NBC, CBS Have Conflicting Visions of Broadcast Future

NBC Stakes Its Bets on Cable, While CBS Doesn't Budge From Mass Model

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NEW YORK (AdAge.com) -- You'd think the nation's two oldest broadcast TV networks would agree where the future of the industry lies. You'd be wrong.

NBC and CBS are at odds about how best to proceed at a time when the future of the business is under serious assault. Is the future of broadcast TV generating big audiences from early morning to late at night? Or is it picking the right spots, focusing instead on syndicating big-ticket programming -- the Olympics or a favorite crime procedural -- across a multitude of screens in exchange for advertising and other revenue?

"When I look at the two networks, they are definitely on the opposite ends of the spectrum," said Wachovia Capital Markets media analyst Marci Ryvicker.

NBC has made moves in recent months that some consider shocking. Next season, it's taking five hours of air time in its coming fall schedule that would normally have been reserved for scripted programs and devoting them instead to a cheaper-to-produce comedy/talk show featuring comedian Jay Leno. Jeff Zucker, NBC Universal president-CEO, continues to play up the importance of his company's broader cable assets, warning that the broadcast medium faces wrenching technological change. Radical shifts in business practices are essential, he has suggested. "The only sure way to declare defeat is to say, 'I'm going to keep doing it the same old way,'" Mr. Zucker said in March.

CBS, for its part, continues to insist that shows that generate big ratings are the only thing that will help broadcast TV maintain its edge over dozens of cable channels, digital-entertainment options and social-networking alternatives that attract smaller, enthusiastic niches. And it has backed up that talk with ratings increases in several important categories during the recently completed TV season. "There's a big difference between the model being broken and not being able to find any hit shows for years," said Leslie Moonves, president-CEO of CBS Corp., during CBS's upfront presentation to advertisers.

Branching out
From NBC's point of view, CBS wouldn't talk so loud if it had a different set of media properties -- such as basic cable networks -- to play with. Meanwhile, NBC feels it's taking proactive steps and keeping costs in line as consumer habits shift with technology. "We absolutely believe in the future of broadcast TV," NBC Universal said in a statement. "But to be truly successful we need to take into account the contemporary media environment and all the different ways viewers today are watching TV."

From CBS's perspective, NBC's recent maneuvers result partly from its inability to muster the kind of ratings it did when it ran fare such as "E.R.," "Seinfeld," "Friends" and "Frasier." Meanwhile, CBS sees a solid business in producing, promoting and distributing programs that bring broad crowds under a single media tent. "CBS's programming strategy is based in the assumption that ratings and popularity with our many audiences ultimately produces the best revenue and profit," the network said in a statement. "We believe that the future of any business is dependent on its popularity with the various customers it serves, along with a fundamental belief in the business itself. Both in the short term and the long term, we think that operating strategy will prevail."

The two companies' reactions to current market forces are partly driven by their mixes of assets and by the personalities of their chief executives. NBC is less dependent on broadcast and can enjoy the dual revenue stream -- advertising and subscriptions -- that comes with owning cable outlets such as USA and Bravo. And Mr. Zucker has developed a reputation over the years for tweaking established models. This is the man, after all, who in 2001 talked up a decision to extend "Friends" to 40 minutes in an effort to combat CBS's "Survivor" on Thursday nights.

CBS depends on its broad-reaching TV network not only to generate revenue from advertising but also to garner enough attention for its shows so they move on to reap rewards in domestic and international syndication. Mr. Moonves is renowned as one of the most talented programmers in the TV business. Not only did he help launch "E.R." while at Warner Bros., he has helped take CBS from shows for the Metamucil set ("Murder, She Wrote," anyone?) to reliably performing procedurals.

By two traditional measures, CBS has edged out its rival. It's no secret that NBC has seen ratings drop in recent years, while CBS broadened in several categories in the just-finished season. Ad revenue has increased or ebbed accordingly. In 2004, the NBC network captured more than $6.96 billion, while CBS took in about $6.12 billion, according to TNS Media Intelligence. In 2008, the positions have reversed: CBS captured about $6.3 billion, while NBC took in about $5.4 billion.

