Tuesday, April 14, 2009

NBC's Degenerative Disease

"Yes, that ad supported NBC channel you watch now may degenerate into only news, sports, and televaudeville." - The Lost Scripts, November 12, 2007
When I wrote the statement above, it was clear to me that Jeff Zucker, President & CEO of NBC Universal, had plans. They were a bit fuzzy at the time, but the hints were there. Much has come into focus since then. But then in March at the Media Summit conference Zucker said: "We are, first and foremost, a cable network company." GE's CEO Jeff Immelt discussed the situation in the GE 2008 Annual Report:
NBC UNIVERSAL earned about $3 billion last year. It’s likely to be down in 2009, as we expect the network environment to be particularly tough. But cable, more than 60% of our earnings, is going to continue to be a source of strength, building on its ratings success in 2008. Our movie business has already invested in new films for next year, which will also support DVD sales. Our strengths are good content, a strong cable focus, and international distribution. Jeff Zucker and his team have done a great job in repositioning NBC Universal to win in the rapidly changing media landscape.
If basically you are a broadcast network viewer, you should be aware that GE's CEO essentially dismissed its broadcast TV subsidiary NBC and embraced cable. 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.

You need to be aware that NBCU owns a strong, competitive general programming cable network - USA. It's had great success with scripted shows. Recent original scripted shows have included: The 4400, Burn Notice, The Dead Zone, In Plain Sight, Monk, Psych, The Starter Wife. Some of these shows, indicated in red, were/are produced wholly or in part by an NBCU subsidiary.

NBCU's apparent business model is "balanced vertical integration" meaning it has some control over it's products from the raw materials to delivery to the customer.1 (Technically, cable and satellite TV companies "retail" the USA and Syfy channels to the public. But, in fact, those channels directly sell the product to advertisers and to the cable companies. They then fund their own marketing to attract and retain viewers.)

So will the broadcast arm of NBCU - NBC - really become only or mostly news, sports, and televaudeville as I predicted in November 2007?

Consider what NBC is doing. They have dedicated the 10:00 pm slot to a new Jay Leno show. Co-chairman of NBC Entertainment and Universal Media Studios Ben Silverman says it will be far more of a comedy show than The Tonight Show. Mike Pilot, president of ad sales for NBC has indicated that the new show will offer more opportunities for live commercials.

Having abandoned the traditional "upfront" ad sales system, NBC will hold an “in front,” apparently on May 4, when it will simply announce its fall prime time lineup two weeks before the other networks’ upfronts. According to reports, NBC will hold a comedy showcase on May 19, in the middle of upfront week and on the same day of ABC’s upfront presentation. The event will feature Jay Leno with comedy performers from NBC, including Conan O’Brien and Jimmy Fallon. It will be invitation only for advertisers and executives from NBC affiliated stations.

Theoretically, NBC has 14 hours of Sunday through Friday prime time left to fill this fall (17 hours if you count Saturday, but who does?). After it became apparent that under Ben Silverman tenure as head of programming the network's ratings crashed, in January 2009 Zucker brought in Angela Bromstad to be NBC's chief programmer of dramas and comedies. She is the one who moved Kings to Sunday and bought to make room for Southland. According to a Los Angeles Times article about Bromstad returning:
Kings which costs about $3 million an episode to produce, had been championed by Bromstad's predecessors. But Bromstad had doubts that a drama about a modern-day king who struggles with moral dilemmas and family conflicts would work on network television.

...Also on Bromstad's to-do list is the task of regaining the trust of Hollywood agents and producers who have been alienated by NBC's puzzling proclamations, such as when Silverman said he was "managing for margins," not chasing shows that would generate big ratings.
Returning to my 2007 premise, with Leno NBC has reallocated one-third of it's week day prime time (5 hours) to "televaudeville." And when a show like Kings tanks in the ratings, NBC hauls in Dateline, a news show, to fill the void. In fact, Dateline covers 4 hours of prime-time programming this week.

