For years investors have been asking why General Electric owns NBC Universal, and GE has been making the case that despite having little to do with the rest of the business, the network was a one-of-a-kind asset worth hanging on to.
With its stock trading at a five-year low, General Electric's investors are losing patience with these arguments. In April, the company missed estimates by the widest margins in years, reigniting the long-held argument that GE is too big, and putting pressure on Chief Executive Jeffrey Immelt to streamline the company's portfolio. The appliance business is already on the block; investors are again calling for an NBC Universal spin-off, although Immelt has defended the media division's high margins and growth potential overseas.
Their latest argument: the network's influence in Olympic host cities helped grease the wheel for larger, more lucrative opportunities for GE, especially in its crucial overseas markets. GE's Olympic partnership will continue through the Vancouver and London Games, but neither compare with the opportunity in Beijing, where NBC has opened the door for GE's crown jewel — its $58 billion infrastructure division — to flourish.
John Rice, the president and chief executive of GE's lucrative infrastructure division, says the Olympics is an opportunity for GE to expand its relationships in China and continue building power plants, water treatment facilities and other infrastructure projects long after the games end. And NBC was a crucial part of winning that business.
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Scott Lawson, an analyst and portfolio manager at Westwood Holdings, agrees: "When you're trying to develop business in China, there's a substantial value to having the footprint and branding that NBC Universal has there."
NBC Universal has never been a cash cow relative to the rest of the company. Last year it contributed $15 billion — or 9 percent — to GE's $172 billion in overall revenue, down 5 percent from the previous year. The NBC network is stuck in fourth place in the prime-time ratings race. Brian Drab, an analyst at William Blair & Co., estimates that NBC's broadcast of the 2008 Olympics will generate $100 million in profit on $1 billion in revenue.
But to hear GE tell it, NBC's rights to the Beijing Games allowed GE to expand its footprint in the world's fastest-growing market, thanks to massive power grid, water and rail projects. NBC, which has been broadcasting successive Olympic games since 2000, was the way in. In May 2003, when NBC was bidding for the rights to London and Vancouver, GE stepped in and, for an undisclosed sum, secured "preferred vendor status" — part of the record $1.5 billion in sponsorship fees that Beijing has raised. "NBC had a strong relationship with the International Olympic Committee, so it helped us get up to speed much quicker," says Peter Foss, president of GE Olympic Sponsorship.
At the time of the deal, GE was doing $2.3 billion worth of business in China, mostly in Shanghai, where it has a 150,000-square-foot research and development center. Previously, Foss says, a new GE hydration plant might have used another company's products for lighting. Now, every possible aspect of that project comes from GE.
In 2005 the company installed a 100-person team in Beijing, and soon more than 300 Olympics-related projects were under way, including the construction of National Stadium, the Beijing Power Supply Bureau and the National Convention Center. GE has since sold more than 700 wind, gas, hydro and steam turbines in China.
It has sold MRI and ultrasound equipment through its health care division, and has played a major role in building the country's oil and gas pipelines. In a country known for environmental degradation, the games allow GE to tout its eco-friendly products, like water filtration systems at the National Stadium and solar-powered lighting at Fengtai Softball Field. GE hopes that the Olympic sponsorship will generate $600 million in revenue and boost its overall sales in China to $10 billion by 2010.
GE views the Olympics as practice for other "mega events" — such as the Asian Games, in Guangzhou, and the Shanghai World Expo, both in 2010. There, the company will build water plants, power plants and security systems. China plans to open 40 new airports by 2010; GE has back orders of $5 billion worth of airplane engines and service agreements.
Still, skepticism persists. Lawson, for one, says he doesn't know how to put a dollar figure on NBC's contribution. More important: "I'm not sure how long that benefit lasts in terms of helping other GE businesses," he says.