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Synergy: Easy as ABC

Hit shows help turn disney around 10/07/2005 08:00:00 PM Eastern

Demoralized and dysfunctional, then-fourth-place ABC looked like a much different place 18 months ago when Anne Sweeney and Stephen McPherson entered the picture.

Former Disney CEO Michael Eisner had been stripped of his chairman’s title after a shareholder revolt. COO Bob Iger was taking heat for ABC’s fortunes. Both of the top Disney executives were micromanaging a network regime in which they apparently had little faith. Answers were hard to come by and apathy ruled.

Today, considering the dramatic turnarounds for ABC—now first in the coveted 18-49 demo—and Iger himself, the new CEO must surely be wondering if Disney truly is the most magical place on Earth.

When Anne Sweeney left her post as CEO of FX and took over the troubled Disney ABC Television Group in April 2004, she brought in a new team of executives who immediately went to work revitalizing its struggling TV assets and building on previous successes.

Sweeney quickly identified two pivotal elements—marketing and scheduling—that would turn a couple of shows that new ABC Entertainment President McPherson had developed while leading Disney’s Touchstone Television—Desperate Housewives and Lost—into the drivers that have made ABC the top network for viewers under age 50.

Early that May, B&C pressed Sweeney to pinpoint the primary reasons for ABC’s troubles. “Even when the shows were there, they didn’t know what to do,” she said, shaking her head. “They weren’t marketing them and they weren’t scheduling them.” People weren’t speaking to one another either, and top producers were heard complaining that no one seemed to care about their shows.

Sweeney came in and set up shop in a roomy 10th-floor corner office at ABC’s famed headquarters in Burbank. Her office is big enough to comfortably fit two giant, wall-mounted flat-screen TVs, including one used for her many bicoastal and international video conferences.

She started to apply her simple hands-off, big-picture management style, and many welcomed her results-oriented thinking. “There had been a tremendous upheaval here,” says Sweeney. “There was a lot of uncertainty about who this new team was, what they were going to be about and how the company would be managed,” she recalls. “My job was to let people know what my management philosophy was and to not just talk the talk, but walk the walk.”

Sweeney also strongly encouraged her staff to open up lines of communication. “I have a very low tolerance level for people who come in and say, 'Well, so and so didn’t tell me.’ Pick up the phone, send an e-mail. You’ve got enough tools in your office to get answers. So, I have found that the communication has generally been very strong, and I have seen a lot of communication between groups who previously hadn’t spoken to each other, between cable and broadcast.”

The Ideal Choice

Sweeney’s presence meant Iger could relax; he had faith that his trusted cable lieutenant could achieve the same success on the broadcast side that she had overseeing the Disney Channel and, later, Disney’s worldwide cable networks. And given McPherson’s track record of developing huge television hits, he was the ideal choice to serve as ABC entertainment president.

“Anne has succeeded in everything she’s been asked to manage at the company,” Iger says. “[Former Capital Cities/ABC head] Tom Murphy always taught me to bet on brains, and Anne is an excellent example of that. Experience is nice, but brains, energy and integrity come first, and Anne has all three.”

Iger’s confidence in her paid off. Just as he became Disney’s new CEO last week, ABC celebrated its first adults 18-49 win for the first two weeks of a season in more than a decade. Up 1.3 million viewers and 10% in the key demo from a year ago, ABC had five of the top-10 and three of the top-four series in week two, including the top-rated Housewives.

The prime time improvements extended beyond ABC’s growing sophomore hits. In fact, only a few trouble spots, including the returning comedies from 8-9 p.m. Tuesday, were apparent. A year ago, much of the schedule was a mess.

Promising Start

The worldwide broadcast, cable, satellite and production-distribution properties Iger handed to Sweeney were missing Disney’s two biggest TV moneymakers: ESPN and the broadcast stations (although she has some input over the sports empire as co-chairman of the all-encompassing Disney Media Networks).

So to boost ABC’s prime time ratings and financial performance, Sweeney went to McPherson, who had an impressive list of development credits as president of Disney’s Touchstone studio, including ABC’s midseason hit Grey’s Anatomy and the CBS crime franchise mothership, CSI. Sweeney turned to Mark Pedowitz, a company vet and trusted consigliere who still oversees business affairs for ABC’s entertainment group, to replace McPherson at Touchstone.

McPherson blew up ABC’s creative and strategic marketing strategies overnight, replacing them with the now widely imitated formula of promoting a few key shows with innovative marketing techniques. Housewives and Lost exploded out of the gate, and Touchstone’s Grey’s Anatomy took off midseason.

