GE's success with NBC -- it is by far the most profitable network -- has built its confidence that it can tame Hollywood's wild spending and manage the Universal Pictures movie studio. Led by Vivendi Universal Entertainment President Ron Meyer and Universal Pictures Chairman Stacey Snider, the studio has enjoyed a strong four-year run at the box office with profitable franchises such as "The Mummy," "The Fast and the Furious" and "American Pie." But Hollywood hot streaks inevitably cool off, and Universal's smooth-running management team could be spooked by any GE effort to cut film budgets or manage costs more stringently.

"We thought he was an alien," says Warren Littlefield, who ran NBC Entertainment for much of the 1990s and had been there since the early 1980s. "Bob was saying, 'You don't understand, Rome is burning,' and we were like, 'We're a network, this is a license to print money.' We were horribly inept at understanding strategic thinking. . . . [T]hat was something you made up after the fact."

The biggest draw for GE may be the opportunity to bulk up on both cable channels and TV production. While MSNBC and CNBC have struggled in the ratings of late, the cable channels allow it to spread out the cost of its news operations, a competitive advantage over its broadcast rivals. And while CNBC's ratings have fallen with the stock market's woes, they have started to improve this year, and the channel is profitable because it attracts an affluent audience that advertisers target. Integrating Universal's cable channels, such as USA and Sci-Fi, into the same structure as NBC's stations presents the opportunity to eliminate more than $100 million in overhead expenses.

Last year, General Electric Co. Chief Executive Jeffrey Immelt dismissed the idea that his vast conglomerate needed to buttress its NBC television network by acquiring a movie studio or a big entertainment cable network.

"Breadth has not created any kind of economic value," Mr. Immelt said in an interview. "AOL Time Warner has a strategy and Fox has a strategy and who the heck knows, maybe it works. But we have never felt threatened by what anyone else has done, and I don't think we have to go and copy anyone else right now."

Yet today, GE is aggressively pursuing just such a strategy thanks to a mix of opportunity and necessity. Once Vivendi Universal put its entertainment assets up for sale, it assiduously courted GE to take a look. Meanwhile, fundamental changes in the landscape of television and movies have made it more compelling for GE to act.

This week, after an extended auction, Vivendi said it would continue negotiations just with GE and a rival consortium led by Edgar Bronfman Jr., the former Seagram Co. chief executive, to sell control of its entertainment assets, which include the Universal movie studio, USA Network and other cable channels, a TV production unit responsible for the "Law & Order" franchise, and Vivendi's interest in the Universal Studios theme parks.

A GE deal is by no means a certainty, and GE has walked away from a number of possible entertainment purchases after discussions. That said, the talks with GE have intensified in the past day, and Vivendi may be moving quickly toward picking one party with which to negotiate exclusively.

Should GE prevail, it would create an entertainment giant as sprawling as the companies that GE was so reluctant to mimic -- just as the concept of media agglomeration is in low favor, amid problems with megamergers such as AOL Time Warner and Vivendi's own acquisition of Universal parent Seagram. A deal with GE could also mean a difficult transition for Universal's movie executives as they learn to cope with the zealous management style of their new parent.

Why did GE change its mind about an industry that, until recently, it found about as appealing as a sequel to "Gigli"?

For one thing, DVDs have become a gold mine for Hollywood studios, taking some of the risk out of financing movies. The extra revenue that DVDs bring in on nearly every title makes hit movies even more profitable, and helps minimize losses on losers. The DVD phenomenon is expected to level off at some point, but that appears to be at least a couple of years away, since less than half of U.S. households have a DVD player.

Also, the company may finally have grown tired of being held hostage in negotiations with the producers of its biggest shows, such as "ER" and "Friends." Indeed, many observers believe a motivation for the deal is that the future of the "Law & Order" franchise -- produced by Universal and a foundation of NBC's prime time -- is up in the air.

Bringing the Universal TV studio in-house and locking up "Law & Order" on advantageous terms are particularly important because NBC, after a long and profitable run, is entering a crucial year. It will see the retirement of its "Friends" powerhouse, just as the network's ratings supremacy is under attack from News Corp.'s Fox network.