The only thing standing in the way of NBC stations becoming all news, sports, and televaudeville is Angela Bromstad. Bromstad has a tough job. GE's NBCU star net profit producing TV subsidiaries are the cable channels, not NBC. And GE likes net profit.

Which brings me to the remaining consideration, the local broadcast station. NBCU owns 10 local broadcast stations serving 26.6% of the "TV Homes" in the United States. Those stations serve the metropolitan areas of New York, Los Angeles, Chicago, Philadelphia, Dallas-Ft. Worth, San Francisco-Oakland-San Jose, Washington DC, Miami-Ft. Lauderdale, San Diego, and Hartford-New Haven. The more money these stations make, the more money NBCU makes.

It is likely that four issues will enter into the consideration for future programming decisions. First, how will programming proposals affect NBC's profit. Second, how will programming proposals affect the profit from those 10 broadcast stations. Third, how will programming proposals affect the public reputation of GE. Fourth, and last, how will programming proposals affect the welfare of the broadcast stations owned by others.

For instance, the preferences of viewers in Cedar Rapids and Dubuque, Iowa, representating 0.3% of TV Homes served by Quincy Newspapers-owned KWWL aren't likely to be considered in programming decisions.

And, in fact, the loyalty to the Quincy Newspaper folks will be very limited as even though they own six NBC affiliates in small markets, in those same markets they also own broadcast rights to at least one other network such as Fox and The CW. And in Wisconsin, they own five ABC affiliates.

Not in anyone's wildest dreams would the GE corporate structure cater to the Quincy Newspaper owners opinions instead of the NBC employee managed stations serving the New York, Los Angeles, Chicago, Philadelphia, Dallas-Ft. Worth, San Francisco Bay Area, Washington, DC, Miami-Ft. Lauderdale, San Diego, and Hartford/New Haven metropolitan areas.

Thus when the owner of the Boston NBC affiliate who owns the The CW affiliate in the same market and broadcast the new "This TV" network on a digital subchannel and who owns the Fox affiliate in Miami tried to rebel against the Leno commitment, NBC had virtually no qualms about threatening to pull its programming.

All future programming decisions are going to be determined mostly by what will earn the NBC owned stations in the large urban areas the most money consistent with what will earn NBC and it's production arms the most profit. Expensive scripted programming run at 10:00 pm returns poor profits for NBC and its owned stations. A Leno televaudeville show will be relatively cheap to produce, attract sufficient national advertising revenue direct to NBC, and attract high priced local advertising to the NBC-owned stations serving 26.6% of the "TV Homes" in the United States.

In raw numbers, the NBC stations will broadcast 4 fewer hours of scripted programming a week which represents a 40%+ drop over a year. In terms of the five principle national networks, it represents a 10%+ drop. Whether Leno will affect the ratings for ABC and CBS programming in those slots remains to be seen.

But if, as I suspect, it does produce greater profits for GE, that ad supported NBC channel you watch now may degenerate into only news, sports, and televaudeville. Those of us who prefer scripted programming will be forced to have more DVR's recording cable channel programming.

    1Consider the USA show In Plain Sight. It's production company is Universal Media Studios. It's season one DVD is from Universal Studios Home Entertainment. Then we come to Hulu.com, NBCU's major web presence shared with News Corp. The new season of In Plain Sight starts next Sunday. If you need to catch up a bit, you can watch the last five episodes of season one at Hulu or the USA web site.
     Vertical integration isn't always the case. USA's popular show
Burn Notice is produced by Fox Television Studios, a News Corp. subsidiary. In fact, if you poke around the web a bit you'll discover that some cross-pollination occurs between NBCU and News Corp. For instance, one of the production companies for the Fox Network's hit show House is an NBCU subsidiary. And you can watch the last five episodes on line at Hulu, the News Corp and NBCU owned web site.

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