The Leno gamble - what's really at risk

This week's TIME magazine has Jay Leno on the cover and describes "Jay Leno is the Future of Television" in its headline. The portion of the article that is not directly about Jay Leno is devoted to the same discussion offered here in November of 2007 in the series of posts headed The Screen Writers Guild strike, technology, and the future of scripted television.

Near the end of the article is the following paragraph:

Maybe the fact that NBC is, essentially, doing what cable channels do (that is, reducing costs and targeting its scripted shows) is a harbinger of the day when it, or another big network, will literally become a cable channel, trading the system of local affiliates for the freedom and licensing fees of cable.

That is the backhanded recognition of what NBC is putting at risk. As I wrote in April NBCU has no intention of serving the interest of NBC affiliates. The Washington Post's TV columnist Lisa de Moraes observed this week quite correctly:

NBC is now playing a different game, with new rules. That game is called Programming to Margins. NBC suits think they can win by slashing costs to rack up points with shareholders and thus declare a new form of victory in which you can win even if you haven't had a bona fide hit in years.

NBC suits know Leno's new comedy show won't attract as many viewers as the scripted dramas the other networks have scheduled at 10 p.m. weekdays: "CSI: Miami," "Private Practice," "The Mentalist," etc. They concede that this means advertisers will not pay as much for ad time on Leno's show as they will for ad time in those scripted series. The execs believe they have guaranteed their own success if only because Leno's show will cost so much less to produce. Leno recently bragged to a gathering of reporters that he can make a whole week's worth of "The Jay Leno Show" for the price of one episode of "CSI: Miami."

GE management which includes NBC management has created lowered expectations, particularly among shareholders. If the profit line on the NBCU division known as NBC rises for two quarters because of the decision about Leno, GE management has succeeded. That doesn't mean that the Leno Show has succeeded as entertainment.

Over the next three years, the network broadcast TV station properties will shift to meet the ratings as the NBC-owned New York station already has by reducing news and creating locally marketable local oriented programming. If anything, they are focusing on creating a record of delivering live-eyes on ads.

NBC owns broadcast stations in the following eight (out of 210) DMA's (designated market area) representing 25% of the nation's "TV homes":

1. New York City
2. Los Angeles
3. Chicago
4. Philadelphia
5. Dallas/Fort Worth
6. San Francisco/Oakland/San Jose
9. Washington, D.C./Hagerstown, MD
16. Miami/Ft. Lauderdale

But those large-population DMA stations aren't affiliates, they're owned - they have the resources of NBCU and GE plus large numbers of viewers within the DMA. In the remaining 202 DMA's representing 75% of "TV homes" somebody else owns the NBC affiliate stations. Consider the situation of the affiliates in the following DMA's:

107. Ft. Wayne
108. Reno
109. Youngstown
110. Tyler-Longview
111. Springfield-Holyoke
112. Boise
113. Sioux Falls(Mitchell)
114. Lansing

In these much smaller population DMA's, even if they captured the entire 5 pm - 6 pm viewers available, the affiliate cannot deliver anything resembling the number of eyes the NBC property in New York City can guarantee to advertisers as a minimum for that time slot where they've put new locally created programming. Nor are there the number of local businesses from which to solicit ads. So those affiliates aren't going to have the flexibility to deal effectively with the loss of advertising income from their 10 pm network show and from their 11:00 pm news show and maybe even from their 11:35 pm NBC late night show.

Five years from now these small DMA affiliate stations may be sorry they kept their NBC affiliation instead of embracing the NBC "Programming to Margins" business model as their own.

That model suggests that the smaller DMA stations may want to drop their expensive NBC affiliation in favor of a syndicated and local programming schedule costing 20% of their network affiliation, which would allow them to retain 100% of whatever advertising revenue they can generate.

Losing up to 50% of the "TV homes" is the long term risk NBC is taking by changing it's model from that maintained by CBS and ABC to a new model. It is not even that model of 10-11 pm local programming used by Fox which benefits the affiliates.

And if NBC longs to become a cable channel as TIME speculates, what will it do with its owned local stations? Those stations derive much of their current value from NBC programming. Without it, the value of these assets would plunge.

