Weather Channel Deal Sealed for $3.5 Billion to NBC Group
By Philip Walzer, The Virginian-Pilot, Norfolk, Va.
Jul. 7–NORFOLK — Landmark Communications Inc. of Norfolk has agreed to sell The Weather Channel Cos. to a consortium of NBC Universal and two private equity firms, the companies announced Sunday.
Neither Landmark nor NBC disclosed the price. But people close to the negotiations said NBC and its partners, Bain Capital and The Blackstone Group, offered about $3.5 billion.
Decker Anstrom, Landmark’s president and chief operating officer, was quoted on the Broadcasting & Cable Web site earlier this year as saying that $5 billion would be a “very fair starting point” for the weather businesses. On Sunday, he said of the agreement with NBC: “We think it’s a very fair price. From Landmark’s perspective, this represents a very handsome return on an organic startup of more than 25 years ago.”
The transfer of ownership is expected to occur at the end of the year pending regulatory approval.
The sale of The Weather Channel Cos. represents the first, and most prominent, piece of the Landmark puzzle to be disassembled.
Landmark, which also owns The Virginian-Pilot, announced in January that it was looking to sell all its businesses. Richard F. Barry III, the vice chairman of Landmark, said Sunday that the company hopes to divest itself of the remainder of its properties — including Dominion Enterprises, a Norfolk-based information and marketing services company — by year’s end.
The Weather Channel and its satellite companies, including Weather.com, were expected to be the most attractive of Landmark’s properties. The 26-year-old Weather Channel, one of the last privately owned cable channels, vaulted from million-dollar monthly losses during its first year to glittering success. The channel goes to 96 million households and ranks itself as the third most widely distributed network in the United States.
The Weather Channel Cos. accounted for about one-quarter of Landmark’s 2007 revenues, which exceeded $2 billion. The weather businesses are expected to yield $550 million in revenues this year.
The weather businesses have about 1,300 employees, 170 of whom are meteorologists. Most are based in Atlanta. None is in Hampton Roads.
The Weather Channel broadcasts 24-hour-a-day regional and national weather news, as well as weather-related programming. Its updated forecasts and growing focus on environmental issues have won popularity with viewers and advertisers.
Like other media, The Weather Channel has diversified in recent years and attempted to ride the technological wave.
Weather.com, which launched in April 1995, logs 37 million unique visitors every month, placing it among the 15 most heavily trafficked Web sites.
Other subsidiaries owned by The Weather Channel include Weather Services International Corp., based in Andover, Mass., which provides weather data to local TV stations and cable networks and which analysts say could help trim NBC’s costs, and Enterprise Electronics Corp., in Enterprise, Ala., which markets radar systems worldwide. The Weather Channel also holds an interest in Pelmorex, a Canadian weather company.
Alan Breznick, senior analyst for Heavy Reading, a marketing research firm in New York, said he thought $5 billion was an unrealistic wish for Landmark’s weather businesses.
“I don’t think any cable network would go for that much,” Breznick said. “I think $3.5 billion is still a pretty good price…. They’ve put plenty of money into The Weather Channel, but they’re certainly coming away with a sweet profit on the deal.”
Arrangements such as NBC’s partnership with Bain Capital and The Blackstone Group are becoming more common because of the huge costs involved. NBC, he said, doesn’t have to spend as much of its cash. And the firms get an investment likely to balloon.
“They can sell their stake and make a nice amount of money,” Breznick said. “They’re not necessarily a short-term player, but they’re probably not a long-term player either.”
A representative from Bain had no comment Sunday. Blackstone officials could not be reached.
The announcement of the agreement came as no surprise. Since last month, analysts had pegged Time Warner and the NBC consortium as the leading contenders. Three weeks ago, after news services reported that Time Warner had withdrawn its bid, Landmark announced that it had entered into exclusive negotiations with NBC.
“These things just take time because there are so many lawyers involved,” Barry said Sunday. The contract, he said, was signed Sunday morning.
Landmark used JPMorgan as its financial adviser for the transaction. Willcox & Savage of Norfolk was among the law firms that represented Landmark.
NBC Universal is 80 percent owned by General Electric Co. In addition to its major TV network, NBC has the Universal Pictures movie studio, 10 large local TV stations, and several cable channels and amusement parks.
NBC also has a much smaller weather operation, the 4-year-old Weather Plus, which includes a cable channel, often available only on digital cable platforms, and the weatherplus.com Web site.
In a news release, NBC said it would continue to operate The Weather Channel as a separate entity in Atlanta.
Jeff Zucker, NBC’s president and chief executive officer, said in a statement: “This will further position NBC Universal as the leading provider of news, information and weather, both online and on television.”
Breznick, the analyst, predicted that NBC’s focus will be less on putting its imprint on The Weather Channel than on incorporating it into other NBC properties. For instance, “We might start seeing the weather on the ‘Today’ show be Weather Channel forecasts,” he said.
Landmark Communications is a closely held private company. Its retired chairman, Frank Batten Sr., his son, Frank Batten Jr., and related family trusts own a majority of shares. Voting control is held by Batten Jr., the CEO and chairman.
In a statement Sunday, Frank Batten Jr. said: “While we are extremely proud of how far we’ve come, I know that as part of the NBC Universal consortium, The Weather Channel and its employees will have increased opportunities for growth.”
Batten said the channel’s founders “could never have imagined that it would become the multi-platform leader which 120 million people use monthly.”
In his 2002 book, “The Weather Channel: The Improbable Rise of a Media Phenomenon,” Batten’s father recounted the channel’s uphill climb. It started with a skeptical reaction from journalists at the 1981 news conference announcing the idea.
“First, silence,” Frank Batten Sr. wrote. “Then a collective groan went up from the audience. And from the tone of the questions that followed, it became all too clear what those groans meant…. Isn’t twenty-four hours a day of weather going to be, well, dull? Who will actually watch this stuff?”
The channel was launched on May 2, 1982. Batten described its first year as “full of crises, culminating in a full-fledged near-death experience.” Operating expenses that first year were double their target, at $14 million to $15 million. Losses totaled almost $1 million a month.
Then, Batten wrote, came a “miraculous turnaround,” triggered largely by “the unexpected willingness of cable operators to pay a fee for our service.”
In 1986, four years after its birth, the channel broke even.
In the succeeding years, Batten wrote, the channel “dramatically ramped up our live coverage of hurricanes” and other severe weather events, and adopted a more professional on-air approach, dispensing with a casual, joking tone.
On Sunday, Anstrom said the keys to the channel’s success include a “terrific relationship with the cable industry,” a willingness to innovate and a corps of dedicated executives and employees.
“They know they are doing something important, which is protecting people’s property and lives every day,” said Anstrom, who is also chairman of the National Cable & Telecommunications Association and a former president of The Weather Channel.
Landmark executives have declined to explain why they are selling The Weather Channel and the other properties.
In his book, Batten discounted the possibility of ceding The Weather Channel.
“Most important, I believe we can operate The Weather Channel better than any of the large consolidators,” Batten wrote. Besides, “we are having too much fun running The Weather Channel — and deriving too much satisfaction from providing a genuine public service — to turn it over to others.”
Now the fun — and the business — go to NBC and its partners.
Philip Walzer, (757) 222-3864, firstname.lastname@example.org
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