Time Warner, Turbines and Turpentine

Todd Chanko | October 19, 2006, 05:59 PM

Back to back developments in distribution and production point to the complexities of conglomerates. Yesterday Time Warner announced it would undertake a long hinted IPO of Time Warner Cable, a first step in acknowledging that the vast media empire needs to be either unraveled or at least have some value unlocked somehow – just as Mr. Icahn had suggested in late 2005. TWC provides a nice steady stream of predictable revenues in an otherwise unpredictable media universe - digital cable in particular will be source of some growth. TWC is a distribution pure play (unless you count NY1, which is silly) that demonstrates that owning subscriber relationships is very valuable indeed.

Across town, it’s a different story. NBCU is going through a painful time precisely because content players typically don’t own their audience – they just rent them. NBC had a nearly twenty-year lease on the American viewing public, particularly on Thursday nights. That lease expired a few years ago, with only a few sublets now and then. Today’s job cut announcement is a painful reminder of not only the narrow bridge on which all TV networks must pass to get to their audience but also of the uniquely difficult situation in which NBCU finds itself: as a business unit of GE. GE’s ownership of NBC, which it acquired as part of RCA in 1986, has always had an uneasy feel to it – engineers and chemists turning out turbines and turpentine derivatives mixing with sunglass-sporting LA hipsters. Immelt certainly had to have had limited tolerance for NBC’s gradual slide, so the slashing and repositioning was inevitable.

This is not to say that if NBC weren’t part of a conglomerate that it would not have to be re-engineered. However, whence the mandate comes is clear: do or be undone.