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NBC U: More With Less

After cuts and layoffs, company aims to revive growth 10/20/2006 08:04:00 PM Eastern

NBC Universal executives are spinning their plan to restructure the media giant as a bold step toward the future, from the glossy title “NBC U 2.0” to the coast-to-coast “town-hall” meetings with employees. But the strategy is more precisely aimed at coping with—and avoiding repeat of—NBC U’s past mistakes.

The sweeping cuts come as NBC U prepares for a new digital world where its content will be sold over TVs, computers and cellphones. Says NBC U TV Group CEO Jeff Zucker, “It’s about anticipating the next five years.”

No company can cut its way to growth, but if new efficiencies can provide the financial flexibility to expand, NBC U can satisfy corporate parent General Electric, Wall Street and viewers.

As top executives touted their vision of the future, staffers were riveted on the immediate details implicit in NBC U Chairman Bob Wright’s command to chop costs by $750 million—an estimated 6.5%—mostly by eliminating 700 jobs. The reductions will be shouldered not so much by the struggling NBC entertainment division but by NBC U’s key profit center: news at its national broadcast and cable networks, and local owned-and-operated TV stations.

National news units—from MSNBC to Access Hollywood—will have less autonomy in covering news day to day, increasingly sharing crews and trucks. Stations face similar centralization, with some combining news and other technical functions with others in the same city or even nearby states.

In an admission of its failure in early primetime, NBC said it is excising almost all sitcoms and dramas from the 8 p.m. hour—nearly a third of its weekly schedule. It’s a signal to TV agents and hot creators that they should shop projects elsewhere, to the delight of rival networks.

Largely untouched, however, are NBC’s entertainment cable units—USA Network, Sci Fi Channel and Bravo—where the company has been clamping down on expenses but is not seeking substantial layoffs.

The cuts are aimed at bolstering NBC U’s battered profits, which have suffered under the core NBC broadcast network’s dramatic slide. In the years leading up to the 2004 finale of giant sitcom Friends, NBC executives never lined up a slate to take up the slack. The result: a plunge from the top of the Nielsen charts toward the bottom. The network’s primetime 18-49 ratings dropped more than 15% for two consecutive seasons. That, in turn, is crunching profits at the station group—the most important source of profits—which could no longer count on primetime sizzle to drive local news ratings.

NBC executives boast of a ratings turnaround in the new fall season, with its average adult 18-49 audience increasing a strong 8.9%. However, that growth is in part “easy comps,” or comparison with last season’s dismal ratings. Also, NBC paid dearly for those gains, agreeing to spend $600 million per year for National Football League games. At $10 million per hour of actual programming, football’s big ratings and ad sales do little to help NBC’s bottom line.

“Broadcasters have learned they must change because the money they’ve relied on is moving to other places,” says Jerry Gumbert, president of station consultant AR&D.

From a technical point of view, NBC has been quietly consolidating its operations for some time. The network, with a long history of investing in the latest technology for Olympics coverage and then applying it across the news and sports divisions, has created for its cable networks a centralized broadcast center in Englewood Cliffs, N.J., capable of distributing 64 program channels. As part of its shift to HDTV, NBC has also been gradually overhauling its 30 Rock headquarters to centralize editing and graphics operations and standardize other production technology.

Here’s how various divisions will be affected:

News

Cuts will be made across NBC’s news ventures—broadcast news, cable networks MSNBC and CNBC, stations, and Spanish-language network Telemundo—but details won’t be finalized for months. Although there will be some on-air layoffs, most cuts will be in backroom operations, especially jobs duplicated in several divisions, including satellite operations, graphics and booking.

“That’s the kind of backroom stuff that viewers have no idea what’s going on, and that’s the point,” says NBC News President Steve Capus. “This is all about reorganization and moving some resources around, reprioritizing that is allowing us to be smarter about how we spend our money.”

MSNBC employees will move out of the news network’s Secaucus, N.J., facility and be divided between business network CNBC’s Englewood Cliffs building and NBC News’ Rockefeller Center headquarters in Manhattan.

