Last year, almost 18,000 media employees lost their jobs—the biggest group of layoffs since the dotcom bubble burst in 2001.
Some of the world's biggest “old-media” companies—including MTV Networks (MTVN), NBC Universal, Disney and Discovery Communications—are axing staffers in handfuls and hundreds. In one of the biggest reductions, Time Warner's AOL began cutting 5,000 employees in December, about 26% of its workforce.
U.S. media companies announced they were slashing a total of 17,809 jobs in 2006, 88% more than in the year before, according to Challenger, Gray & Christmas, a New York-based global outplacement firm that tracks layoffs.
The cuts reflect a grim reality for these media giants: Staying ahead often means cutting heads. As viewers shift their media-consumption habits, TV operations are forced to take a hard look at how they have been run and staffed for years. And in many cases, they've realized, they just don't need the same people they used to.
Wanted: digital experience
Some jobs, such as regional graphics designers' at NBCU, were obsolesced by new technology. Other cuts have come from units that were once sexy but are now less so compared with shiny, new digital products. As it rushes to churn out new broadband channels, MTVN has shuttered year-old MTV Desi, MTV Chi and MTV K—three premium-cable networks that catered to Asian-Americans. Still other reductions have been made to streamline staffing at the top; new Discovery Communications President/CEO David Zaslav joined the company and promptly whacked an entire layer of management, parting with Discovery Networks U.S. President Billy Campbell and eliminating his position.
The companies won't say how many employees they are hiring for new digital ventures, such as broadband sites and mobile channels, but their job listings tell the story. Online help-wanted boards for MTVN and NBCU are filled with openings for digital operations: multimedia Web designers and programmers; Website monitors and producers; digital-ad-sales analysts; Flash illustrators; CG animators and mobile marketers.
As they've cut away at divisions now deemed dated, redundant or excessive, TV companies have scrambled to introduce an array of digital products in the past year.
Even so, revenue from those new services remains a fraction of the advertising revenue from good old linear TV and will probably stay that way forever.
Will cuts = profit?
Indeed, it may be years before CEOs know whether the cuts were essential. For now, though, forced to follow a shifting advertising base, they have no choice. New-media revenue hit $55 billion last year and is expected to grow four times faster than traditional media over the next few years, according to a February report from IBM titled “Navigating the Media Divide.”
Whether the strategic changes will translate into higher profits isn't certain.
“A lot of firms are looking at that ROI and saying, 'We're not going to see any real revenue on this stuff for five years, but we need to get into it now,'” says Dan Rayburn, executive VP for online-industry Website StreamingMedia.com. “I don't know that I'd ever use the term 'smart' about what they're doing, but they definitely are at least forging the building blocks of what's going to come.”
Forrester Research entertainment analyst Josh Bernoff says that the challenge is not whether these media companies understand what they need to do but whether they can do it: “If you have an 18-wheel truck and you tell the driver he needs to compete in the Daytona 500, he may want to be successful, but he's just not cut out for it.”
Before 2006, television companies profited almost entirely from producing, distributing and selling TV content. Success in those three areas meant success on the bottom line. It also meant that companies ended up with a lot of well-paid executives overseeing well-staffed divisions dedicated to these pursuits.
That all changed in 2006 when Disney-ABC announced that it would offer its shows on the iTunes online music store. Now success as a television company means partnering with and distributing content across a host of digital platforms—a skill set lacked by many of those well-paid employees and their well-staffed divisions.
Faced with competition from an array of digital competitors, which produce content of their own and sometimes even carry network programming, TV companies have seen their revenues shrink, along with the confidence of traditional Wall Street investors.
Growing up in an analog world
Indeed, Internet-ad spending was predicted to rise 13% in 2006 while network-TV advertising remained flat and newspaper advertising fell 3%, according to a report by TNS Media Intelligence.
The companies cutting the most say they're reassessing how they're structured at a time when the TV industry is undergoing tremendous change. “I think we all are taking a look at how we've grown the business, which was in an analog world, and where it needs to be for the digital world, and I think we're just all reacting to it,” says Jay Ireland, president of NBC Universal Television Stations and Network Operations. In October, NBCU announced that it would cut 700 employees to save $750 million annually, tying the initiative up in a tidy package dubbed “NBCU 2.0.”
