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CBS Corp. surprised the industry last month by paying $500 million a year to re-capture rights to air National Football League games, more than double what NBC paid for American Football Conference rights under the old contract. Chairman-CEO Michael Jordan talked about that gamble, and the state of CBS today, during an interview with Advertising Age Media Editor Chuck Ross and Executive Editor Scott Donaton.

Advertising Age: You paid a big increase to get the NFL back. Advertisers are wondering if you're going to try to get them to foot the bill.

Mr. Jordan: These are big increases. Of course what we paid wasn't a big increase over what Fox paid four years ago. In 20/20 hindsight, if you look at our station group, we could probably have made money paying what Fox paid to take the NFL away from CBS last time.

Clearly, we look for incremental revenue. [There is] normal ad inflation for major events [such as] the NFL. More local programming and stronger local ad sales, especially in the markets that have AFC teams. That's the advantage we had, if there was an economic race, with having [stations in] seven AFC cities, and if Los Angeles gets a team it will be eight AFC cities.

AA: When networks make such a big investment in what is essentially a loss leader, what does that do to your economic model?

Mr. Jordan: Our view is that we will break even on this. How that happens also depends on how the league wants its money. CBS with the NFL on a break-even basis is much better off, long-term, in terms of our franchise than it is without it.

In the last two years, ever since Les [Moonves, president-CBS Entertainment] has been with us, we have changed our product lineup significantly, so there is nothing inherently older-skewing about our product, realistically. All the testing says it's equally preferred, especially with the 25-to-54 and 35-to-54 audiences, which are really our target. It's just that we're not getting those people to sample our programming because we're not reaching them. That's [one reason the NFL is] very important.

AA: When you mention ad inflation, what kind of percentages are you talking about?

Mr. Jordan: I think it was in line with what's happened in the NFL in recent years. I don't recall what specific numbers we put into our models but they were fairly conservative.

AA: Are you hoping the NFL will boost the overall ratings of CBS-owned TV stations?

Mr. Jordan: Yes. You can do incremental programming built around your [NFL] participation. The NFL is a good revenue driver as well. For example, in New York having a team will add to the reach and sampling capability of WCBS. That's why we're saying we'll come out OK.

AA: Some CBS executives have said privately that one way affiliates can help pay for the NFL is to give up some cash from local spots sold around the NFL. Will the affiliate body agree to this?

Mr. Jordan: The affiliate body has agreed to work with us in a partnership to help finance this. The details are still being worked out. It really depends on the individuals, and how they feel about their capabilities. There will be a significant contribution, and it will make a difference.

AA: CBS has been critical of Nielsen Media Research and supportive of Statistical Research Inc.'s SMART audience measurement experiment. Would you like to see SRI develop SMART into a national plan as a competitor to Nielsen?

Mr. Jordan: What we would really like to see is an effective service. We are very dissatisfied with Nielsen. It's a very profitable business, and soon going to be a stand-alone company. So I think they would be under even greater pressure with their shareholders if they keep pissing the networks off. Not because they don't give us the numbers that we would like to see, but because of significant executional issues. When you're a monopoly service, that's inexcusable, and that's a way to cease having a monopoly.

AA: In the last year, CBS has tried to convince marketers the network's older demographics are a valuable commodity. How successful do you think you've been?

Mr. Jordan: We've seen quite a bit of progress. Serious marketing people are beginning to recognize the dichotomy that exists in the system. . . . We're seeing real money put into the 35-to-64 age group. That's now a small percentage, but it's really growing.

You see the auto companies and the pharmaceutical companies and so forth are trying to focus against that core audience. It's just another step in the right direction in the effectiveness vs. efficiency debate.

Our advertisers are now recognizing that while they may not be buying anything but 25 to 54, if they look at our 25 to 54, we give them three times the 55-plus audience that anyone else does, and that's kind of a bonus. I think it will come.

AA: What are some of the hurdles slowing it down?

Mr. Jordan: It will be impeded a little bit by the media buying services that are in between the brand people and the media company itself. Their vested interest is really to retain very simple efficiency measures so that they can prove their worth to their clients, whether they're an in-house buying group or a third-party buying group.

AA: Long term, is the better strategy to convince Madison Avenue of the worth of your audience, or for CBS to reach a younger audience?

Mr. Jordan: You've got to do both. Clearly, if we want to get paid fully for our audience, I'll be long gone by the time that happens. So, one of our other goals is to gain in share of sellable demographics. We did that in 1997. We have to continue to do that. That's where the marketing platform of the NFL will help us a lot.

AA: Some Federal Communications Commission commissioners have said they may be interested in taking a closer look at consolidation of radio station ownership. The Justice Department continues to examine these deals, and some ad executives are concerned about it as well. Where are you with radio right now?

Mr. Jordan: If you can't make good money on a 40% market share [the Justice Department limit for one company's radio ownership in a market], you shouldn't be in business. The consolidation has in fact happened in radio for all intents and purposes. There may be a few more big deals, but not many.

AA: Now that CBS is a stand-alone company again, are you a takeover target?

Mr. Jordan: You tell me who can muster over $30 billion to come buy us, and I would be kind of surprised. To my knowledge, the only company with that kind of money is General Electric, but I don't think Jack [Welsh, GE chairman-CEO] is into that much good will.

AA: You don't think Bill Gates would be interested?

Mr. Jordan: That's not his business. His business is trying to find ways to get a proprietary, psychological advantage in something that everybody's got to buy.

AA: Where are we going with digital TV?

Mr. Jordan: Too soon to tell. In fact, we've got a long way to go before there are enough set-tops out there to worry about starting a separate business based on multiple broadcasts. I think the speculation about this has gotten way ahead of the reality of the industry.

AA: In cable you have two country music networks and the fledgling Eye on People. Would you like to expand more in cable?

Mr. Jordan: We would look at other ideas, though we have our plates full right now. The right formats, especially niche formats, have a lot of appeal.

AA: Do you have a drop-dead date for Eye on People, after which you would not move forward with it if it didn't reach certain goals?

Mr. Jordan: We had about 8 million subscribers at the end of last year. We want to have almost 20 million or better at the end of this year. We think it has potential.

The whole thing is that we know we'll get distribution over time. Can we get the audience that will allow us to generate ad revenue? That's really the question. We'll see.

AA: It's not clear what results the networks have gotten from their focus on branding. Does branding remain important for the networks going forward?

Mr. Jordan: It is for us. It's certainly not a big deal in selling time to advertising executives. It's more for audience recruitment. If you get reasonable sampling of a good program, you get relatively strong repeat rates in this industry. The repeat rates are probably the same as 15 to 20 years ago, but the sampling is so much lower because of all the choices. So branding as an aid to sampling your product by the consumer is very important.

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