For Broadcast September 06, 2007

Kate Bulkley looks at whether or not Sparrowhawk is a good buy for NBC and examines the current state of Five's health.

Is Sparrowhawk a good buy for NBC Universal?

Do you know a couple of single people who would make a good couple? You know, the two of them have knocked about and done their best alone, but a partnership is clearly the answer. If only the timing was right.

Timing played a big part in why NBC Universal bought Sparrowhawk, with the global credit crunch pushing private equity players into retreat and clearing the way for the two companies.

The future of both the studio owned by GE and the company that David Elstein and his private equity backers built was a matter of scale. That Sparrowhawk's business is roughly the same size as NBC U's international channel business is a testament to Elstein and co's abilities, as well as a clear sign of the studio's need to step up a league to compete with its rivals, some of which have dozens of channels in markets from the UK to India.

The pair claim they will have a combined revenue of $350m this year and double digit growth in 2008 and although neither is saying how much NBC U paid for Sparrowhawk, the reported $350m (£174m) seems a fair guess.

But is the combined business worth it? There's still growth in pay TV, both from subscriptions and advertising, especially in less developed markets such as eastern and northern Europe and South America and Asia.

Perhaps the most crucial part of putting a value on Sparrowhawk is the tricky issue of what its brands are worth. The likes of 13th Street, Sci Fi and Hallmark will be a big asset in a world of fragmented online audiences where people are looking for signposts to help them navigate iTunes or YouTube. NBC U clearly believes they are worth the gamble.

After RTL Group's value write-down of Five, how healthy is the network?

Trying to choose just one word to describe the state of Five at the moment is tough. Beleaguered might be one, but bewitched, bothered or bewildered may be contenders.

Looking with a CSI-like forensic eye, the UK's fifth terrestrial has been behind the eight ball lately, culminating in channel owner RTL Group writing down its book value last week by £83m.

Five's 10-year history has been a slow burn, but at least it originally had the excitement of a Spice Girls launch and its "football, films and fucking" tagline. In the past few years, despite the CSI franchise and my own favourite US show, Hugh Laurie vehicle House, Five has had a bit of an identity crisis.

New content tsar Lisa Opie has been in her job since January, yet her director of programmes Jay Hunt only starts this month, and Opie told an Edinburgh Festival audience that her job is to remake Five into a "no bullshit" channel that "entertains reliably".

Five's fate rests on its audience ratings (and ability to attract adverts) in the next 12 months; Opie is counting on a £300m gamble on Neighbours, more UK commissions and key new US imports such as Californication.

Five's revenue was up by 8.5% to Euro 242m (£163m) in the first half of 2007 which would be a real plus if the EBITDA had followed suit, but it didn't. Underlying EBITDA was flat at Euro 15m year on year before taking out the Euro 10m in start-up costs for the two new digital channels.

The late launch of Five US and Five Life actually meant a first-half target audience rise year on year from 5.5% to 6.3%, but the main channel's own contribution fell in real terms to 5.5% from 6% in 2006.

RTL boss Gerhard Zeiler is giving the new programming team until next year to bump up audience and EBITDA, although on the results conference call he said he would "accept successes" in 2007. A (rather unlikely) turnaround that comes that quickly would surely be more than acceptable.