Advertisers sense opportunity in NBC pact

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For advertisers, the pending NBC-Vivendi Universal deal could lend truth to the old adage "bigger is better."

The marriage of Vivendi's entertainment units with General Electric Co.'s NBC-an agreement still in the works but considered by most to be a done deal-will create opportunities for advertisers, said media buying executives.

NBC Universal, the working name of the merged entity, will not out-leverage advertisers as some observers have suggested, but is likely to give advertisers better access to a string of prime properties.

"It's a five-on-four game now," said Joe Uva, CEO of Omnicom Group's OMD, referring to the big four ad agency holding companies, Omnicom, WPP Group, Interpublic Group of Cos., and Publicis Groupe vs. NBC Universal, Viacom, AOL Time Warner, News Corp. and Walt Disney Co. If this were hockey, four-on-five would be a power play advantage for the media companies, said Mr. Uva, "but in this game it would be inaccurate to characterize the guys who control the spending as being disadvantaged." (GE and Universal Pictures are OMD clients.)

NBC Connect, the cross-platform unit that has been very quiet since it launched two years ago, is likely to be more active after the deal.

"Now we can go into discussions with NBC beyond just buying television time," Mr. Uva said. "We can talk to their feature-film and home-video divisions. Hopefully the merger will make it easier for us to buy across their entire portfolio."

"NBC Connect could be bolstered," said Tim Spengler, exec VP-director of national broadcast at Interpublic's Initiative Media, New York. "They have an opportunity to bring more to the table here. We see this as a benefit, but not a sea change, because multi-platform deals are few and far between."

The proposed deal is for GE to control the combined company with an 80% share, while Vivendi retains 20%. Vivendi shareholders will receive $3.8 billion in cash and stock from GE, which also assumes $1.6 billion in debt. Bob Wright, GE vice chairman, will head the new company. (See Q&A, at right.)

The addition of Vivendi's Universal Television Group properties USA Network, Sci Fi and Trio with NBC's Bravo, Telemundo, MSNBC and CNBC is arguably the more significant merger development for advertisers. Historically, NBC's sales strategy has been to bring all broadcast and cable properties to the table, unlike Viacom, which does not sell CBS along with MTV Networks. The beefy combo of cable channels at NBC should add weight when they push advertisers to support struggling brands such as MSNBC (an NBC/Microsoft joint venture) and CNBC.

no vacuum

"When it is upfront time and we sit down with the media agencies, we don't just ask what's their prime-time budget, or their news budget," said Gary Burke, NBC VP-prime time and specials sales. "We don't operate in a vacuum. If somebody needs consideration in prime-time broadcast, advertisers would be best served by not beating us up on our other channels. When our cable properties have tough times maintaining their pricing, we help them out."

That idea that NBC will use its prime-time leverage to sell the cable channels worries Jon Mandel, co-CEO of Grey Global Group's MediaCom, a well-known critic of media consolidation. He believes combining NBC and Vivendi properties will drive up the cost of advertising and limit the kinds of programming advertisers can buy. "The combination of vertical and horizontal integration costs the advertisers dearly. It will not affect prime-time pricing, but it will affect the diversity of programming, which will not be as great as it used to be. It will affect cable and local broadcast pricing, and that's where the danger is."

behind viacom

Even with the deal, however, NBC's cable holdings will still lag behind Viacom, considered the most successful cable owner, said media buyers. NBC Universal, like NBC alone, will be No. 2 to Viacom in ad revenue generated from network cable and TV, despite the Vivendi cable channels adding $602.4 million to NBC's coffers. (See chart, above. )

"When you look at the Viacom cable portfolio and television networks you see they have a strategic composition to that portfolio," Mr. Uva said. "They dominate and own the young demographic on multi-platforms. They deliver preschoolers and young kids with Nickelodeon, right up through 49-year-olds with Comedy Central, VH1 and BET. NBC now has a good portfolio, they have lots of relevancy for the 18-to-49-year-olds, but they don't have the breadth of strategy, at least not yet."

According to sales people at NBC and Vivendi, however, it's too early to tell how the merger will affect operations. "My advertisers really haven't asked about it yet," said Steve Agasse, VP-West Coast sales, NBC. "With the upfront that we are wrapping up now, the merger is not being discussed with anybody," said Mr. Burke.

The merger will unite former NBC employees Jeff Lucas, president-advertising sales at USA Networks, who was previously VP-marketing and Olympic sales at NBC, and Mike Tedone, exec VP-advertising sales at USA, who was VP-pricing and planning, NBC.

"These are two guys who know how we work," Mr. Burke said. "The cultures will work together."

However, fears are popping up on the Vivendi side that deep cuts will take place in cable properties, especially among sales staff, and some NBC insiders said there will likely be backroom redundancies in regional sales offices.

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