Programming

A Time for Change: NATPE Keynote Address of NBC Universal President/CEO Jeff Zucker

1/28/2008 08:49:00 PM Eastern

Following is the text of NBC Universal President/CEO Jeff Zucker's keynote address to the National Association of Television Program Executives in Las Vegas on Jan. 29.  The text, as prepared for delivery, was provided by NBC Universal.

A Time for Change

Keynote address delivered by Jeff Zucker, President and CEO, NBC Universal, at the annual meeting of the National Association of Television Program Executives, Las Vegas, Nevada, January 29, 2008

It’s a pleasure to be here with you this morning and have this opportunity to share some thoughts on our industry.

As Roma said, I’ve been in my current role for almost exactly a year now. And what a year it has been! Such a quiet time, you know … nothing really going on … no big issues, no real changes … I tell my team every day: "Just stay the course"…

I wish …

Truth is, as everyone here knows, it’s been an incredibly exciting and tumultuous twelve months, and the tumult is likely to continue.

And I’m not just referring to the writer’s strike. That unfortunate work stoppage, which we all hope will end soon, is only the most visible sign of disruption. Almost everywhere you turn, traditional business models in Hollywood are under pressure. And their replacements are not necessarily ready for prime time.

We are dealing with that in every part of our business. But it is especially true in our broadcast television business.

For many years, if there is one thing everyone could count on at an industry meeting like this, it was that if a head of a media company was up here, he or she would talk about how broadcast television has a strong and robust future in spite of all the challenges, be they fin-syn rules, the rise of cable, the advent of the VCR, or what have you.

And you know what? This has always been the case. It has been a great run.

But today, we need a different message.

Don’t get me wrong. I think the future remains incredibly bright. The NBC part of NBC Universal is a big part of our future.

But we also have to be honest. 

I can’t come here with the usual clichés about the endurance of broadcasting in the form we have always known. We must acknowledge that a significant part of our industry is under incredible pressure and has to change.

We are in the middle of a wrenching analog-to-digital transition … marked by game-changing technological developments and profound shifts in consumer behavior … all of which demands a re-engineering of our businesses from top to bottom, both at the network level and at local stations.

We’ve needed to do this for quite a few years now, but there was no real sense of urgency behind it. Inertia kept things moving in the same direction, a gentle downward slide, disguised by a strong economy and robust ad market.

Change isn’t easy, and sometimes it requires a catalyst. This past November, maybe we got one, when talks broke down between the media companies and the writers guild.

A strike has devastating consequences for thousands of people who are directly or indirectly dependent on this industry to feed their families. No one is happy about their hardships. But this one has presented us with an interesting paradox.

Forest fires have devastating consequences, as well. It turns out, however, that some plants depend on smoke and heat from fires to sprout. Fires fertilize the soil with new ash and clear the ground, often setting the stage for robust growth.

Don’t take this the wrong way. It would have been a lot better if there had been no strike. But, maybe, what we are going through now is our industry’s version of a forest fire. We didn’t ask for it, and it is unfortunate to live through. But if we are lucky, it may very well leave behind fertile soil, clear ground, and the opportunity for robust growth.

And it can happen.

• Broadcast networks can no longer spend tens of millions of dollars every year creating dozens of pilots that will never see the light of day.

• They can no longer lock producers into long-term deals that rarely have a payoff.

• They can no longer spend millions putting on upfront presentations that are really aimed at half a dozen influential media buyers.

• They can no longer run their businesses under the illusion that their prime-time lineup will average a 10 demo rating.

• They can no longer ignore the financial opportunities presented by international distribution and localized international content, and—of course—by new media platforms such as VOD and the Web.

What

If, that is, network and station executives realize that their new landscape requires some new behaviors. And if government regulators recognize the realities of our marketplace.can they do? 

• They can aggregate viewers via new distribution platforms—embrace them and not be afraid of them.

• They can increase advertising inventory through multicast distribution.

• They can develop shows that will work not just in the U.S. but worldwide.

• They can work with advertisers on new metrics and measurements of engagement and help them develop advertising that is successful on new media platforms.

• And they can create a business model that is successful with the 3-rated show and not just the 7-rated hit.

In short, they can run their companies with intelligence and creativity and a willingness to embrace and adapt to change.

