The New York Times' Nelson Schwartz is too good a reporter to overplay his news, but nonetheless, Schwartz dropped a major bombshell in his big piece on the front page of the Sunday Times business section. And likely to get hit by the shrapnel from that media-explosion are NBC-U and its Cable Gaming sub-unit, CNBC, and the even subbier MSNBC.
Under the headline, "Is G.E. Too Big for Its Own Good?" Schwartz highlighted a recent report from Citigroup analyst Jeffrey T. Sprague, which called for a breakup of GE, the legendary conglomerate founded by Thomas Edison and led for two decades by Jack Welch. GE is a big enchilada, that's for sure--it's got a stock market value north of $420 billion. And yet let the stock is down 30 percent since Jeff Immelt took over the company, from Welch, back in 2001. (See chart above, which shows how GE has underperformed the Dow Jones Industrial Average in the last five years--GE is in blue, the Dow is in red.)
But here, let Schwartz tell it like it is:
So if the heat is on, why not break up the company? Or at least sell off noncore units like NBC Universal or the consumer finance unit, GE Money, which would not only raise billions but also make this colossus a heck of a lot easier for one man to manage? After all, Mr. Sprague says, “when you visualize G.E., you’re thinking about the meat and potatoes: power, aircraft engines, energy. You might get comfortable with GE Money, but hardly anyone is buying the stock because of GE Money.”
And the same holds true, of course, for NBC-U--nobody buys GE stock because they think that Jeff Zucker is going to make them money. The sad truth is that GE's purchase of NBC, and then the acquisition of Universal, were always vanity efforts, aimed at giving Welch crony Bob Wright a glamorous post from which to operate.
That is, the entertainment purchases never made sense for GE, for the most basic of reasons--as Sprague says, GE is an industrial company, not an entertainment company. There's no shortage of Bob Wright-type engineers who want to go to the Oscar party, but there is a shortage of Wright-type engineers who know how to profitably run an entertainment biz. But that doesn't stop them, right Bob? They are happy to have fun, at the expense of their shareholders. Right Bob?
Yet for as long as Welch was CEO of GE, shareholders barely noticed that the media properties were dogs--cuz GE stock rose an astonishing 4000 percent during Welch's two decades. But as noted, GE's stock is down by a third under Immelt. So now the knives are out, for Immelt, and for his over-extended empire.
Nturally Sprague and other Wall Street analysts--not to mention all those unsentimental hedge funders and hard-nosed private-equity boys--are closely examining non-core businesses. That's what happens in corporate restructuring: You figure out what has to say, and what should go. So now GE is under the hot lights, just as were other underperformers, such as Daimler-Chrysler and Cadbury-Schweppesm both of which sold off big assets.
And so, as Schwartz puts it, in the course of a long and superbly reported piece, "G.E. must continue to cut costs at struggling divisions like NBC."
But of course, they've already cut NBC back in prime time--and seen ratings tumble. Nice work, Jeff Z! So what to do with CNBC, which is profitable but underperforming--especially in prime time? (Remember John McEnroe's show? And hey, does Michael Eisner still have a CNBC program? How 'bout Donny Deutsch? Cable Gamers know that it's never a good idea to give no-talents their own show, even if they are buds.
And what to do with MSNBC, which has always been a loser, for 11 years now? Will GE shareholders continue to lose money so that the Democratic National Committee can have its own pro bono cable network?
Here's a Cable Game prediction: Immelt won't be able to protect any of those nets for much longer. He'll have to sell them off, to keep Wall Street happy. Yes, like Wright before him, Immelt will hate to lose the star-bleeping opportunities that come with being an entertainment mogul, but he'll value his job more.
So NBC-U, CNBC, and "MSDNC" will all be on the auction block soon enough. And TCG wouldn't be surprised to see Rupert Murdoch snap up CNBC--perhaps into some sort of merger with the forthcoming Fox Business News--even as someone puts MSNBC out of its misery.
And oh, by the way: Time-Warner, owner of CNN, might well be next to face de-conglomeration.