More fundamentally, with broadcast-network viewership eroding, NBC needs to figure out ways to reach more viewers. Robert Wright, GE vice chairman and chief of NBC, has steadily expanded the company's television holdings to include the CNBC, MSNBC and Bravo cable channels, as well as the Spanish-language Telemundo broadcast network -- and the prospect of adding additional cable networks is alluring. (Dow Jones, publisher of this newspaper, is co-owner with NBC of CNBC television operations in Asia and Europe. Dow Jones also provides news content to, and derives revenue from, CNBC in the U.S.)

"We feel today that we're big enough and able enough to deal with some of the volatility in the film business, but we also feel the Universal management has figured it out," says Mr. Wright. "A number of years ago, we were smaller, we weren't as broad in our business."

Still, he adds, should a deal not pan out, NBC is fine on its own.

GE's success with NBC -- it is by far the most profitable network -- has built its confidence that it can tame Hollywood's wild spending and manage the Universal Pictures movie studio. Led by Vivendi Universal Entertainment President Ron Meyer and Universal Pictures Chairman Stacey Snider, the studio has enjoyed a strong four-year run at the box office with profitable franchises such as "The Mummy," "The Fast and the Furious" and "American Pie." But Hollywood hot streaks inevitably cool off, and Universal's smooth-running management team could be spooked by any GE effort to cut film budgets or manage costs more stringently.

Mr. Immelt's predecessor, Jack Welch, was especially wary of the risk that is inherent to Hollywood. A former high-ranking NBC executive recalls a comment Mr. Welch once made about the film business: A company can invest $100 million in a movie, and even more in promoting it -- only to find out it's a flop on opening night.

Many in Hollywood are anticipating a case of culture shock, as when GE first swallowed NBC in the mid-1980s. GE relies on the operational discipline known as Six Sigma, which uses statistical analysis to improve operations across the board, from ordering and manufacturing goods to delivering them on time. Six Sigma is also used to examine the reliability of forecasts, pricing strategies and other issues.

In other words, Six Sigma is about as far removed as possible from the standard for decision-making in Hollywood, where a studio chief's gut feel for a piece of material or a marketing maneuver often prevails over all else. GE, based in Fairfield, Conn., is a conglomerate that makes medical equipment, power turbines, appliances, airplane engines and also finances commercial and consumer loans.

Coming into NBC as president after stints in plastics, appliances and financial services at GE, Mr. Wright was taken aback not only by the free spending that ran throughout the network but also by the lack of analysis about where the business was going.

"We thought he was an alien," says Warren Littlefield, who ran NBC Entertainment for much of the 1990s and had been there since the early 1980s. "Bob was saying, 'You don't understand, Rome is burning,' and we were like, 'We're a network, this is a license to print money.' We were horribly inept at understanding strategic thinking. . . . [T]hat was something you made up after the fact."

Over the years, GE hasn't been shy about applying its management approach to the network, forcing executives to scrutinize projects for waste, time lost and bottlenecks, and even reserving a spot at the network for GE managers. GE cycles its top finance managers through NBC as chief financial officer, to give the managers experience in GE's many business units and to cross-pollinate ideas and practices. NBC executives are required to use GE planning techniques to spell out both near- and long-term strategies and succession planning. Applying the GE emphasis on detailed analysis, the network dissects the demographics and advertising potential for each prospective show as it maps out the fall TV schedule.

GE has been willing to write big checks, with mixed results. Re- signing "Today" host Katie Couric to a big contract, roughly $15 million a year, has paid off. But granting $1 million-per-episode paydays to "Mad About You" stars Helen Hunt and Paul Reiser backfired when the show bombed in its final season.

"There's not going to be a revolution" at Universal, Mr. Wright vows.

Universal and NBC have some experience working together. Two years ago, the two organizations teamed up on a promotional blitz for the theatrical launch of Universal's "Jurassic Park III." NBC aired the original "Jurassic Park" movie the weekend before the new one opened, then had many of its owned-and-operated TV stations tease the new flick during newscasts the following week. Universal executives say the effort contributed to an unexpectedly strong $50 million opening weekend.