By "they," I mean, of course, us … and me.

At NBC Universal, we are convinced we can provide consistent long-term growth in broadcast television, if we execute on these goals quickly and efficiently.

The current work stoppage in Hollywood has allowed us to stop and think about business. It has given us an opportunity to revise, and potentially revitalize, the broadcast business.

Let me expand on two of the ways we intend to do business differently, especially since these have attracted some recent interest.

First, how we develop programs.

Pilots.

Let me say right up front, we are committed to as much scripted programming as ever. Without it, we can’t command top CPMs, and would lose too much downstream revenue, from syndication, home video and international sales. This is not about less scripted programming. This is about how we get there.

Last year, the five broadcast networks spent more than 500 million dollars ... more than half a billion dollars … on development of new series, scripts and pilots. Some 80 pilots were made. Next fall, or whenever the next television season begins, at most eight of those series will return. 1 in 10. And of those eight, none could be considered a big success.

So just a bad year, you say?

OK. Go back two years. Out of that crop, 12 shows came back for a second year. Again, about 10 percent. And, of those, only

Here’s my point. What has making pilots really gotten us? In recent years, those pilots have become stand-alone mini-movies, costing as much as 10 million dollars a piece to make. The problem is they’re not even close to what the series will look and feel like.

Why not make fewer pilots, and have the courage of our convictions, and order series straight to air, just like we do on the reality side. That’s what they do in Britain, where there are no pilots. And we keep importing their shows.

And at our USA cable network, the most successful cable network out there, we have made just five pilots in the last two years. Four of them went to air, and two of them ended up being the highest-rated new series of the last two years,

And at our film studio, guess what? We don’t make pilots. We rely on the creative instincts of our executives and make the movies we believe in.

People want to ridicule the idea of making fewer pilots. It’s usually those who have a vested interest in perpetuating the inefficiencies of the system. As I have said, this is not about making less programs. It’s about making less waste. We will still make a few pilots a year. Maybe five instead of 20. And it’s about ordering direct to series the ones our creative executives believe in. The odds of success are just as great going straight to series as they are in making all of those pilots. We’re not going to do worse than those figures I cited for the last two years.

In no way do I mean to be absolute. We will make pilots. There can be no hard and fast rules here. But we must show greater discipline in these new times. And, yes, I know the argument … you never know where that hidden gem is going to come from. I’m hoping it will come from that gut decision that orders the series straight to air. For the price of that one 10 million dollar pilot, we can order a full six episode series. It’s about time we start.

One prominent talent agent was quoted in

At least he acknowledged to do so would be crazy.

And if it happens, it will destroy the business once and for all.

The one final note I would say about this is that proceeding this way is made easier by the leadership we currently have in place at NBC Entertainment. Ben Silverman and Marc Graboff, both of whom are here this morning, are absolutely the right people to re-imagine this business. This completely reflects their thinking. And without them, I am not sure this would be possible.

The other way we are trying to re-imagine business today involves the upfront.

As you all know, when we talk about the upfront, we mean two things. One is the glitzy presentation we do every year at Radio City Music Hall. The other is the way we sell our advertising inventory.

Let me be clear: the way we sell that inventory, in an upfront selling period, is not going to change. The upfronts were first established for automakers to lock up commercial time back in the 1950s. That business of the business remains the same.

But do we really need the big show in order to do that? We are not so sure anymore. There was no winter press tour this year, with the nation’s television critics, and even without that press coverage, we at NBC are enjoying the best winter performance of our new and returning shows in many years.

We believe the big show is a vestige of the last decade. Every year, the big question at the upfront presentation of our new schedule is ... how fast can the show be over?

What matters is the new schedule and the rationale behind it. No one these days makes their buying decisions until they see the schedule and eventually see the shows.

I can tell you we have not made a final decision, but we are very close. And, again, we are looking to our own cable networks as a guide. Like those networks, if we do scrap the big presentation, we will be committed to going to every one of the major advertising agencies, in person, and every one of the major advertisers, to explain the schedule, explain the rationale and deliver episodes.

I can tell you this. Ben and Marc are beginning to book their travel plans, if that gives you any indication of where we’re headed. We will have a formal announcement very soon.

You know, when I ran the

Now we must change again. And have the courage of our convictions.