In the short term, NBC's Leno move may work for NBC within the GE corporate style. But it may not work for the affiliate stations. And realistically, if it doesn't work for the affiliates, it won't work for the NBC-owned stations. Sure NBC could become a cable channel but that won't help with the loss of asset value and the loss of goodwill in the broadcast industry.

Unlike the manufacturing properties owned by GE, maximizing quarterly profit margins within a 24-month or less window can't guarantee retaining the value of NBC over the five-year period. Sometimes accepting less profit for four years is a better five-year long-term strategy. It most certainly would have been for GE's banking properties and it's there that GE needs to look for helpful management cues for NBC, not in its aircraft engine division.

Broadcast station retransmission fees - Congress needs to step in

Nowadays, network executives are as likely to be plotting to extract “retransmission consent” fees from cable operators as they are to be gathering around their magnetic scheduling boards and shifting shows from slot to slot. - from "Don't Touch That Dial", a 2006 book review by Tad Friend in the New Yorker

The time has come for Congress to deal with the absurdity of the retransmission fee issue for broadcast network TV.

The problem is simple. Local broadcast TV stations owners want a significant source of non-advertising revenue as their commitment to producing local programming, including local news, ceases. The national broadcast network executives, whose programming is carried on those stations, also appear to want a significant source of non-advertising revenue. Both have determined that the source will be "retransmission fees."

When Congress originally established licensing for local TV stations it was to benefit the public. Now that the stations have gone digital as required by Congress, each one of those stations has been given at no extra licensing competition cost the potential to broadcast two to four discrete signals known as subchannels. Those licenses are for broadcasting signals that are free to anyone who has a tuner within the stations Designated Marketing Area (DMA) in return for the right to broadcast owned content exclusively, including national network content for those affiliated with such networks.

The problem is that "free" has been interpreted as meaning, "well, not really free for most of the people watching the station." You see, most of us watch TV via cable or satellite and the stations and the networks have already started seeking significant per-customer fees from the cable and satellite carriers. Ultimately, that fee is passed on to the viewer.

Now I have no problem with ABC, CBS, Fox, MyNetworkTV, NBC, PBS, and The CW charging carriers for their program as does TNT or The Discovery Channel. Just so long as the "must carry" rule requiring cable and satellite carriers to carry local channels is eliminated and the national broadcast networks provide a direct signal for all their programming to the carriers like TNT and The Discovery Channel do - no middleman such as a local station.

For satellite carriers particularly, the cost of bandwidth to carry all those broadcast network stations is very expensive. If they could provide broadcast network programming to all their customers, perhaps with an East and West feed like many of the cable channels, without paying fees to local stations then the issue of whether local stations constitute a local public service could finally be acknowledged honestly. Two in each DMA could be carried for the local emergency broadcast system, two for redundancy. And the ones that have the most to offer viewers would likely be carried because of viewer demand. The rest could go bankrupt if they can't attract off-the-air viewers which they should. Just how many stations offering reruns of "Friends" do people really need?

Why bring this up now? It appears from a MediaPost article by Wayne Friedman on Friday that the networks are starting to sniff around retransmission fees again stating:

If you were to ask broadcast executives where the big new stream of revenue will come from in the coming years, you might guess wrong.

Digital ad revenue? Subscription fees from new online services? Video on demand? One senior broadcast TV executive told me plainly: "It is retransmission fees, pure and simple."

Since the networks don't provide the signal, exactly what are they looking for? Why should we TV signal carrier customers pay the networks and also pay the local stations whose signal we should be getting for free?

There is an inherent anti-public-interest attitude in all this. It's time for Congress to explain to the networks that they can depend on "off the air" federally licensed local stations or they can depend on cable/satellite carriers for revenue. But only one fee source is going to be allowed.

NBCU solidifies its TV structure - Silverman out, finally

As I noted in April in March at the Media Summit conference Zucker said: "We are, first and foremost, a cable network company." Today it was announced that Zucker put NBC under the control of of his cable operations boss.

