Friday, October 20, 2006
NBC Taking Big Step Back From Television
Old Media Undergoes A Digital Makeover

By Frank Ahrens
Washington Post Staff Writer
Friday, October 20, 2006; A01

NBC Universal announced sweeping cuts to its television operations yesterday, demonstrating just how far a once-unrivaled network must now go to stay competitive with YouTube, social networks, video games and other upstart media.

The media giant said it will shed up to 700 jobs -- 5 percent of its workforce -- and slash $750 million from its budget by the end of 2008. The changes will be felt from Secaucus, N.J., where MSNBC will shutter its headquarters, to television sets around the country, which will soon begin tuning to game shows and reality programming in the 8 p.m. time slot. NBC said it plans to phase out costly scripted dramas and comedies during the first hour of prime time.

Network television, for half a century the unquestioned leader in media profitability and viewership, is wrestling with the same challenge facing newspapers, news magazines, radio and other traditional media properties: how to manage costs while converting to digital delivery in an increasingly splintered media landscape. Although the promise of revenue in the new era is great, actual revenues from Internet and mobile media services still are not.

Viewers have noticed that things in TV land have been changing bit by bit in recent years, now that they can get their favorite shows on their PCs, cellphones and iPods. Yesterday's announcement by NBC Universal, however, is an indisputable signal that -- at least for one network -- the television-as-family-hearth era is dying.

NBC Universal, owned by General Electric Co., called its restructuring plan "NBC 2.0."

NBC News President Steve Capus starkly illustrated the new landscape, which must include all forms of delivery that consumers demand: "We've been a TV business that dabbles in digital. Now, we're positioning as a news content-production center going forward that happens to do television.", for instance, recorded 88 million video streams in September, Capus said, even though MSNBC remains No. 3 in the ratings, behind Fox News Channel and CNN. The MSNBC operations will be brought into the NBC News mother ship in Manhattan.

If NBC is first among networks to take the radical step, it is at least partly because its ratings have suffered since the end of "Friends" and "Frasier," which capped two decades of prime-time dominance. NBC has enjoyed a ratings bump with this fall's shows -- it is now in third place, following CBS and ABC but ahead of Fox. But network television is no longer the growth business it once was, and NBC Universal chief executive Bob Wright said his company must adjust accordingly.

The rise of cable networks 20 years ago has eaten into the ratings hegemony enjoyed by the four major networks. Now, the Internet, along with other entertainment options, is doing the same. Networks are hurting even their own affiliates by offering program repeats online immediately after they are broadcast (such as ABC's "Lost"), cutting into rerun revenue that local stations have long counted on.

NBC Universal thinks its future is in digital delivery, via the Internet and mobile devices. The company expects digital revenue to exceed $1 billion by 2009, up from a projected $300 million this year.

But the company must still foot the bill for its non-digital properties as it transitions into the digital world, much like dragging a huge and expensive anchor behind as it tries to sprint ahead.

Operating profit was down 9 percent, to $2.1 billion, for the first nine months of 2006 . In order to stay abreast of rivals, please Wall Street investors and pay for its metamorphosis, NBC Universal has decided to lower its costs. That includes cutting jobs, trimming budgets, combining news operations in Los Angeles (and perhaps news bureaus elsewhere) into one building and even changing its prime-time programming.

The same is true across much of the rest of traditional media, as readers, viewers and listeners migrate away from older channels of distribution to new ones.

"Success in this business means quickly adjusting to and anticipating change," Wright said in a statement.

Even though top-rated CBS Corp. and Walt Disney Co.'s ABC continue to make money in the 8 p.m. slot, with shows such as "Jericho" and "Ugly Betty," respectively, both networks are tuning their own business strategies. CBS is spending heavily to expand its Internet and mobile offerings, while selling slow-growth radio stations. Disney shed its ABC radio stations this year by merging them with Citadel Broadcasting Corp., gaining more than $1 billion in the process -- cash the company can use to pay for its expensive prime-time shows, such as "Grey's Anatomy," which are key to the company's digital strategy.

Elsewhere, newsweeklies, such as Time magazine, have cut staffs radically and beefed up their online presence. So have newspapers.

Last month, the New York Times Co. put its nine television stations up for sale to exit what it thinks is a slow-growth business and to raise some much-needed cash. Yesterday, the company released its third-quarter earnings, showing that company profit fell by almost half compared with the third quarter of 2005, from $39 million to $21 million.

At the same time, the Times Co. reported that revenue from its online divisions -- which include the company's newspaper sites and -- rose to $63 million from $51 million. Online revenue accounted for 8.5 percent of the company's total third-quarter take. Next month, the Times Co. will launch a redesign of the Web site of the Boston Globe, which it owns, mirroring the makeover the Times Web site got earlier in the year, emphasizing multimedia.

Like NBC Universal, the Times Co. aggressively has slashed jobs on the print side, while making Internet acquisitions.

"To be honest, we have to make sure our print properties are running productively," Janet L. Robinson, Times Co. president, said in an interview yesterday. "At the same time, we also have every intention of being a high-quality news and information company on the Internet."