Will This Bird Fly?

By Lisa Takeuchi Cullen

General Electric's old advertising slogan--"We bring good things to life"--conjured the comforting glow of a GE light bulb or the hum of a refrigerator. Real stuff. The company's new catchphrase--"Imagination at work"--may soon summon visions of the Hulk or a horse named Seabiscuit. With GE entering talks last week to merge its NBC unit with Vivendi Universal's entertainment assets, the industrial powerhouse has muscled onto a media stage already crowded with Schwarzenegger-size conglomerates. For GE, imagination may soon have to do some heavy lifting.

Vivendi narrowed the field to one after many months of shopping, flirting and haggling with a long line of suitors that included Viacom, MGM, Liberty Media and finally Edgar Bronfman Jr., the former Seagram CEO who sold Universal to Vivendi in the first place.

Should the deal go through, GE would get a huge factory of content for its NBC division--a factory that Vivendi couldn't run profitably. The onetime French water company that ex-CEO Jean-Marie Messier tried to build into a media empire imploded under huge debt and a devastated stock price. Now Vivendi will get its $14 billion asking price, including $3.8 billion in cash up front as well as a 20% stake in the new venture, while still hanging on to its telecommunications company Cegetel and the Canal Plus TV business. NBC Universal would unite the top-rated TV network with Universal Studios, Universal's theme parks and cable networks that include USA and Sci Fi.

"It was a long struggle," says Bob Wright, 60, CEO of NBC and the man who would run NBC Universal. A day after the announcement, the GE executive relaxed in a corner office at NBC's Burbank, Calif., studios. Wright had spent the day in shirtsleeves, greeting Universal executives at a chicken-and-penne lunch and joking with his top lieutenants.

The victory--almost 17 years to the day since he took over NBC--is a personal one for Wright. He had expanded NBC aggressively by acquiring or developing the cable channels CNBC, MSNBC and Bravo and the Spanish-language network Telemundo. But with the price of programming spiraling, he felt NBC was increasingly vulnerable as the only big network that wasn't aligned with a studio. NBC, for example, was bracing for a rumored $550 million demand from Universal this season for its Law & Order franchise. Meanwhile, advertising revenues were hobbled by a pallid economy and ad-zapping devices like TiVo, making sales of movies on DVDs and at the box office that much more attractive.

For GE, the marriage seems like an uncharacteristic risk, but perhaps a necessary one. Many of GE's divisions--plastics, power turbines, insurance--are faltering in the weak business climate. The company missed its storied, double-digit annual growth last year and may again this year; the stock has been halved from its high of $60 in 2000. Back in 1986, CEO Jack Welch diversified with a similarly risky move--by acquiring NBC. It paid off; NBC's profits surged 20% for the first half of this year, ahead of every other group save one. The merger, says Wright, shouldn't slow profit growth. The combined NBC Universal should bring revenues of $13 billion, enough to move GE's top-line growth too. GE amassed sales of $132 billion last year. Still, says Rob Friedman of Standard & Poor's Equity Research Service, "I don't think Mr. Welch would have bought a movie studio."

Many of Universal's 7,000 employees are nervous about working for such famously hard-nosed bosses. Wright sought to quell those fears at Universal headquarters last week. He says NBC would look for $200 million in "synergies" from new revenues and combined efficiencies, and $200 million from cost cuts, including facilities, purchases and people. As for big layoffs, Wright says, "Chopping off heads won't get you those kinds of numbers." One head that won't roll: Vivendi Universal Entertainment boss Ron Meyer. Both men argue that their staffs and goals fit. "We're not prima donnas here," says Meyer. "Every business has risks. The question is how you manage them. It doesn't have to be like going to the craps tables in Vegas."

Of course, the hand is not yet won. The two companies must complete a 30-day negotiation phase, and the deal is not likely to close until early 2004. Media mogul Barry Diller's complicated minority ownership rights in Vivendi must be unwound, the theme parks sorted out and management posts secured. Only then can imagination get to work.

--With reporting by Sonja Steptoe/Los Angeles

With reporting by Sonja Steptoe/Los Angeles