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MAY 17, 2004
Lights! Camera! Bean Counters! NBC is set to get its Hollywood studio. Can the GE unit handle the culture clash? These are tense times for General Electric Co. (GE )'s NBC unit, and not just because Monica and her friends have sipped their last cup of java on Thursday nights. On May 11, GE is scheduled to make its biggest move into entertainment since it bought the network in 1985. In a hoopla-filled press conference, NBC Chairman Robert C. Wright will announce the deal's closing -- then head to Los Angeles to try to win over a wary set of top executives at the Universal studio, theme park, and cable unit he's buying. For the $134 billion GE, which has made thousands of acquisitions, melding corporate cultures, while never easy, isn't a new experience. But in merging the traditionally free-spending Universal with NBC executives weaned on financial discipline, Wright & Co. may find their trip to Hollywood more of a challenge than most acquisitions. Just days before closing the deal, Universal released the special-effects-laden horror flick Van Helsing, which cost $200 million to make and market. The film, starring Hugh Jackman, has gotten tepid Internet reviews, and even a huge opening may not keep the film from losing money -- and diluting the profits that NBC hopes might be reaped from a rush of cross-promotions. Such an early blow would hurt, since the much-extolled synergies of the two groups were a key rationale for the merger. An upbeat GE CEO Jeffrey R. Immelt told analysts in April that they could expect the combined companies to increase revenue to $15 billion in 2005, from $12 billion this year, and to hike operating profit to $3.1 billion, from $2.4 billion. One example of the new cross-platform approach: Van Helsing will be followed by DVDs of old Universal Frankenstein and Dracula movies, and a planned NBC show called Tranzylvania. "In cable, we think we can improve the programming and branding...and there is great opportunity to accelerate DVD sales," Immelt told analysts. And BusinessWeek has learned that NBC, which abandoned pro football in 1998, has suggested to the National Football League that it would be interested in taking ESPN and ABC's Sunday and Monday night deals now that it would have the flexibility to show games on a network and on the USA Network cable channel. Even as GE and NBC execs ponder the possibilities, they'll be managing some big culture clashes. Already, Universal bosses have been flying east to "integration" meetings at GE's John F. Welch Leadership Development Center in Crotonville, N.Y., while GE is shipping company-trained CFOs west to scope out the Hollywood units. In a show of GE muscle, the network has also assigned the job of integrating operations to John W. Eck, an expert in GE's Six Sigma system of squeezing costs and eliminating potential failures. "The finance function is always taken over by GE," says executive recruiter Peter D. Crist of Crist Associates. "That's usually the first move because it's a big area of vulnerability." Indeed, the bean counters may not like what they find, including a $1.1 billion Universal film budget full of deals that give hefty percentages to directors and actors. One that's sure to attract attention: next year's King Kong remake, with director Peter Jackson getting a $20 million salary and 20% of the profits. Execs are also negotiating a pricey new deal with Law & Order producer Dick Wolf that would add a fourth Law & Order show. "They're finding that it is a lot easier to be a buyer of TV shows than to be the studio that incurs the costs of making the product," says former Universal President Frank Biondi, who predicts "they'll have collective heartburn the first time a film goes over budget or the special effects need to be reshot." Already there's talk of layoffs: 300 to 500, say Universal insiders. To keep creative types from bolting, GE has offered extensions to many high-ranking execs, including studio chief Ron Meyers and the head of Vivendi's TV studio, who will share duties with his NBC counterpart. Other moves haven't been so smooth: The heads of both TV distribution operations quit over who would get the job. Of course, NBC has made successful acquisitions in the past. Hispanic network Telemundo, bought in 2001, has boosted audience by 74% this year, in part using programming from NBC. And if NBC can merge happily with Universal to create the synergies that Immelt promises, it could set the stage for more deals. Hollywood insiders say NBC has looked at MGM and may even be contemplating a move into satellite or cable distribution, giving it the kind of leverage News Corp. and Time Warner have to charge hefty rates for their cable channels. For the moment, though, the Peacock has to make its latest Hollywood foray work. At Universal, facing its third owner in 13 years, change has been something of a horror show.  By Ronald Grover in Los Angeles and Diane Brady, with Tom Lowry, in New York Universal bosses are taking ``integration'' meetings
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