Reporters from all divisions will be urged to contribute to each other’s ventures. Business cable channel CNBC will not be absorbed into NBC News, as MSNBC is, but its reporters will begin working more for the broadcast division, for example. A long-form unit previously called “the Dateline Group” has been restructured to produce longer segments for newsmaagazine Dateline, MSNBC, CNBC and outside partners, including the Discovery Channel and A&E.

NBC will cut news staff by first seeing whether open positions really need to be filled and approaching “people of retirement age” and others with buyout options first, Capus says. New bureaus in Beijing, Beirut and Bangkok, as well as a new HD studio for the Today show, he says, are the type of investments the company will be able to afford as a result of cutting back in other places.

Says Capus, “This is an enormous opportunity to recreate the news division and its related entities.”

Stations

NBC U sees similar efficiencies at its station group, which comprises 10 NBC outlets, 15 Telemundo stations and one independent. Besides job cuts, restructuring plans call for more interplay between the network news division and stations and overhauling local news on Telemundo stations.

Company-wide job cuts are expected to impact all O&Os, although NBC would not comment on the number of positions being eliminated or specific markets. The Telemundo stations, acquired in 2002, are expected to be hardest hit.

In an effort to foster collaboration between the stations and NBC News, the company plans to consolidate its Los Angeles-area news facilities for the network, Telemundo, and local stations KNBC, Telemundo outlet KVEA and independent KWHY. Similar moves may happen in New York and Washington. On a much smaller scale, the network recently moved its small Dallas bureau into O&O KXAS. NBC is also evaluating operations at its affiliate news channel, the NBC News Channel, in North Carolina.

If a hurricane hits South Florida, for instance, all of the NBC News properties could take coverage from WTVJ Miami, rather than dispatching their own teams. Says NBC U Television Stations President Jay Ireland, “You won’t see a difference on the air, but it will be [different] behind the scenes.”

In one of the most radical moves, NBC is overhauling local news on its Telemundo stations. Within the next few months, it will roll out regionalized newscasts for outlets in all markets except New York, Los Angeles, Chicago and Miami.

Under the plan, a center in Dallas will provide national and international news in three live broadcasts tailored for 10 NBC-owned Telemundo stations in the various time zones. The newscasts will still maintain a local component, with reporters and meteorologists on-site contributing.

NBC has already been shaving expenses on daytime programming for the stations. Over the past several years, some stations gave up rights to the high-performing but expensive Dr. Phil and Judge Judy, which delivered big audiences into early-evening news. The moves have saved NBC stations on license fees but are hurting ratings in several major markets, including New York, Los Angeles and Philadelphia.

Primetime

The unusual move away from expensive sitcoms and dramas in the first hour of primetime, in favor of cheaper unscripted fare, may ease expenses, but at what cost? With drama budgets averaging around $3 million per episode—more for shows like high-priced ensemble series Studio 60—industry executives say NBC’s primetime budget has spun out of control. Only a few years ago, they note, network entertainment presidents were having difficulty getting budgets approved in the $2 million-per-episode range.

“The network television business remains very vibrant,” says Zucker (see box, p. 6), “but we all have to get a grip on our escalating production and marketing costs.”

Entertainment chief Kevin Reilly, who had finally built some momentum in primetime with promising rookies Heroes and 30 Rock, says he’ll look to reality for help. “Where traditionally we would do those last three to four comedy pilots,” he says, “now those funds will be diverted to reality, where frankly the batting average has been much higher and it is more feasible to experiment with digital interactive elements and advertising integration.”

NBC will still program some scripted shows at 8 p.m., notably The Office and My Name Is Earl on Thursdays, and Reilly says scripted fare may still be used to counter-program competing reality shows in the time slot down the road. Development-wise, the network will make roughly the same number of pilots as last year but will purchase more reality.

Producers of scripted hours say Zucker’s claims of diminished advertiser interest in the 8 p.m. hour are exaggerated, pointing to a long list of failed NBC programming in the hour.

Meanwhile, Fox and other networks have been able to break through with advertisers by programming younger-skewing fare, such as Prison Break. Moreover, two of the three rookie shows that performing decently—ABC’s Ugly Betty and CBS’ Jericho—are scripted shows programmed in the 8 p.m. hour.

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