Nonetheless, publicly owned companies like NBCU parent GE are always looking at the bottom line. NBCU announced its layoffs after its broadcast network dropped more than 15% in the adults 18-49 demographic over two consecutive seasons and the company saw its profit plummet 10% during third quarter 2006.
NBC, about halfway through its cuts, has shut down full newsrooms for Telemundo stations in cities including San Jose, Calif., Phoenix, Dallas, Houston and Las Vegas, centralizing production in a hub near Fort Worth, Texas.
MTVN, which cut about 250 U.S. jobs this month, wielded the scissors after parent company Viacom saw its share price fall over the past year. MTVN wiped out entire staffs of two cable networks, MTV2 and VH1 Classic, giving their responsibilities to staffers at big-sister networks MTV and VH1.
Recent college grads and longtime company veterans alike were shown the door, as MTVN hacked away at its affiliate-sales division, shuttered digital channels, and axed programmers and producers across the board.
Some cuts clearly target efficiency. MTVN, for example, decided that it wasn't necessary to employ an entire staff to program the music-video-centric VH1 Classic network when VH1's team could ably do that work without too much extra effort.
Similarly, many of NBCU's layoffs so far have come from now dated newsgathering operations: Separate satellite and graphics teams were ruled redundant because video and copy can be created and shared through the Web.
Not all of the recent media layoffs have come from television, and not all have been to make room for digital initiatives. After disappointing performances by 2005 films and facing a crowded field of competitors in animation, Disney cut 650 positions from its studio division last year - about 20% of its workforce - for a projected $100 million in savings. The company has not made major cuts from its TV division.
Sweeping management changes
The companies deny that they're making cuts to please investors. “New-media space is the key to our long-term growth because people are starting to consume content in a different way and our brands need to be there,” says Discovery's Zaslav, who recently introduced sweeping changes in the company's management structure.
“A lot of media companies say, 'I want $250 million or 250 heads. That's not my approach at all,” he says. “My approach is to reorganize and reinvent this company to be faster and more aggressive and more competitive. I don't have a number of heads or dollars in my head, because that's not my goal.”
Critics say old-media companies have already risked potential growth by cutting too far into the talent pool. After all, TV companies are at heart creative ventures; low morale paired with too few hands on deck could hamper that.
“These companies have to thrive on creativity, and to the extent they're slowing the creative output, that is a hindrance,” says David Joyce, an analyst at investment firm Miller Tabak & Co. “They're cutting the costs first to get the margins up and then using whatever incremental revenue to redeploy toward digital-media efforts.”
Executives at the companies acknowledge that too much hacking might hurt creativity. “You can't tighten the belt too much, this is a creative enterprise,” says Marc Graboff, president of NBCU TV's West Coast operations. But he notes, “A thinner organization sometimes can let the creative voices stand out a little more.”
Says John Challenger, CEO of Challenger, Gray & Christmas, “There's some preemptive action these companies have to take, or they just go out of business. As your revenue drops, you say, if we don't respond to the change going on and do it quickly, we could disappear.”
Some are setting benchmarks for judging success with their digital products. NBCU says it wants to take in $1 billion in revenue from digital products by 2009. That's up from the approximately $350 million it took in last year. Viacom CEO Phillipe Dauman has said he wants to reach $500 million in digital-ad sales by the end of this year.
Viacom has said it will spend some $1 billion and hire about 500 people in digital ventures across its company this year, according to published reports, but it has not said how many of those hires will fall within MTVN. NBCU, meanwhile, is laying the groundwork for a digital studio in Englewood Cliffs, N.J., where it operates the CNBC cable channel.
The company plans to move its digital staff of about 200 there by the end of the year but has no word on when or if it will fill the other 250 slots the building can hold.
For many employees left behind, the changes often mean a heavier workload—and a new view on their own jobs.
Some manage to echo the sentiment of those doing the cutting. “Honestly, it sucks in the short term to see people you've worked with for years go,” says one longtime MTVN staffer, “but in the long term, it's beneficial to the company.”