Chaos Scenario Coming to Life? NBC Moves Mystify Madison Ave.

Cutting Costs for Programming While Ramping Up Digital Plans

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NEW YORK ( -- NBC's combo of TV budget cost-cutting and more dollars for digital, announced last week, rang Wall Street's bell and sounded like a watershed moment for the entire marketing world. But it left the mavens of Mad Ave. scratching their heads.
NBC Universal TV Group CEO Jeff Zucker
NBC Universal TV Group CEO Jeff Zucker Credit: NBC

Why? Well, the problem is this looks a lot like Bob Garfield's Chaos Scenario come to life. Mr. Garfield's theory is that one marketing and media model could break down before the next comes to life, and NBC's plans seemed to buyers to epitomize that. The network wants to cut costs on TV content, making it hard to stem its sliding sales, but is unlikely to be able to recoup that in a digital market that isn't yet bringing in big bucks for the nets.

Something had to give
Of course NBC had to do something. The writing seemed to be on the wall after the upfront, when it pulled in $1.9 billion, down from 2004's $2.9 billion. Or after the first few weeks of the season, when hopefuls such as "Studio 60" and "Friday Night Lights" struggled even as "Heroes" became the most-watched newcomer of the season. Or maybe after General Electric's third-quarter results earlier this month, when its NBC Universal unit's operating profit fell 10%.

Whenever the decision was made to lop off $750 million in operating expenses and ax 700 staff members, it had to hurt. It also had to be announced alongside some kind of signpost to a brighter beyond. It was: NBC Universal Chairman-CEO Bob Wright and NBC Universal TV Group CEO Jeff Zucker delivered the news as part of a plan to overhaul the organization for the digital long haul, dubbed NBCU 2.0.

Yet how exactly NBCU 2.0 will replace lost broadcast ad revenue is still to be determined. During the past two years, NBC's upfront ad-commitment revenue fell $1 billion, while digital revenue is not even projected to reach $1 billion until 2009. The network made much out of its "360 degree" digital offerings during the upfront, but many of its new-media ventures are still too new to be spinning off much cash. Many, such as's subscription site, still haven't launched. (Upfront commitments to digital properties were estimated at $250 million.)

The plan is to cut programming costs in the 8 p.m. time period by scheduling reality and game-show fare in place of high-cost dramas such as "Friday Night Lights," which has yet to catch fire. And the logic behind the cost-cutting seemed sound enough: same audience, less outlay to draw those eyeballs.

Can't ignore the audience
As Mr. Zucker told Advertising Age: "There's a big difference between a program that costs a million dollars and a one-hour, first-year drama that costs $2.7 million -- and the viewers are going to the one that costs a million bucks. You can't ignore that."

But that assumes the ad community will put the same value on that audience -- and continue to spend big with the network even if the programming appears to be cheaper fare. And to listen to them, that's going to be a hard sell.

"The PR strategy confused me. It makes it sound like they're doing programming on the cheap, and that could be negatively received by advertisers and viewers -- it's not the best way to position itself. You send the message to buyers that they should pay less for that programming because it's cheaper," said Kris Magel, senior VP-national broadcast account manager at Zenith Media, which counts Toyota, L'Oreal and Maybelline among its clients.

Campbell Mithun senior VP-director of media negotiations John Rash sees another problem with that strategy. "If they yield any scripted fare and are unable to begin their night with strong lead-ins at 8 p.m., it could affect subsequent hours," he said.

High-income households
NBC, however, is likely banking on the idea that advertisers prize high-income households, which are more often watching TV after 9 p.m. "It's more that people in the $75,000-income households are working late, and reality and game shows attract lower-income households," one high-level media consultant cited as being behind the rationale. NBC said as part of its strategy it will look to develop advertising metrics beyond simple ratings, which may highlight household income as well as engagement.

"This is not just about the networks," said this consultant. "Look at the level of investment that goes into new programming; look at the box office. The windows are collapsing. This is about shifting investment."

But even there, some questioned NBC's implied logic that digital content can be produced at such markedly lower costs than TV. In many media pundits' eyes, the content is the content and the channels just opportunities to monetize it.

"'The Office' is one of the most downloaded shows on iTunes; there is a revenue stream there. But the cuts in creative development, those are the things that you load up your iPod with," said Jeff Ratner, senior partner MindShare Interaction. "I understand the need for cheaper production and that reality and game shows are time-shift-proof, but quality content is going to be important for any of these environments. And if they stop being the arbiters of quality, the downside for the consumer, or the network, is that better-quality programming always takes time to build an audience."
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