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NBC to buy Oxygen media for $925 million

October 9, 2007

NBC Universal, the media division of GE (GE) announced Tuesday that it is buying Oxygen Media, which owns the Oxygen cable television channel, a network that caters mainly to women, for $925 million.

This is the second significant acquisition for NBC involving women’s media in the past year and a half. The company acquired Web site iVillage for $600 million last year. The Oxygen network is available in 74 million homes and competes primarily with cable network Lifetime, which is co-owned by Walt Disney (DIS) and magazine publisher Hearst Corporation.

In a statement, NBC Universal president and CEO Jeff Zucker called Oxygen “the crown jewel of independent networks? and said that the acquisition will increase NBC’s “foothold in the advertiser-coveted young, upscale, female demographic.? NBC said that it expects the deal to close in November and that Oxygen should ad $35 million in revenue and cost savings in 2008.

In addition to bolstering NBC’s presence among women, the Oxygen acquisition will also increase NBC’s position in the cable television business, which has been an area of the TV market that has held up better than broadcast television. While many advertisers have started to shun the traditional TV networks, ad revenues at many cable networks have been climbing, helping to boost the fortunes of media firms such as Disney, News Corp. (NWS) and Time Warner (TWX), which is also the parent company of CNNMoney.com.

That trend is clearly visible at NBC Universal as well. While NBC’s flagship network has struggled to keep viewers during the past few years and has finished in fourth place among the key advertiser-friendly 18-49 year old demographic, for three consecutive seasons, NBC Universal’s cable stations, which include USA, Bravo and SCI FI, have all enjoyed healthy ratings thanks to hits such as USA’s “Monk? and Bravo’s “Project Runway.?

So NBC is clearly making a bet that it a combination of Bravo, which in addition to “Project Runway? has many other female-skeiwing shows, and Oxygen with its iVillage properties will be a must-buy package for advertisers looking to reach young, affluent women.

As such, it will be interesting to see if adding Oxygen to the NBC Universal portfolio can help iVillage in its efforts to gain back ground to the rapidly growing upstart Glam Media, an online network focusing on women that supplanted iVillage as the top online destination for women earlier this summer.

It will be also interesting to see how Oxygen and iVillage, which both launched with much fanfare in the past decade, will do under the same corporate roof. Both Oxygen and iVillage had hopes of becoming mainstream media companies as independent firms and ultimately each decided that it was in their best interests to sell out to a larger rival instead.

“This deal with NBCU is the best way for Oxygen to grow. In seven years, we built a spectacular brand for women. We built Oxygen from scratch – we became profitable, grew from zero to 74 million subscribers and produced original programming that resonates with young women everywhere. I couldn’t be more proud of my team. Now together with NBCU, Oxygen can become an even bigger brand,? said Oxygen chairman and CEO Geraldine Laybourne in a statement.

Laybourne co-founded Oxygen with talk show host and media mogul Oprah Winfrey as well as television producers Marcy Carsey, Tom Werner and Caryn Mandabach.

Comments

This article interested me for two reasons. The first is that it offers a textbook case against which we can compare the list of issues Mike handed us last Saturday on motivation/goals, partner, governance, and measurements of success. For example, the article suggests that NBC Universal’s motives are to build dominance in the young women’s lifestyle category—in short, to “own? the category— by diversifying across multiple channels. The network likely determined that it could purchase a cable TV stronghold for less time and investment than it could build one. Meanwhile, the strategy protects NBC Universal from an unstable advertising climate by giving it a “trifecta? of market segments: cable TV, network TV, and the Web (thanks to its purchase of iVillage the year before). It also offers clues as to how NBC will measure its success of the purchase. For one, it suggests that NBC hopes to bundle Oxygen, iVillage, its other cable networks, and its network TV shows to create a “must-buy package for advertisers? targeting the young female demographic. For another, it notes that the acquisition will yield cost savings. Put together, NBC seeks $35M in value in the first year. What the article doesn’t say is whether NBC could have attained some of its same goals through an alliance, or whether its purchase of Oxygen may have also been a defensive move, to keep rival networks and Glam Media from having the opportunity. And the article doesn’t mention how Oxygen might fare culturally as part of the NBC juggernaut. Both could make for interesting research topics.

The second reason I chose this article is its relevance to the Synergy Valuation chart from Mastering the Merger. On one hand, the article’s mention of NBC’s hope for cost savings in 2008 suggests that the network is planning to take advantage of the short time frame/high probability of success sections—through synergies in duplicate corporate functions and shared operational activities in particular. On the other hand, it occurred to me that perhaps there is an additional circle that belongs, perhaps, between facilities rationalization and revenue synergies through existing products/new channels. I might title that circle “revenue opportunities through network economics.? NBC is banking on the size and diversity of its network to increase its value proposition to advertisers. In theory, it is hoping that 1 + 1 might equal 3. (Wikipedia has a decent description of the network effect for business models, for more details.) In this case, I think the network effect is a critical component of NBC’s strategy in purchasing Oxygen.