The resulting turnaround generated a 12% prime time rise in 18-49s last season, the most of any network, and provided ABC with a $600 million increase to $2.7 billion in the upfronts.

Analysts are optimistic that ABC’s sophomore hits will grow further this season, and there have been promising starts for its much-hyped newcomers, Commander In Chief at 9 p.m. Tuesdays and Invasion at 10 p.m. Wednesday.

Disney also has high DVD hopes for both shows, and if ratings keep up for Invasion, which appeals to young men, it could be an ancillary goldmine after Housewives and Lost.

McPherson credits the improvement to “a singular vision,” a talented executive team and consistency, which he noted are hallmarks of Les Moonves’ CBS and the late Brandon Tartikoff’s NBC.

“We had the good fortune of not only having the material, but we were able to get that focus together and get that machine moving in the right direction,” McPherson says from another 10th-floor corner office, closer to the ping-pong and foosball tables.

There are bumps ahead early in the new season, including Thursday nights, where ABC is trying to stay competitive with Alias and The Night Stalker. Alias is down compared to last year, when it ran behind Lost.

McPherson will also have to translate the prime time success to affiliates’ valuable late newscasts. While ABC shows growth in the traditionally weak 10 p.m. time period for the second straight season, it has been a slow build. The network is projected to see prime time revenue percentage gains this year and next of more than 11% and 14%, respectively. But ABC-owned stations are looking at gains of only 2% and 5%.

Another big challenge ahead for McPherson is how to create successful year-round programming on a competitive Monday night next season, with the longstanding and weakening ABC football franchise moving to corporate sibling ESPN.

Still, Morgan Stanley media analyst Richard Bilotti estimates that the strength of ABC will keep the company profitable. Broadcast division revenues, encompassing the ABC network, radio and TV stations, are expected to climb 9% for fiscal 2005 and 10% in 2006. Revenues should fall 8% in 2007 as Monday Night Football shifts to ESPN. But that’s a small drop for ABC, since Bilotti estimates the network loses $150 million-$200 million per year on football.

Sweeney, who launched Fox’s FX before moving to The Disney Channel in 1996, never took her eyes off cable during ABC’s turnaround. Her strategy with the Disney Channel (86.9 million homes), ABC Family (88.8 million), Toon Disney (50.5 million) and SOAPnet (43.5 million)—launching them into cable’s elite tier—has been paying dividends. In prime time, the four networks have grown this calendar year in viewers and the 18-49 demo, as well as in their respective demos.

Rather than launch new digital channels or acquire available channels like Hallmark, Sweeney is intent on pursuing internal growth with acquired and original programming.

Synergy is King

Where Disney holds equity stakes, Sweeney has seen improvements at Lifetime and A&E, while E! Networks—under former ABC Entertainment chief Ted Harbert—is reportedly contemplating a move toward scripted shows.

At Disney, synergy is king, and examples abound between broadcast and cable. SOAPnet runs same-day episodes of ABC daytime shows, and ABC Family has had marathons of ABC’s reality shows. Disney Channel shows run on ABC’s Saturday morning kids block.

Under a corporate mandate to create worldwide franchises with popular characters, those from Disney Channel have become internationally recognized brands.

With 24 Disney Channels worldwide reaching 147.8 million homes, its characters have universal appeal with preschoolers (2-5) and kids (6-14). Combined with Toon Disney, Playhouse Disney, Jetix Latin America and equity interest in Jetix Europe, Sweeney has boosted the number of kids channels under Disney Channel Worldwide 211% in five years, from 19 in 2000 to 59 today.

“Creating TV properties that can grow into franchises is key in the kids business,” Disney Channel Worldwide President Rich Ross says, pointing to the “explosive growth” of the channel’s That’s So Raven and the various product lines it has spurred.

Lizzie McGuire was a smash on Disney before spinning off into a feature film, books and platinum soundtracks. Raven has surpassed it in key demos as the channel’s most popular original series— becoming its first to make a fourth season and 100 episodes—and the franchise has played a large role in the cable group’s operating income and revenue increases.

Although the ad-free network is one of the top-five highest-rated basic cable networks, finishing first in prime with kids and tweens year to date, much of its rapid growth came from converting to basic from pay in the 1990s, and the rise of DBS.

As multi-channel penetration maxes out, Disney Channel’s growth rate could fall, too. Now pacing at a healthy 9%-10% per year, some analysts see growth dropping to half that by 2007.

