A Peacock and a Rainbow

Now, NBC is countering Diller's bid for Cablevision's networks

NBC Chairman Bob Wright is trying to get Rainbow Media to change channels, jumping in to best USA Networks' Barry Diller for the Cablevision Systems Corp.'s unit's entertainment networks.

Industry executives said Wright could have a difficult time because in initial discussions NBC was offering less than the numbers Diller has put up so far. USA Networks had initially tempted Cablevision Chairman Chuck Dolan with an offer of about $4 billion in cash, stock and assumed debt.

One industry executive said that NBC, which already owns a part of Rainbow, had offered roughly $3.8 billion, a number disputed by a participant in the negotiations. But Wright has argued that the stock he has at his disposal-parent corporation General Electric Corp.-is a more stable and, hence, more valuable currency than the stocks Diller has at his disposal, shares of USA Network or 49% owner Vivendi.

USA Networks' executives are countering that their shares have been relatively stable in the recent market downturn and in any case greater volatility means greater upside.

But the rules of the game have shifted. Before Christmas, Dolan had been looking at negotiating a sale directly with one of the several interested suitors, a list that has included Viacom, MGM and Comcast . Now, Cablevision Vice Chairman Bill Bell has retained two sets of investment bankers to hold a formal auction and has set a bid deadline of Jan. 16.

One industry executive said Cablevision has shuffled the mix of the goods up for sale, taking out certain Rainbow assets it had once considered including and declining to grant substantial real estate for carriage of new services on Cablevision's cable systems. That puts all the initial offers up in the air and may have dampened Diller's financial enthusiasm. USA Networks is now considering bidding less than $3.5 billion.

Up for sale are American Movie Classics, Bravo, Independent Film Channel and Romance Classics. Rainbow's regional sports networks, including MSG Network, Fox Sport New York, and its local News 12 operations, are not for sale.

Cablevision, NBC and USA Network would not comment.

It's a game of chicken, with the major question being whether Wright is serious about buying the networks or merely trying to scare Diller into putting up a higher bid. NBC already owns 26% of Rainbow Media, so it won't really have to cough up the whole amount of any bid it makes.

Diller has made no secret of his desire for more cable networks and has been trying to buy parts of Rainbow's entertainment networks for two years. At a meeting of Wall Street executives in December, Diller declared that the networks were "ours to lose."