NBC Makes Strategic Investment in Paxson Communications, Creating Path to Second National Distribution Outlet - Company Business and Marketing

Cambridge Telcom Report, Sept 27, 1999

NBC and Paxson Communications Corporation (Amex: PAX) has announced that NBC is making a strategic investment in Paxson that will provide NBC with a potential path to a second national distribution outlet for programming, while giving Paxson additional resources to strengthen its broadcast group and PAX TV network.

As part of the transaction, NBC will fund $415 million in new Paxson convertible preferred stock convertible at $13.01 per share. These shares, if converted, would represent 32% of Paxson's common stock. After February 1, 2002, NBC has the right to acquire up to a total of 49% of Paxson, including Chairman Lowell W. Paxson's controlling stock, and then have operating control of the company -- if FCC rules change to allow NBC to increase its stake.

With an economic interest in 72 television stations, Paxson Communications owns the largest broadcast television station group in the country. The company's PAX TV, which is the seventh largest broadcast television network, includes an additional 51 PAX TV affiliates bringing the network to 76% of Nielsen's U.S. households. Although no specific programming agreements have been concluded at this time, this investment by NBC creates a basis by which NBC will be able to provide programs and input on PAX TV's family-friendly network.

As part of its strategy to strengthen its position in the marketplace, Paxson plans to develop additional original programming, complete announced acquisitions of television stations, build out the company's digital television stations and fund other operational needs at the company.

NBC President Bob Wright said: "At a time of rapid change in the broadcast industry, we want to be invested as strategically as possible. This is a significant investment by NBC in a one-of-a-kind company that has television stations in many key markets and a national broadcasting network. This investment also creates the potential for Paxson to become a new outlet for NBC programming, a goal we have sought for some time. This will be an increasingly important option as television moves into the digital age and there is growing demand for more digital spectrum."

Mr. Wright continued: "NBC has always aggressively taken advantage of new business opportunities, including innovative communications technologies such as cable and the Internet. This investment is another step in our effort to seek out new platforms for NBC programming and content. If future changes in FCC rules enable us to increase our national ownership of television stations we will be able to expand our current ownership and assume a greater role in Paxson's operations. However, even without those changes we believe this is an excellent investment in the nation's largest independent broadcasting company that offers important opportunities in implementing strategic options benefiting both our companies."

Paxson Chairman Lowell Paxson said: "NBC's investment, combined with their desire to achieve net profits for Paxson, clearly indicates that our shareholders are poised to enjoy the benefits of this strategic investment. NBC's participation will allow us to increase PAX TV's distribution to more than 80% of all Nielsen households and strengthen our network sales efforts. Together with NBC, we are focused on achieving the ratings, revenue and profits we know are possible."

Paxson's top management, including Chairman Bud Paxson, President and Chief Executive Officer Jeff Sagansky and other key executives, will remain in their current positions. Even if NBC converts its initial preferred investment for 32% of Paxson stock, it will have no direct operational control of the company, although NBC will have material input into the operations of the company. Paxson and NBC also said that they will initiate Joint Sales Agreements between their stations in Washington, D.C. and Providence, R.I., which are expected to be implemented by January 1, 2000.

NBC is a global media company with broadly diverse holdings. NBC owns and operates the NBC Television Network as well as thirteen television stations. In the United States, NBC owns CNBC, operates MSNBC in partnership with Microsoft, and maintains equity interests in Arts & Entertainment and The History Channel. NBC also has an equity stake in Rainbow Programming Holdings, a leading media company with a wide array of entertainment and sports cable channels, including the Madison Square Garden network. Internationally, NBC owns and operates CNBC: A Service of NBC and Dow Jones in partnership with Dow Jones & Company in Europe and Asia. In partnership with National Geographic and Fox/BSkyB, the network owns and operates the National Geographic Channel in Europe and Asia.

NBC is the leader among traditional media companies in Internet and new media businesses. Several of NBC 's Internet assets are slated to be merged with Snap.com, the fastest-growing major Internet portal, and XOOM.com, Inc., the fastest-growing community-based site on the Web and a leading direct e-commerce services company, to form one of the first publicly traded Internet companies combining these services in a strategic relationship with a major broadcast television network. In addition, NBC holds equity stakes in CNET, Talk City, iVillage, Telescan, ValueVision International and 24/7 Media.