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THE MIAMI HERALD
NBC Buying Telemundo For $2.7B
by MIMI WHITEFIELD AND DANIEL CHANG
October 12, 2001
``I think this is the day that Spanish-language television really arrived. It represents mainstream media recognizing the power of the Hispanic market,'' said James McNamara, president and chief executive officer of the network noted for off-beat soap operas such as Yo Soy Betty La Fea.
The purchase includes $1.98 billion, to be paid half in cash and half in stock of General Electric, which owns NBC, the nation's first broadcast network. NBC also will assume $700 million in Telemundo debt.
Analysts say NBC paid a hefty price for Telemundo, which has attracted a string of potential suitors.
But NBC executives said they are buying the potential to tap into the Hispanic market with its estimated $493 billion in purchasing power.
``This is the most dynamic television market in the United States,'' said Bob Wright, vice chairman of GE and chairman and CEO of NBC. ``We are eager to draw on Telemundo's expertise to serve this important audience.''
Wright noted that while the nation's 35.3 million Hispanics represent 14 percent of U.S. television viewers, Spanish-language television is capturing less than 3 percent of the advertising pie.
Over the past six months, virtually all the nation's leading media companies talked with Telemundo, but the network's owners -- Sony Pictures Entertainment, Liberty Media and three smaller companies -- made it clear they were interested in selling only if the price was right.
``Had NBC paid a dollar less they wouldn't have gotten it,'' said McNamara, who will continue in his current role.
Steven Weiss, an analyst with Bear, Stearns & Co. in New York, said that NBC paid a ``more than full price,'' judging by Telemundo's past cash flow performance. ``Obviously, the company was looking at other factors to justify the price such as the favorable dynamics of the Hispanic market and presumably very large cost savings,'' he said.
The purchase will give Telemundo access not only to NBC's sales and marketing resources but its huge stable of national advertisers. And NBC and Telemundo will cooperate in other areas -- programming, news gathering, promotions, station operations and engineering.
Those synergies, said Wright, will result in cost savings.
Among the NBC programs that may be reformated in Spanish are Weakest Link and Access Hollywood. Telemundo, which is in need of more comedy, may borrow formats from NBC, and executives said it's also possible that story lines of soap operas that have been big hits for Telemundo could find their way to NBC.
Last month Telemundo also launched a Dateline-type news magazine called Nuevo Mundo. ``As it evolves it could borrow material from Dateline, or Dateline could borrow material from it,'' said Andrew Lack, NBC president and chief operating officer.
But Telemundo's news operations may benefit most.
``On the local level, all of our local stations will receive an immediate shot in the arm,'' said Joe Peyronnin, executive vice president of news and information programming for Telemundo. NBC will provide ``resources, video and even helicopters in major markets like Los Angeles, New York. It will make us incredibly competitive.''
NBC had been looking at Telemundo for a number of years, Wright said. He conceded ``it would have been a lot cheaper if we bought it three or four years ago.'' When Sony and Liberty Media teamed up with Wall Steet investor Leon Black in November 1997 to buy Telemundo, the purchase price was $539 million.
The NBC purchase comes when the general television market is in the doldrums and advertising revenue has fallen off even more since the Sept. 11 attacks.
However, Spanish-language television, cushioned by the growing Hispanic market, has more than held its own in advertising. Telemundo's ad revenue, McNamara said, is still up by 20 percent to 30 percent this year.
NBC will get access to a market that comprises 12.5 percent of the population, and 14 percent of TV viewers, ``and that is a great thing to be able to sell to potential advertisers,'' said David Joyce, a Spanish-language media analyst for Miami's Guzman & Co.
``They can go to an advertiser in one meeting and have an English-language network and a Spanish-language network to be able to sell time on. They could perhaps bundle the advertising, and that's something that would benefit advertisers, too.''
Some advertisers, though, were skeptical of the benefits that such a union might provide.
``I don't know that there's actually a benefit. It's not more cumbersome or more difficult to buy Telemundo now,'' said Laura Marella, vice president of media services for Casanova Pendrill Publicidad, a Southern California agency that bills $120 million a year in Spanish-language media advertising.
But Wright was enthusiastic about the benefits of the Telemundo purchase. ``At a time when things are bleaker than they have been in quite a while, everything we could have been looking for is here in Telemundo,'' he said.
This year, he said, Telemundo's revenue would be around $400 million. But he predicted that in 2003 -- the first full year of operation after the transaction closes, Telemundo revenue would be $600 million and its earnings before taxes, interest and amortization would be around $200 million.
``This is exactly what we're trying to do. We'll be adding revenue and adding earnings,'' Wright said.
NBC has five TV stations in the top 10 U.S. Hispanic markets. Telemundo owns and operates two cable channels and nine U.S. stations, as well as the leading TV station in Puerto Rico. In Los Angeles -- the largest U.S. Hispanic market -- Telemundo has two stations and NBC has one.
That would put NBC in conflict with Federal Communications Commission rules that permit ownership of no more than two stations in a single market. NBC plans to ask for an FCC waiver that would allow it to continue to operate all three stations.
In recent years, the Telemundo network, which with its affiliates reaches 88 percent of Hispanic TV viewers, has struggled to compete against its much larger rival, Univisión, which dominates the Spanish-language television market.
At Thursday's news conference, no one suggested that Telemundo would be overtaking Univisión any time soon, but Wright said NBC saw ``tremendous potential'' in Telemundo.
Last week, Telemundo laid off 70 full-time workers and some part-timers in its workforce of approximately 1,700 nationwide.
It is also allowing some openings to go unfilled.
But McNamara said such economizing alone won't allow Telemundo to reach its financial goals. ``This is a growth story,'' he said. ``The plan now is to take the No. 1 broadcast network in the United States, combine it with fast-growing Telemundo and turn it into a dynamo of its own.''