The Ultimate Hollywood Deal

L to R: Sara De Boer / Retna Ltd.; Everett Collection It's the most persistent rumor in the business—that GE will sell struggling NBC Universal to struggling Time Warner. Kim Masters reports on the deal that would change the entertainment landscape forever.

Earlier this week, the head of a film company told me to count on this: GE is going to sell NBC Universal to Time Warner. A spokesman for GE had no comment. His counterpart at Time Warner denied it.

I asked Rich Greenfield, the media analyst at Pali Research, about a deal between the two companies and he said he doubted it. Time Warner has only just spun off the company’s cable operations and the task of dealing with AOL is still at hand, he said. So Time Warner CEO Jeff Bewkes is “just beginning to rebuild credibility” and hardly needs to undertake a giant transaction.

Despite obvious reasons why Time Warner might not want a mega-deal right now, some factors might tempt Bewkes. He’s been pushing a concept called TV Everywhere recently in which Time Warner movies and television shows would be available to paying subscribers on television, laptop, handheld device—whatever, whenever. A deal with NBC Universal would give him a lot of TV to put Everywhere.

You can’t put a value on the work of a creative person any more,” says an industry veteran. “How do you value work when people are giving it away on the Internet?

The main lure for Time Warner meanwhile, would be NBC Universal’s cable channels: USA, Bravo, Sci-Fi, and CNBC. Those would go nicely with Time Warner’s HBO, TNT and TBS. And while no one’s getting rich off news, CNN and NBC News could make a strong combination. Universal Pictures, on the other hand, would likely be folded since Time Warner—which owns Warner Bros.—has no need for another film studio. Yes, that would truly be the end of an era. But industry veterans believe that there’s every reason to expect a number of eras to end in the foreseeable future in the entertainment world, just as big names are vanishing in other industries.

A Time Warner source says he’s confident the company isn’t buying—though he allows that could change in a year or two. He acknowledges that the rumors have been persistent and suspects folks on the GE side of spreading them.

It makes sense that GE would want to stir up a deal. For one thing, GE has found—as companies like Coca-Cola did in the past—that entertainment assets can bring bad publicity that is wildly out of proportion to their significance to the larger parent company. This week, a lot of news coverage of GE’s annual meeting focused on shareholder carping about the politics at MSNBC, as if the company doesn’t have enough real problems to worry about.

A source told me that GE had been in talks with Time Warner several months ago, when NBC Universal’s upcoming coverage of the Olympics cast a rosy glow. But Time Warner couldn’t make the numbers work and passed. And no doubt GE would have put a very high valuation on NBC Universal, in excess of $40 billion. Since then, the economy tanked and NBC Universal just announced a 45 percent drop in earnings for the first quarter. And GE has a few issues, too. As entertainment analyst Harold Vogel puts it, “GE needs cash—C-A-S-H.” So it might be more flexible about the terms of a sale.

The fact is NBC Universal never fit in with GE anyway. That mismatch may have been fine when the economy was stronger but not so much now, when traditional media businesses have such a dubious future. The economic meltdown has brought the looming problems caused by the digital revolution into sharp focus.

Historically, when a new technology displaced an old business, it provided a new stream of income (most recently, the DVD). At this point, the Internet isn’t really giving back. And Hollywood, like many other longstanding American institutions, is reeling.

“You can’t put a value on the work of a creative person anymore,” says an industry veteran. “How do you value work when people are giving it away on the Internet? How do you evaluate a library when people can steal Wolverine?” He continues, “If you can’t figure out what it’s worth, then it has no value....That’s why GE is selling.” Or would sell, if there were any buyers.

Kim Masters is the host of The Business, public radio's weekly show about the business of show business. She is also the author of The Keys to the Kingdom: The Rise of Michael Eisner and the Fall of Everybody Else.