You can read this from many sources but The Hollywood Reporter broke it up into two articles. First we have from Ben Silverman out at NBC Universal:

Quote:

After a rocky two-year tenure, Ben Silverman stepped down Monday as co-chairman of NBC Entertainment and Universal Media Studios to launch a company with Internet mogul Barry Diller. NBC Universal is consolidating all of its TV entertainment operations under company veteran Jeff Gaspin, who has been named chairman of the combined new division, NBC Universal Television Entertainment. The move gives Gaspin oversight of NBC and UMS, with Marc Graboff -- who ran the units with Silverman -- now reporting to him.

"A rocky two-year tenure" is a generous description of what's happened to NBC in the past two years.

From Jeff Gaspin is a change of pace: New NBC Uni TV chief brings buttoned-down efficiency:

Quote:

With the surprise selection of Jeff Gaspin to add oversight of NBC Universal's broadcast business to the cable division, CEO Jeff Zucker is elevating an executive who might be the antithesis of outgoing programming chief Ben Silverman. If Silverman is the brash showman with little to show off, the buttoned-down Gaspin prefers to let the revenue generated by NBC Uni's booming cable business speak for itself. In the second quarter recently reported by General Electric, Gaspin's cable division defied the downward trend dragging down NBC Uni by posting a 7% year-over-year increase in operating profit compared with 2008, to $595 million.

"Surprise selection?" Only in Hollywood would someone think that making money in an economic downturn is a surprising criteria to use to pick someone to replace a loser. While President/CEO of NBC Universal Jeff Zucker has supported Silverman's cost cutting, profit-centered moves such as vertical integration, from MediaPost here's his comment about putting Gaspin in charge:

Quote:

"Jeff Gaspin is an extraordinary media professional who has had an incredible record of success in his 25 years in the business. He's a strong creative executive who also has the business acumen necessary to succeed in today's media environment. This new structure helps us align all of our television entertainment assets under one veteran executive at a time when continued innovation is essential."

The big question is: "Can Gaspin bail out NBC?" Will he continue the network's slow march to become become only or mostly news, sports, and televaudeville as I predicted in November 2007? Or will he ultimately solidify the two-hour prime-time model that is the standard on cable, leaving the 10:00 pm slot to "Leno" or if that doesn't work to the locals?

It's been my opinion for some time now that Zucker's NBCU is the future of TV meaning:

• A variety of cable channels under one roof as NBCU cable channels include, among others, Bravo, Universal HD, Chiller, CNBC, MSNBC, Syfy (formerly SciFi), Telemundo, Sleuth, and USA. NBCU is 25% owner of the A&E television networks which includes, among others, the cable channels A&E, History Channel, and the Biography Channel.
• A strong web presence in the form of Hulu and each channel's own web site.
• A broadcast network structure that places a greater burden on the local broadcast station in the hinterlands to find programming while the NBC owned large market broadcast stations produce and sell to local advertisers local-interest programming.

Regarding the competition, it appears that CBS will focus on retaining its top position in the broadcast network business with the most viewers.

News Corp with Fox focused on the two hour primetime will now compete with NBC and The CW for that "18-49 demo" which is a declining audience. And News Corp was a co-founder of Hulu and has a prime time cable presence with FX. It's as if these two competitors are focused on the same model.

Disney with ABC, still in the three hour primetime model, will compete with CBS for total viewers though one has to wonder if they are dividing their audience into some kind of family model - Disney Channel viewers (kids, mostly), ABC Family (pre-teens and teens, mostly which competes with The CW), and ABC (family oriented adults). Disney does have a strong online presence.

"Torchwood: Children of Earth" - a modern morality tale

"That's what Torchwood does, you see: it ruins your life," Gwen Cooper emphatically states towards the end of "Torchwood: Children of Earth" and indeed the story line is that disturbing. In fact, it should be regarded as a politically charged, not very subtle anti-establishment piece. But first, a momentary side discussion.

"We've got great reaction from viewers on our HD service," channel publicity VP Amy Mulcair said on the second day of the highly promoted HD introduction week. "Everyone's very keen to see it and we're very keen for them to see it. And we're glad to say there are a number of deals that will be announced imminently."

