The aim of the cost-cutting initiative is to direct more of the company's resources toward high-growth areas such as digital operations, which are expected to reel in $200 million by the end of the year, and Hispanic media.
Cost of scripted dramas
NBC Universal TV Group CEO Jeff Zucker told the Wall Street Journal today that advertiser interest had not been high enough to justify the continued level of spending by the network to create scripted shows. Advertising Age's pricing chart illustrates NBC's problem. The Tuesday 8 p.m. drama "Friday Night Lights" reportedly costs the network more than $2 million an episode and commands $116,000 for a 30-second ad, while the game show "Deal or No Deal" costs the network half as much to produce but brings in $141,000 per spot.
"Advertising investment is a reflection of audience interest, so if NBC is able to aggregate an audience to the same degree with 'Deal or No Deal' or reality shows, it needn't negatively affect the network," said John Rash, senior VP-director of media negotiations at Campbell Mithun, Minneapolis. "But 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."
Steve Sternberg, exec VP-audience analysis, Magna Global thinks concentrating on game shows and reality shows in that hour could work for NBC. "Here is why that could be positive. We've done research with Nielsen data and 80% of homes have one set during prime time. Families want to watch TV together and too often they can't because there's a lot of kids around. Reality shows have become the new family programming." He cited research that shows 10 of the top 15 shows popular with children, teens and adults are reality series.
No longer commands a premium
NBC has faced a tough ad climate this year and struggled in the upfront ad sales period, despite broad support for its new programming. The network has historically commanded a premium for the 18- to 49-year-old demographic, but as its ratings position has eroded, it has had to roll back pricing. NBC brought in around $1.9 billion in ad commitments during this year's upfront market, of which advertisers committed around $500 million to the network's National Football League coverage. (Sports programming isn't typically included in the upfront entertainment tallies.) In 2004, NBC's upfront netted $2.9 billion.
NBC Universal also had a tough third quarter, reporting a profit drop of 10% from the same period last year, reflecting the difficult ad-sales climate.
Part of the "NBCU 2.0" plan also involves NBC Universal looking to develop "alternative advertising metrics." The network was the first to have negotiated upfront deals using agreed upon engagement metrics rather than relying simply on ratings performance.
The cost cutting follows a period of heavy investment across NBC Universal. In May, NBC Universal agreed to pay around $600 million for web community iVillage. In 2005, NBC Universal agreed to pay the NFL $600 million annually for its "Sunday Night Football" franchise. The network also pays around $600 million for the Olympic Games, which are likely to be expensive to cover from Beijing in 2008.
Thriving news operation, but ...
While NBC's news operation thrives, with the "Today" morning show and "NBC Evening News With Brian Williams" retaining their respective No. 1 positions, NBC's cost-saving plan centers on the news division. MSNBC's headquarters in Secaucus, N.J., will be shuttered and employees will move to NBC headquarters at 30 Rockefeller Center and to CNBC's offices in Englewood, N.J. The company is also beginning reviews at NBC News bureaus in the U.S. and overseas. Part of NBC Universal's plan is to reinvest savings in other areas. For instance, CNBC.com brings visitors to a dull-looking msn.money.com website, so there are plans to convert CNBC.com to a paid subscription service, which could be unveiled by the end of the year.
The extent of the realignment looks to leave behind the traditional network model -- which relies on aggregating big audiences in order to charge high ad rates -- in favor of exploiting NBC content across numerous new-media platforms.
According to a company statement released this morning, "The TV Group will maximize its ability to generate revenues across all platforms -- including new digital distribution outlets -- through a business strategy that reduces NBCU's dependence on traditional content distribution methods and advertising models. This includes bringing content to consumers sooner on a variety of platforms."
Mr. Zucker will conduct a town hall meeting with staff today to detail the changes.