Spreading thinner
The question is whether the networks can keep even this amount of ad spending as audiences -- and the ad dollars that chase them -- fragment across iPods and mobile phones, video games and video on demand, gas-station screens and DVDs.

"We remain worried about broadcast's ability to sustain [premium ad prices] across all their dayparts, just given the narrowing of reach between broadcast and cable," said Michael Nathanson, a media analyst at Sanford C. Bernstein.

Soothsayers project two different scenarios. In one, networks -- who see more opportunity in distributing programs through digital means -- break away from the local stations that have helped promote their comedies, dramas and specials for decades. Stations can use digital cable and other venues to drill down and play on local topics and subjects. "There will still be an audience for quality programming that a network should be creating and serving up," said Tim Hanlon, exec VP-managing director at Publicis Groupe's VivaKi Ventures, which searches out emerging marketing and media entities. "But I don't think you're going to see the stations take the entire slate of stuff in total."

With that in mind, he said, networks might get out of certain dayparts, such as early-afternoon soap operas, early-evening newscasts or even prime-time dramas. They could experiment with more "stripped" fare along the lines of NBC's "Leno" program. With Mr. Zucker's flair for tweaking legacy operations, NBC may eke out an advantage.

Plethora of options
Others aren't convinced. The other vision of the future includes continued demand for big, broad audiences -- even if they are smaller than they were when the nation turned to just three national broadcast networks. "Anyone who can aggregate in this world will still have value," said Jamie Rizzo, a senior director at Fitch Ratings. He said consumers already have too many video options -- a glut of cable channels that has passed the saturation point among them. Consumers will still want free TV they can rely on for high-quality programs, he said, even if the living-room screen is hooked up to the web. "There is still value in these guys long term," he said, particularly as the many smaller audiences for other media impose restrictions on programming costs. "We don't want to watch cats flushing toilets or fat guys dancing around like Beyoncé or squirrels on water skis. You do want professional content."

In that scenario, Mr. Moonves and CBS have an edge, if you believe that traditional systems are tougher to exterminate.

Declaring a winner, however, could take a decade or more. DVRs, portable media devices and digital distribution are "creating a little bit of havoc, because [the networks] can't make everybody watch simultaneously anymore," said David Waterman, an Indiana University professor who studies media economics. But the money really only flows if the networks can bring the widest audiences possible. "That's fundamentally a valuable business model, and advertisers want that. They'll bid on it," he said.

Tale of the tape: CBS vs. NBC

Les Moonves
PRESIDENT-CEO: Leslie Moonves

ALSO OWNS: Showtime, half of the CW, CBS Outdoor, CBS Radio, Simon & Schuster and CBS Films, among other holdings

NETWORK AD REVENUE: CBS took in about $6.64 billion in 2008, according to TNS Media Intelligence.

RATINGS: As of June 14, live-plus-same-day ratings were up 7% in households, 3% among adults 18 to 49, 1% among adults 18 to 34 and 5% among adults 25 to 54, according to Wachovia Capital Markets analysis of Nielsen data.

BIG BET: Mass will still rule, and generate profit.

Jeff Zucker

ALSO OWNS: Bravo, USA, Sci-Fi, Oxygen, CNBC, MSNBC, Telemundo network and stations and Universal film studio, among other holdings; co-owner of the Weather Channel.

NETWORK AD REVENUE: NBC took in about $5.39 billion in 2008, according to TNS Media Intelligence.

RATINGS: As of June 14, live-plus-same-day ratings were down 8% in households, 4% among adults 18 to 49, 1% among adults 18 to 34 and 4% among adults 25 to 54, according to Wachovia Capital Markets analysis of Nielsen data.

BIG BET: Maintaining profitability as audiences fragment.

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