"Imminently" isn't in time for the much ballyhooed launch featuring "Torchwood: Children of Earth" which, along with the other scifi programming this week, was not carried in HD on a single cable or satellite system.

But not having "Torchwood: Children of Earth" in HD did not keep the miniseries from being one of the best shows offered by any channel this Summer. Picking up from its moderately successful second season which ended with the death of two of the five principal characters, it was the number one show for five nights running in the UK with the first episode of the third series was watched by 5.9 million viewers and the last by 5.8 million - the average audience for series two ranged between 2.5 and 4.2 million. It will be interesting to see if BBCA pulled in over 3 million.

Fans of the series at once are crushed by the death of the popular character Ianto and the dark turn taken by the primary "Dr. Who" type character Captain Jack Harkness in, as noted above, an unusually dark story line.

For me the crux of the story relates to the belief by an alien species that humans are, in fact and with a great deal of irony, "inhuman" meaning "lacking qualities of sympathy, pity, warmth, compassion, or the like; cruel; brutal" particularly in regard to our own species. The aliens, called 456, want 10% of the Earth's children. When an objection is raised by Captain Jack the 456 response is “but you’re letting children die every day; why would you mind this?” They offer statistics we all know but don't care about. Over 25,000 children die every day around the world. That is equivalent to:

• 1 child dying every 3.5 seconds
• 17-18 children dying every minute
• Over 9 million children dying every year
• Some 70 million children dying between 2000 and 2007

Our children (the alien assumes "our" because we are a single species) die of hunger, easily preventable diseases and illnesses, and other poverty related causes. In spite of the scale of this ongoing catastrophe, humanity does nothing to solve a problem that could be solved.

Given this inhuman nature of our species, an alien species that appears to be able to kill us all, merely wants 10% of our children. We are presented a meeting of elected and appointed officials discussing criteria for selecting children based on their desirability, which concluded as such a meeting would that most would be chosen from the poor all for the good of society as a whole.

This shouldn't be too disturbing because the Nazi's in fact did hold the Wannsee Conference to establish criteria for the processes of the "final solution" and in fact most of the foot soldiers in most armies around the world who are sent to kill and die for the good of their nation are mostly the poor.

It would seem so logical to an alien observing humanity over time that we could select 10% of our children to give to aliens for the good of the remainder of humanity. Day in and day out as a species the richest societies buy iPods while far more than 10% of human young die from preventable causes.

In Britain the one frequent fan criticism of the show is that somehow the writers were trying to write a Shakespearean tragedy. Personally, I thought it was more akin to the tragedies of the ancient Greek myths. But regardless, it was a story of that level.

Yes, like all such TV scifi presentations to a degree you have to suspend disbelief (what, unlike everything else on TV???). And yes, you can always find something that has been done before with similarities, even as far back an ancient Greek myths.

But like those myths, it was a modern morality tale with it's flawed hero. Well done!

"Mental" on Fox - Tight Writing, Good Storyline, Good Cast. What's Not to Like?

I was surprised, no shocked, that I liked this show because almost every critic (with few exceptions) gave a big thumbs down. Based on those reviews, I expected it to be "House lite". As far as I'm concerned, nothing could be further from the truth.

Yes, it's on Fox. So is "Dollhouse" and it even has "house" in its name, but it's not "House." Yes, the star of "Mental" is a Brit. But he doesn't hide his accent. Maybe that should have been the first clue to considering the show on its own merits.

Here's the plot summary of the pilot:

Dr. Jack Gallagher (Chris Vance, "Prison Break" 2007-8 season), Psychiatrist, spends his first day as Director of Psychiatric Services at Los Angeles' Wharton Memorial Hospital trying to win over his colleagues and his boss Nora Skoff (Annabella Sciorra).

Because he's a psychiatrist he's a doctor, but like House? Marcus Welby, MD was a doctor. He wasn't like House. And neither is the principle character in "Mental".

Dr. Jack Gallagher first appears in the show in the Hospital Lobby where everyone else is waiting for some cops to take down a patient in a psychotic break with schizophrenia, played by Silas Weir Mitchell who plays psychotic so well, and who has taken off his clothes to prove he's a human to everyone else who he sees as non-human reptilians. After observing for a few seconds, Gallagher strips and tells him he's human too.