Disney Channel is counting on franchises like Raven and Kim Possible, as well as international channels in Japan and India, to sustain future growth. Its huge programming library could also prove profitable as Disney adapts it for wireless, interactive television (ITV), VOD, consumer products and home video.

Under President Paul Lee, ABC Family has seen strong ratings growth with a combination of off-network acquisitions (the WB’s Smallville, Gilmore Girls and, recently, Everwood) and launched scripted originals this summer. Lee has renewed one of them, Wildfire, for a second season.

SOAPnet, run by Senior VP/General Manager Deborah Blackwell, grew 11% in distribution last year to 43.5 million homes and climbed 12% in women 18-49 in the third quarter, to an average 126,000 in prime. While profits are up for ABC and ABC Family, some analysts think the cable network will need to work hard to keep its margins operating at its current 30%-40% over the next few years.

Disney appears optimistic it can, based on ratings growth at ABC Family this year; a 16% increase in upfront revenue; a robust ad market; and successes on the original programming front, including more development. If Sweeney has delivered the success Iger sought, can she top her own record? “It is not enough … that our shows do well on our networks in the U.S.,” she says. “The company has been a global business for a very long time.”

Additional reporting by John M. Higgins

The Magic Kingdom
A look at growth in Disney’s broadcast and cable divisions
Fiscal Year Ended September 2004 2005E 2006E 2007E
Source: Morgan Stanley media analyst Richard Bilotti
*$ in millions except per data
ABC NETWORK
Network Revenue* 3,513.5 3,911.4 4,488.1 3,920.1
EBITDA -222.2 46.9 188.5 359.8
ABC STATIONS
Station Revenue 994.3 1,019.2 1,070.1 1,102.2
EBITDA 463.9 467.5 496.4 505.6
ESPN1
Total Revenue 3,576.2 4,031.0 4,395.4 4,757.8
EBITDA 1,423.2 1,709.6 1,857.9 1,690.7
OTHER ESPN
Total Revenue 1,248.4 1,337.6 1,425.9 1,517.2
EBITDA 235.2 246.3 275.5 304.1
DISNEY CHANNEL
Total Revenue 976.7 1,071.7 1,158.1 1,224.3
EBITDA 233.3 259.7 282.7 295.2
ABC FAMILY
Total Revenue 269.2 300.9 324.5 343.9
EBITDA 24.9 36.9 52.8 68.1

Steve McPherson, President, ABC Entertainment

Overseeing programming, development, late night, marketing and scheduling since April 2004, McPherson is exceeding expectations. As president of Touchstone TV for three previous years, he’s developed ABC’s three biggest hits and the CBS franchise starter CSI. With earlier programming stints at NBC, ABC, Fox and Witt-Thomas-Harris, he’s familiar with scheduling hassles: “You take it step by step. It isn’t about next week or even about the next six months. It’s about where did you end up in May, did you have more assets than when you started, what are you going into the summer with and where are you headed?”

Paul Lee, President, ABC Family

Lee joined ABC Family in April 2004 from BBC America, which he helped found before rising to CEO. He turned around the fortunes of the long-suffering ABC Family with significant ratings growth and by branding it for modern families. With original programming, acquisitions and tent-pole events (13 Nights of Halloween, 25 Days of Christmas), Lee says, “the younger generations start out on cable—that’s a real opportunity for us.” Lee needs to solidify the network’s branding and maintain ratings growth to establish ABC Family as a viable competitor to larger cable entertainment networks.

Deborah Blackwell, Senior VP and General Manager, SOAPnet

Joining ABC Cable in June 2001, Blackwell, a former William Morris agent and development executive at Hearst, wasn’t a soap fan. But she helped the 5-year-old network reach 43.5 million homes. Having branched beyond ABC daytime with acquisitions like Days of Our Lives and original reality shows, one question is whether SOAPnet will create scripted dramas. Blackwell’s challenges include increasing distribution and picking up other daytime soaps. She says SOAPnet can break through the clutter because “viewers have a 30- to 40-year relationship with our programming.”

Rich Ross, President, Disney Channel Worldwide

Ross oversees more than 50 kids TV channel feeds worldwide and has worked with Sweeney at Nickelodeon (he built talent relations, oversaw original programming and helped launch Nickelodeon UK) and FX. Following Sweeney to the Disney Channel in September 1996, Ross now forges global relationships with the international networks, introducing Disney franchise characters Lizzie McGuire and Raven. Ross has earned the network the top spot for kids and tweens. He says, “The hurdle is creating the program that translates off television and Disney Channel” and turns into long-lasting properties.

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