion in the biggest media merger ever.

The kind of synergies made possible by linkups like these are impressive, ranging from retail to crossover marketing to placements of products, personalities, and creative advertising arrangements -- not to mention the obvious cost savings and improved profitability companies can reap when they create, rather than contract for, their content.

So while investors certainly have reason to be excited about today's news -- it should, however, be noted that similar talk has hit the market before -- many are still probably waiting for more from the land of the peacock.

Related Links:
GE Website
GE Message Board
NBC Website
Paxson Website
Paxson Message Board