So he's relating sympathetically to patients. He's trying to win over his colleagues. That's definitely not Gregory House, M.D.

It is about psychiatry and psychotic patients (not neurotic people). It's tightly written and has some potentially interesting characters. It should be a stimulating show. If the first episode is any indication it will provide a serious look at mental illness and treatment options. It's not House but it could be just as interesting. It's weekly subjects likely will have more in common with the "ER" episodes with the Sally Field character who is bipolar.

It's a Summer show so it probably won't be canceled after the third episode. If it might appeal to you, give it shot.

Hulu.com - Now Home of the Big 3

In the original six part series posted here November 12, 2007, the importance of the birth of Hulu.com parented by NBCU and Fox was described. Also noted in that series was the following:

Disney (ABC) CEO Bob Iger was called upon to defend the company's narrow online video distribution at a recent corporate event. After doing a song and dance defense, he described it as an interesting debate, explaining that the original idea of amassing most of the video on ABC.com was to promote the shows, use the site to upsell and "it also became a pretty good platform for advertisers."

He added: "We're going to take a pretty expansive view. .. We're going to be on more places than iTunes, ABC.com and AOL."

This week we've learned that Disney/ABC has become a partner in Hulu.com. I'm hoping this current HULU business model of free access with advertising support works out. But no one should be under no illusion that the free access model is the long term plan.

(For discussion purposes below, my use of the ubiquitous "they" means the large media, cable, and media+cable conglomerates. And I don't mean to imply a "conspiracy against the viewing public" but more a "joint effort to find a corporate economic model in which the existing few can thrive.")

The current HULU system isn't the model under discussion as the long term plan in the media, cable and advertising industry trade press. Apparently the cable companies want access to current programming on media company sites restricted to cable and satellite TV subscribers with some sort of "restricted membership access" model.

They would prefer an IPTV model using Tru2way enabled boxes. The ideal in their mind would be to allow access to "current program" streaming based on your package, so if your cable/satellite package doesn't give you access to the FX channel you can't stream an FX program shown in the past two years.

But they appear to have decided to settle for:

1. access restricted to "cable channel" subscribers through any cable or satellite system; and
2. allowing a PPV internet streaming system while offering "a better way" using set top boxes that recognize the viewer's programming package.

The media companies are sympathetic to the cable companies because at this point the advertising revenue doesn't support the basic on line operation of a site like Hulu.com, much less provide a revenue stream to help pay for the programming and generate a profit.

They envision some type of PPV revenue model for "current TV" and "newer movie" content based on streaming activities, such as 29¢ per episode stream or $1.59 per movie stream with limited advertising, perhaps offering an ad free alternative for an extra $1 per stream or annual subscription.

Content is being aggregated through the media-company-jointly-owned Hulu.com for three of the four major TV broadcast networks, their sister cable channels, and their sister media production and distribution companies (which represents a huge chunk of the media industry). CBS bought TV.com and is restructuring it to accomplish the same purpose as Hulu where, I would guess, we'll see CBS and Viacom content offered, ultimately maybe with Time-Warner and/or Sony.

I have to credit both NBCU (GE) and Fox (News Corp) for moving rapidly to creat an effective web site and experimenting with different outlet approaches. They're in a position to adapt to the economic needs of the cable/telcom-TV/ISP giants, while cleverly threading their way through the regulatory minefield. They haven't tripped and probably will avoid tripping any FCC/SEC/Justice Department mines by licensing content to Apple (which already has a fee structure), the new Google-owned YouTube media site, and Amazon's streaming system as well as the cable-owned web sites like Fancast.

In 2011 as the economic model becomes clearer, they'll make concessions to labor on residuals from internet content revenues. They don't want a protracted labor dispute which could raise antitrust issues.

The ultimate goal is to end up with as few originating sources for PPV video streaming as possible for media-conglomerate-owned content. Then, they'll launch a major attack on the video file-sharing pirates. Beginning in 2012, BitTorrent users may find themselves in a seriously troubling environment.