At the stations level, the transformation of the business is just as far-reaching if not more so. 

In fact, at NBC Universal, we don’t even have a Television Stations division anymore, even though we do own 10 NBC stations.

Our group is now called NBC Local Media—which reflects a radically different approach to doing business. In our view, broadcast television is only part of what local media is about. Our competition isn’t limited to other TV stations in the same market … it is all local advertising, no matter what platform. This is our opportunity as well.

Our value proposition for advertisers is a local media model that leverages our strong community connection with consumers, distributed via a non-linear, multi-platform offering. We’re about out-of-home advertising, at gas stations and supermarkets. We’re about mobile and portable media, leveraging what local television does best—local news, weather, sports, current affairs.

We’re about digital multicast, with assets like NBC WeatherPlus. We’re about broadband video, building communities, developing local lifestyle and entertainment content. We’re about serving our communities and our advertisers in new ways enabled by the digital revolution. These are the new revenue opportunities that are essential if we are to keep free, over-the-air television a viable business proposition.

This is our focus, both at the network and the stations. It’s a whole new world. It’s complex and full of paradoxes.

One paradox is that as much as everything has changed in this new world … a new world where, for example, NBC doesn’t even have a TV stations division, per se … some things have not changed at all.

If you take a step back you can see that, in a very important respect, very little has changed. Human nature is the same today … as it was a few years ago … as it was a few

In other words, no matter what happens in terms of technology, people are still going to value great content. They are still going to want to be touched or moved or uplifted by a great story. They are still going to want to use these stories to connect with other human beings, whether this involves gathering around the campfire, hanging around the water cooler, or text-messaging their friends. They are still going to want to watch their favorite sports teams, or the Olympics, or find out what is happening in the world through a newscast.

So what the people in this room do better than anyone in the world—develop, market, and produce amazing stories that people all over the world relate to—

Here’s something else that’s not changing: marketers’ desire to reach the kind of mass audience that television can still deliver with unparalleled immediacy. Advertising is nearly a $500 billion dollar global business, with almost half of that generated in the U.S. The largest segment is television, and this won’t change anytime soon, even as online advertising continues its rapid expansion.

So what is changing? Well, everything else!

Technology is transforming every aspect of our business. And it’s driving unprecedented change in consumer behavior. This is a new and startling phenomenon. Because up until very recently it was primarily the so-called early adopters who changed their media behavior. But now we are seeing dramatic shifts in behavior even among the mainstream.

We’re seeing the rapid penetration of DVRs and a resulting rise in ad-skipping. Millions of baby boomers who couldn’t program their VCRs to save their lives and covered the blinking clock with black tape now have absolutely no problem figuring out how to use the DVR.

This is great for consumers … and a real challenge for us.

But we’re also seeing new forms of media consumption like something our research department calls "video snacking"—a significant spike in online video watching occurring right at lunchtime.

This suggests another paradox: As a businessman, I’m not happy about having a whole generation of young employees at their desks checking out the latest cool video on YouTube. But as a content provider, this is a pretty exciting development. It suggests a market for video that is getting bigger and bigger.

We’re seeing mobile devices finally starting to live up to their promise of untethering TV viewers from the couch or the desk—giving us yet another source of additional viewing of our content.

We’re seeing the rapid mainstreaming of technology and of behavior that would have been unimaginable a few years ago … like my mother watching a video on her computer. I never thought I’d see that.

Thirteen years ago, my predecessor, Bob Wright, declared in a major speech that NBC was not in the TV business but was in the "video-in-the-home" business.

Revolutionary then … it is amazing how much the world has changed since. Today, we’re in the business of video in the home, out of the home, at work, in the supermarket, in the taxi, on the train, and every time and place there is, where one could conceivably turn their attention to a screen of any size.

The amazing variety of choices consumers have today has important implications for consumer behavior. It’s a shift from habit to choice … to individuals making choices when and how to consume media.

There is less and less habitual plopping down in front of the TV—and more and more media consumption made by conscious choice. This is a new kind of appointment TV, but where the appointment is made by the viewer, not by the network scheduling department.

How do you respond to such radical shifts in behavior?

At NBC Universal, by recognizing that quality content is still where it all begins. But that is only the starting point. Indeed, the old cliché—"content is king"—has been rewritten. Today, the consumer wears the crown, and that changes everything.

