economics

January 17, 2010

NBC’s Slide From TV Heights to Troubled Punch Lines

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At its height, NBC was the very model of what a television network should be. With iconic programming, enviable ratings and spectacular business success, the peacock network delivered plenty of laughs along the way with “The Cosby Show,” “Seinfeld” and “Friends.”

Nobody is laughing anymore.

Today the network is in shambles, brought down not just by the challenges facing broadcast television — fragmenting audiences, an advertising downturn — but also by a series of executive missteps that have made its prime-time lineup a perennial loser and, most recently, turned its late night programming schedule into a media circus that threatens the lucrative “Tonight Show” franchise.

“We live in a society today that loves a soap opera,” Jeff Zucker, the chief executive of NBC Universal, said in an interview in his office at 30 Rockefeller Plaza in New York on Friday. “Three months ago it was David Letterman. Six weeks ago it was Tiger Woods’s problems. Today it’s NBC’s problems.”

And this is all happening as the company itself is in transition, waiting for regulators in Washington to approve a sale of NBC Universal from General Electric to Comcast, the nation’s largest cable operator. By the time G.E. finally decided to wash its hands of NBC late last year, the network ranked low on the list of those parts of the company most valuable to Comcast, which will swallow the network mainly so it can acquire the company’s money-making cable channels, like USA, Bravo, Syfy.

Indeed, even though NBC’s news division remains highly profitable, the network’s overall finances are crumbling — less than a decade ago, according to Bob Wright, the former chief executive of NBC Universal, the network generated over $1 billion in profit for its parent, G.E.

This year, mainly because of high costs associated with broadcasting next month’s Winter Olympics, the network is expected to lose more than $100 million, according to a person briefed on the network’s finances who insisted on anonymity. The company does not break out financial figures for the network. (In 2009, the network made a few hundred million dollars, and represented about 10 percent of NBC Universal’s operating profit.)

All of the networks are dealing with economic pressures, but NBC’s competitors have proved more deft at managing the challenges and creating hits, even as their profits have declined.

How did things go so wrong at NBC?

The network’s long fall from grace, particularly in prime time, culminated over the last decade. But most recently it has been visible in the public squabble over moving Jay Leno’s talk show out of the 10 p.m. weeknight slot, where he has foundered in the ratings, and back to 11:35 p.m. The move will effectively end Conan O’Brien’s seven-month stint as host of “The Tonight Show,” as he is refusing to go along with a move to 12:05 a.m.

The controversy kicked off days of public recriminations, with just about every comic with a talk show taking swipes at NBC, Mr. Leno, Mr. Zucker and everything else on the menu.

“Now they have a situation that — I’ve never seen anything like it,” said Fred Silverman, the only person who has overseen programming at three networks — NBC, CBS and ABC. “The hosts are sniping at NBC, and at Zucker, and they both are mad at each other. It’s a corporate embarrassment.” He called the idea of moving Mr. Leno back to 11:35 p.m. a “Mickey Mouse scheme.”

A Bet Backfires

At NBC, it has been an unseemly spectacle for a company that prides itself on a smooth corporate culture, and the disastrous culmination of a high-stakes gamble last year by Mr. Zucker to move Mr. Leno to the 10 p.m. slot, passing “The Tonight Show” to the younger Mr. O’Brien and saving money that the network would have spent on scripted dramas at 10 p.m.

But the ratings sank, and affiliates that relied on 10 p.m. to lead in to the late local news rebelled. And Mr. O’Brien’s “Tonight Show” did poorly in his time slot, losing resoundingly to “Late Show With David Letterman” on CBS for the first time in 15 years.

“At the end of the day Jay at 10 o’clock didn’t work,” Mr. Zucker said, “and I take responsibility for that.”

Mr. Zucker said that it was during a phone call in the first week of January from Jeff Gaspin, NBC Universal’s head of entertainment, that he learned that the network’s affiliates were threatening to pre-empt the Leno show. “It was becoming tough to deal with,” Mr. Zucker said. “The pressure from the affiliate body was strong.”

