NBC reportedly about to buy 32% of Paxson

Media

September 10, 1999|By BLOOMBERG NEWS

NEW YORK -- General Electric Co.'s NBC television unit is close to an agreement to buy a 32 percent stake in money-losing Paxson Communications Corp. for about $400 million, a source familiar with the companies said yesterday. The purchase likely would be a first step toward NBC buying the entire company, analysts said.

Paxson, owner of the largest group of U.S. TV stations, is discussing an option to have NBC boost its stake above 32 percent if federal regulators ease restrictions on ownership of TV stations, the source said. NBC wants to use Paxson's 72 TV stations to distribute programs and expand its presence in the lucrative station ownership business, as its own network loses audience to cable TV and other media.

The purchase would give NBC more leverage with its own affiliates, who are at odds over NBC's desire to rebroadcast shows elsewhere and push affiliates to help pay for expensive programming, such as football.

"NBC, as the other networks, needs more coverage and has to bulk up in size," said Hal Vogel, an independent media analyst.

An agreement between NBC and Paxson could come as early as next week, the source said.

Spokeswomen for West Palm Beach, Fla.-based Paxson and NBC in New York declined to comment. GE spokesman Bruce Bunch referred calls to NBC.

TV broadcasters such as NBC want to take advantage of last month's federal decision to allow a single company to own two TV stations in major U.S. markets.

"The relaxation implies that anyone who is of any consequence in the business" will have to expand, Vogel said.

Paxson Chairman Lowell "Bud" Paxson said last month that the new Federal Communications Commission rules would allow a network to buy as much as 32 percent of a TV broadcaster without violating current FCC rules that prohibit a TV station owner from reaching more than 35 percent of all U.S. television households.

Paxson would give NBC a bigger presence in the station-ownership business, which is more profitable than running a network.

"The value is in the station ownership and in the number of stations [a broadcaster] owns throughout the country," said Bruce Leichtman, analyst at the Yankee Group. NBC now owns 13 stations.

NBC also would benefit because cable operators are required to carry Paxson stations.

"They have to be carried by cable operators," Leichtman said. "As weak as some of these stations are [in terms of signal strength] everybody is equal on cable."

Paxson wants an alliance with a network such as NBC in order to help expand its programming, cut costs and tap into the broadcaster's advertising sales team.

Last month, Paxson reported that its second-quarter operating loss rose to $111.49 million from $18.7 million in the year-earlier period.

The pairing with NBC would be welcome news to Paxson's bondholders, analysts said. Paxson said it had about $380 million in long-term debt as of June 30, and a sale could wipe out that debt.

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