Let me touch on three broad areas in which we are challenged to rethink how we operate: First, distribution. It must be ubiquitous. Second, marketing. We need aggressive and creative marketing, and innovative approaches to monetizing our products. Third, we need a regulatory environment that makes sense for 2008, not 1948.

First, distribution. We have to be everywhere.

That’s why we are launching Hulu along with News Corp., to create a powerful "one-stop shopping" destination for consumers seeking premium video whenever they want it.

That’s why we’ve launched mobile offerings like NBC2go and NBCNews2go.

That’s why we have TV shows available on NBC.com, which has generated more than half a billion video streams in just over a year.

That’s why we’ve launched NBC Direct, which enables not merely streaming but actual downloads of prime-time content.

Our challenge with all these ventures is to effectively monetize them, so that we do not end up trading analog dollars for digital pennies. This is the No. 1 challenge for everyone in this industry today.

The second-biggest challenge, I think, is to work with our advertising clients to create the next-generation video advertising model.

The 30-second spot is still an enormously effective marketing tool. Billions of dollars spent every year confirms this.

But we know we need to do more.

That’s why we’re driving research efforts into cross-platform measurement, behavioral research, and new kinds of neurological, engagement, and effectiveness studies.

We know that to serve our clients today, we need to understand viewer behavior at a level that would have been inconceivable just a few years ago.

We are evolving the commercial form, with DVR-friendly formats, pod innovations, and new approaches to product integration.

We are building on our 360 sales efforts, with expanded Internet extensions and vertical ad networks encompassing TV and the Internet.

Third—and finally—we need a new and improved regulatory framework.

Look, NBC Universal is a radically different company than it was just a few years ago. More than 50 percent of our income is from the cable business. We have a big film studio and a robust theme park business.

But I want to address broadcast regulatory policy because broadcast television is still an important part of our portfolio and of our legacy … and, more significantly, for sixty years it has stood head and shoulders above any system in the world in terms of diversity, quality, and public service.

The last decade has seen a revolution in the U.S. media landscape. We who face these dramatic changes every day see it. Wall Street and the investment community see it. But in Washington, policymakers now need to step up and put together a comprehensive communications policy that recognizes how different the landscape is today compared to just a few years ago.

In 1996 Congress affirmed that broadcast television deserved to survive and flourish. Congress affirmed that the unique characteristic of our national broadcasting system—its mix of national and local content … its partnership between nationwide networks and local TV stations which are trusted community institutions—is in the public interest.

Today, twelve years later, this national-local partnership is at a crossroads. Broadcast networks face unprecedented challenges in their efforts to attract audiences in competition with multitudes of new cable and satellite channels and the Internet. Stations are on the block, multiples are at historic lows, and the U.S. is nearing 90% of the TV audience paying for their television via cable, satellite and broadband … on the way, in my opinion, to 95% after the digital transition.

Audiences have many sources for news, weather, and entertainment, most of which do not require a broadcast license and most of which do not have strong local components. The historic economic model supporting broadcasting is wounded. And the historic marketplace dynamics on which broadcast regulations rest have fundamentally and irreversibly changed.

Given this, the FCC needs to ask fundamental questions about how regulatory policies should adjust. We need a careful policy review that looks at our system of national programming networks linked to strong local voices and asks about its present and its future. About its health and its vitality.

But we have not seen this. Rather we have seen a series of isolated and disconnected responses to regulatory passions of the moment. From my perspective, they appear to be ad hoc and reactive, based on outdated assumptions about broadcast networks and broadcast stations, rather than comprehensive, forward-looking, and rooted in the reality of today’s marketplace.

I would suggest that if Washington

Ubiquitous distribution, innovative marketing, a comprehensive communications policy for the twenty-first century … these are all vital for success in the digital age. But again, without great content none of this matters.

A hundred and fifty years ago, a time that had its own share of upheaval, Henry David Thoreau expressed concern about new inventions like the telegraph. I quote:

"They are but improved means to an unimproved end. … We are in great haste to construct a magnetic telegraph from Maine to Texas; but Maine and Texas, it may be, have nothing important to communicate."

Ultimately, our most critical challenge—the challenge of everyone gathered here today—is to make sure that we

Thank you.

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