Mr. Gaspin’s idea was to move Mr. O’Brien’s show to 12:05 a.m., and give Mr. Leno a half-hour show at 11:35 p.m. “That’s what he wanted to do, and I said, O.K., give it a shot,” Mr. Zucker said. The shot exploded in their faces.

In prime time, the story of the last decade has been NBC’s inability to create any big hits to replace those of its late-1990s glory years — especially “Seinfeld,” “Friends” and “E.R.” This period has coincided with the rise of Mr. Zucker, who in 2000 was promoted from executive producer of “Today” to entertainment chief for the entire network. Some of its recent shows, like “The Office” and “30 Rock,” are critical successes but garner only relatively small audiences.NBC’s prime-time schedule started to slip before Mr. Zucker took over, Mr. Silverman noted. “But what could have fixed it was not a lot of tricks,” said Mr. Silverman, mentioning some of Mr. Zucker’s moves, like expanding “Friends” to about 40 minutes. “What could have reduced the downward trend was a couple of hit shows.”

NBC’s financial and ratings slide has been overshadowed by the corporate universe in which it resides: the profit-generating capacity of its sister cable channels has allowed Mr. Zucker to claim success even as the network has floundered.

The latest late-night gyrations have only heightened the sense that the organization is careening. (Jon Stewart, on “The Daily Show,” recently remarked: “At least we don’t have to deal with Jeff Zucker. That guy’s like the Cheney of television, shooting shows in the face.”)

“I think part of why there’s been such a visceral reaction to this is we’ve talked about change and taking risks, and that’s something I’ve always been associated with,” Mr. Zucker said. “And not being afraid to take chances.”

At the end of the interview in Mr. Zucker’s office, Steve Capus, the head of NBC News, spoke up strongly on behalf of his boss, saying the news media had blown the late-night ordeal “out of proportion,” especially, he said, in light of more important stories like the tragedy in Haiti. “He is paying a price that is so out of whack with what is happening here,” he said.

A New Age

When David Sarnoff, the founder of NBC, then a part of the Radio Corporation of America, stood at the New York World’s Fair in 1939 in Flushing Meadows to introduce television to the world, he said: “It is with a feeling of humbleness that I come to this moment of announcing the birth in this country of a new art so important in its implications that it is bound to affect all society. It is an art which shines like a torch of hope in a troubled world. It is a creative force which we must learn to utilize for the benefit of all mankind.”

With that moment, Mr. Sarnoff ushered in not just a new communications form for the masses, but also the first broadcast network, NBC, which would become a cultural force in America. At that same World’s Fair, Americans got their first televised glimpses of a president, Franklin D. Roosevelt. Later that year, an NBC station broadcast major league baseball for the first time.

The RCA Building and its NBC Studios were the centerpiece of Rockefeller Center in New York, placing the network near the pinnacle of American corporate prestige and power.

Along the way, the network created cultural touchstones like the comedy-variety show, giving a platform to stars like Milton Berle, Dean Martin and Bob Hope. Its news division started the “Today” show in 1952 as the first early morning network news program. “Meet the Press” began in 1947 and is the longest-running program on TV.

For those growing up in the 1950s and 1960s, the three networks — NBC, ABC and CBS — were the driving forces of how they understood the world. “It was the type of place you aspired to be a part of,” said Tom Wolzein, who worked at NBC from 1976 to 1991 and is now a media consultant. “As a child of the ’60s, if you wanted to work in media, you aspired to NBC, or CBS.

“You had three choices. That was what defined the nation.”

During the 1980s and 1990s, the network produced numerous prime-time shows with cultural endurance — like “The Cosby Show,” which first appeared in 1984 and lifted the network out of a ratings downturn, and later sitcoms like “Seinfeld” and “Friends” and dramas like “E.R.”