In recent meetings involving the two companies' managements, according to executives familiar with the sessions, NBC and Universal officials have kicked around a variety of joint marketing ideas. For example, they discussed whether Universal's recent movie "Johnny English" would have gotten a boost from a guest appearance by star Rowan Atkinson on an NBC sitcom. Another idea involved attaching promos for NBC shows to the front of Universal DVDs, perhaps using a technology that would only play the commercial the first time the disk is used.

Still, if GE attempts heavy cost-cutting, it may run into problems. The collective mood at Universal went sour last year when Barry Diller, a shareholder in the Universal assets now for sale, oversaw the assets for a time and led an effort that identified about $100 million in cost savings. Mr. Diller resigned his position earlier this year, but his cuts are being made. NBC would be expected to lop off well over $100 million more in Universal's corporate-management overhead, according to people familiar with Universal's finances.

A riper trimming target for any buyer -- which Mr. Diller barely touched -- may be the approximately $700 million that Universal spends on film production each year.

Any cutback in that area could be upsetting to Ms. Snider and her team, who so far have maintained their spending level by pointing to the studio's long winning streak. They have also grown accustomed to making decisions with minimal interference from above -- as they did earlier this year, when Ms. Snider gave the green light to millions of dollars in extra effects for the films "2 Fast 2 Furious" and "The Hulk" in hopes of giving them extra commercial oomph. The tactic worked in "2 Fast," where extra car-racing scenes helped make the film sufficiently pulse-pounding to become a profitable hit. But after a strong opening, the $150 million "The Hulk" fizzled and appears unlikely to make a profit.

The biggest draw for GE may be the opportunity to bulk up on both cable channels and TV production. While MSNBC and CNBC have struggled in the ratings of late, the cable channels allow it to spread out the cost of its news operations, a competitive advantage over its broadcast rivals. And while CNBC's ratings have fallen with the stock market's woes, they have started to improve this year, and the channel is profitable because it attracts an affluent audience that advertisers target. Integrating Universal's cable channels, such as USA and Sci-Fi, into the same structure as NBC's stations presents the opportunity to eliminate more than $100 million in overhead expenses.

Bravo, an arts-and-entertainment channel NBC agreed to buy last year, may be more indicative of how NBC hopes to manage new cable channels. NBC executives looked for one marquee show to establish the network and spent about one-quarter of Bravo's annual marketing budget on "Queer Eye for the Straight Guy." The reality show chronicles five stylish gay men as they make over one straight man each episode. NBC milked the show with special segments and ads on everything from "The Tonight Show" to MSNBC's "Buchanan and Press."

As a result, the show has received buzz and media attention this summer with magazine covers and newspaper articles. The most recent episode drew 3.1 million viewers, the most for a telecast in Bravo's 22 years.

That kind of support will be important if NBC hopes to improve the performance of Vivendi networks such as USA. The USA Network, a general entertainment channel, is valuable because it is in more than 90 million homes, but its audience has shrunk. That may make it difficult for NBC to continue to get strong license fees from the cable and satellite operators who carry the channel.

NBC has also, until now, been the only major network not aligned with a full TV-production studio, aside from its relatively small NBC Studios. Having a bigger in-house production entity would allow it to more easily develop shows from the ideas it generates. When Jeff Zucker, the president of NBC Entertainment, earlier this year wanted to develop a drama about Las Vegas, he had to search for another studio to team up with, rather than simply getting the job done in- house.

NBC officials have also been increasingly mindful of the success AOL Time Warner's Warner Bros. Television has enjoyed as it dominates the TV-production scene with an astounding 28 shows on the air this fall. But at the same time, NBC would have to be careful not to schedule too many shows made by Universal. Walt Disney Co.'s ABC made the mistake of relying too heavily on shows made by Disney's Touchstone studio, which prompted some writers and agents to stop shopping ideas to the network.

---

Kathryn Kranhold contributed to this article.

---