Positive spin: Net says cuts are a response to digital 'opportunities'
If you have massive layoffs and cost cuts, and want to couch them as a progressive new strategy — come up with a name.
In the Oct. 19 announcement of the axing of 700 staffers and slashing costs by $750 million, GE’s NBC Universal called the moves “NBC U 2.0.”
Neither Warner Bros. nor Disney gave their firings a moniker. Some industry execs say the name’s indicative of a certain GE mentality: “Calling it 2.0, they think they’re very hip,” says one.
Some say the cuts are indicative of the fact that the company has not managed to mesh its entertainment businesses, particularly on the TV side, since acquiring Vivendi Universal Entertainment.
In some ways, NBC U is just the latest Hollywood player to respond, as it says, to “opportunities created by the rapidly evolving digital and global marketplace.”
But the question circulating in the aftermath is how much of this is unique to NBC — the network that fell from first to fourth in a year — and how much is made necessary by shift in the digital landscape.
“If TV was performing well, then investment in digital would be hidden by the strength of their underlying businesses,” notes Pali Capital analyst Richard Greenfield.
In July, NBC U TV topper Jeff Zucker introduced the “2.0” label, calling it “TV 2.0” and explaining it as a rethink of the TV business to take advantage of digital distribution opportunities.
He was upfront about the fact that it would probably involve some staff reductions, or at least repositioning.
Now the idea has metastasized into a companywide initiative, “NBC U 2.0,” and the cuts are bigger than many expected.
The name may suggest a companywide restructuring, but the cuts are falling mostly on TV — most harshly on newsgathering.
Execs at Universal Studios were left wondering what, if anything, it has to do with them.
At a Hollywood Radio and TV Society luncheon Oct. 19 NBC Entertainment prexy Kevin Reilly said the changes at the Peacock were necessary due to economic pressures that are “impacting our business today and will continue to impact our business.”
But while there’s certainly pressure to focus resources and energies in new growth areas like digital, other networks haven’t slashed costs and staff.
“Nobody else has had the declines NBC has had over the past years,” says one Wall Streeter. “CBS is fine. ABC is doing very well. They had some padding.”
But, he continues, “How do you do this digital conversion? You have to keep the train running on time and profits up while you are doing it. And if some divisions don’t do well you have to cut them. If (NBC) was still in first place and getting the money they were getting a couple of years ago, they might have been a little more padded.”
On Oct. 19, Zucker addressed employees in a symbolic spot, Studio 1A, the “Today” studio that underwent a $30 million high-def upgrade over the summer.
According to one employee, Zucker referred to the job cuts as “an unpleasant thing,” but added, “We’re changing the way this company delivers information and if we don’t do it it’s going to be worse.”
Zucker singled out “Heroes” — the net’s one clear victory this fall as an example of the digital future he’s pursuing. The show, he said, would run online after its first airing, then as a 99¢ download, and then as a repeat on Sci Fi Channel.
Despite published quotes by Zucker that the net would get out of the scripted game at 8 p.m., Reilly said the change wouldn’t be that dramatic. The net has no plans to move “My Name Is Earl” and “The Office” out of their Thursday 8 p.m. home, for example.
“You can’t be exclusive with reality at 8,” he said. “You have to be in the scripted business. It’s not an absolute.”
As for whether on-air programming would be impacted at the net, Reilly said NBC had already made many of its cuts in primetime.
“There won’t much visible to the naked eye,” Reilly said. “We’ve already done a lot of the hefty lifting in terms of economics.”
Reilly admitted that last week’s cuts appeared “fairly drastic right now … but it will be considered forward-thinking in a few years.” After an amazingly prolonged run at the top of the heap, NBC plunged to last place among the major broadcast networks when hits like “Seinfeld,” “Friends” and “Frasier” left the air. It posted a massive $900 million decline in the upfronts a year ago.
This year, it’s taking back some share, while primetime ratings are up 12%. “It’s interesting. It’s probably a lag effect from last year when they hit the trough. Media companies move at a glacial pace,” says Lehman Bros. broadcast analyst Anthony Di Clemente.
In GE’s latest quarterly financial report, NBC Universal was the only one of its units that posted a significant earnings decline. Profits fell 10% in entertainment, but were up across the board at the giant conglom’s industrial units.
With NBC at its nadir last December, Zucker was promoted from television prexy to CEO of NBC Universal, the No. 2 to chairman Bob Wright. The move left many in Hollywood scratching their heads. Wright has been upfront about plans to retire but has never fixed a date. GE CEO Jeff Immelt steadfastly defends the record of both execs and denied the conglom’s considered replacing either.
“They needed to build the organization looking out five years instead of building it around the people they liked and the structure they knew,” says one industry insider.
In Zucker’s defense, one Wall Streeter notes, NBC “extended its first place for years longer than anyone else — at least three or four years longer. But then everything wore out at the same time.”
Still, those getting the axe are likely to be lower-level employees and many think they’re not the ones creating he problem.
While Wright included Universal Pictures in the announcement of the restructuring and belt-tightening, sources there say they do not expect to see major trims at the film studio. One reason: After being handed off to so many new owners over the past five years (including line-item review by Barry Diller and Vivendi’s brush with bankruptcy), the studio has been trimmed lean.
Universal Studios prexy Ron Meyer’s plans to combine the marketing staffs for features and homevid was included in the NBC U 2.0 announcement, but the moves were in the works before Zucker’s cost-cutting announcements.
When NBC and Universal merged in 2003, the deal was primarily driven by the television business. As the home of Dick Wolf’s “Law & Order” franchise, U’s TV production unit was one of NBC’s biggest programming suppliers.
U’s film business and theme parks have always seemed a bit extraneous to the equation. And indeed, there’s been talk of varying intensity ever since GE closed the deal that it would sell off those assets if a buyer willing to pay a high enough price came along.
Where that leaves the film studio is less than clear, including to U’s own execs. With so much of the focus at NBC U on fixing its troubled television businesses, their primary aim has been to continue to hit the profit numbers demanded every quarter by GE managers.
Film production and marketing budgets have stayed steady at U under NBC. One area where new expenditures are needed, however, is in international distribution as U dissolves its UIP joint venture with Par. As the two studios divorce, they are divvying up the current UIP offices and using them as the basis for their own independent operations.
That means there will be numerous territories where U will have to build up a distribution infrastructure from the ground up — which will entail quite a bit of spending to staff the operation. Ultimately, the thinking goes, the solely owned foreign arms are supposed to be more efficient and accountable than was the old UIP set-up.
(Michael Learmonth in New York and Michael Schneider in Hollywood contributed to this report.)