Today, with prime-time lineups littered with cheaply produced reality fare — NBC’s highest-rated entertainment show in prime time these days is the weight loss program “The Biggest Loser” — many lament that networks no longer produce shows with enduring social value. “The Cosby Show,” for example, has been credited by many academics with altering racial attitudes with its portrayal of a happy, upper-middle-class black family. Some — like the former George W. Bush strategist Karl Rove — have gone so far as to say the show succeeded in changing racial stereotypes enough to make a Barack Obama candidacy possible.

These days, Mr. Cosby said in a telephone interview, the show would never make it on the air. “It would be rejected,” he said. “Any idea of it would be rejected.”

Even in the 1980s, he said, he faced skepticism about the future of sitcoms — not unlike today’s prevailing wisdom. “Sitcoms were dead,” he said. “That’s what the geniuses said at the time.”

An Industry’s Slide

The successes at NBC in the late 1980s and 1990s came at the beginning of a long slide in the fortunes of network television over all, as ratings sank with the advent of cable, as audiences fragmented as new entertainment choices like video games and the Internet proliferated, and as costs for scripted programming skyrocketed. In the 1952-53 season, more than 30 percent of American households watched NBC during prime time, according to Nielsen. Today that figure is roughly 5 percent.The network television model — attracting millions of dollars in advertising to support the high cost of scripted shows, which now run about $3 million an hour — appears broken. Cable networks, meanwhile, have flourished because they rely on two big revenue streams: advertising and subscriber fees from cable companie

The other major broadcast networks — CBS, ABC and Fox — have all seen their profits decline in recent years, as ratings have dropped. But none have fallen harder than NBC. CBS has thrived, in relative terms, with shows like the “CSI” franchise and “NCIS.” ABC has treaded water, while Fox has benefited from the lucrative run of “American Idol.”

To fix the prime-time woes, NBC, under Mr. Gaspin, plans to spend more on development. It has deals with producers like J. J. Abrams, Jerry Bruckheimer and Brian Grazer. It made 11 pilots last year and plans to increase that number to 20 this year. “I’m not trying to reinvent right now,” Mr. Gaspin said. “I’m really going back to basics.”

NBC hitched its future to cable with the 2004 deal to merge with Vivendi Universal Entertainment — which also gave NBC a big movie studio. That deal was engineered by Mr. Wright. After taking over as president in 1986, he almost immediately began plotting how to tie NBC’s fortunes to the then-emerging medium of cable television.

In one of his first meetings with division presidents, he asked the group, according to someone who was there, “What would happen if we put the network on cable?” People at the table looked dumbfounded. “People were deriding CNN, saying it wouldn’t make it,” this person said.

Mr. Wright, in an interview, said: “I’m very happy with NBC Universal, with the cable channels. That’s my creation as much as anyone else’s.”

After G.E. bought NBC, the network entered a period of both ratings and financial success, and a time of expansion, internationally and into cable. “It was a time of diversifying NBC, because when G.E. took over it was a network and five stations,” said Tom Rogers, the chief executive of TiVo, who worked at NBC from 1986 to 1999, where he oversaw the company’s cable businesses.

Mr. Wright added, “I’m very disappointed that they are losing Conan, who is very talented. To get squeezed out like that is very tough. They could have done it another way.”

The problems in late night have once again raised questions in Hollywood about Mr. Zucker’s tenure.

Once the deal with Comcast closes, Mr. Zucker is to report to Stephen B. Burke, the former Disney and ABC executive who is president of Comcast. During the deal talks last year, Mr. Zucker signed a three-year contract extension, but rumors have swirled that he could leave after the deal closes. (Mr. Zucker declined to comment on his future. He said he called Mr. Burke before the late-night shuffle to notify him.) Comcast has declined to speak publicly about the latest problems at NBC.

Mr. Wright, who stepped down as chief executive of NBC Universal in 2007, says he has watched his former company’s fate with sadness.

“The issue of the notoriety, with the sale, and the collapse, it makes me feel terrible,” he said. “These cards are playing themselves now. The way out is the sale to Comcast.”

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