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NBC Universal tightens belts

Zucker calls for major budget cuts

Despite recently posting robust quarterly results, NBC Universal plans another round of major cuts, eliminating $500 million from next year’s budget.

Conglom topper Jeff Zucker announced the reduction Friday in a memo to staffers. Cuts would equal 3% of the company’s budget, according to Zucker.

The plan is the latest sign of uneasiness in the media sector, following last week’s sale by Sumner Redstone of $233 million in nonvoting shares in CBS and Viacom. Many major congloms have seen market turmoil send their stock prices nearly to all-time lows, down as much as 70% in the past year.

A wave of earnings reports from now through early November could prompt similar cuts as companies are faced with reconciling the numbers. NBC U faces additional pressure because its parent, General Electric, has been coping with money woes on an epic scale, especially given its reliance on financial services in a frozen credit environment.

In the memo, Zucker blamed the economy, arguing NBC U needed to take precautionary steps despite coming off eight consecutive quarters of profit gains.

NBC U earlier this month announced a 10% bump in operating profit in the third quarter, on a 35% surge in revenue thanks to the Beijing Summer Olympics, “Mamma Mia!” and other factors.

Advertising is another story, however. As with competitors such as CBS, which recently had to take a goodwill writedown on the value of its radio and TV stations, NBC U’s stations are facing a serious local ad slump. And fears of a major pullback in consumer spending, already evident in many retail categories, are starting to permeate the TV biz.

Analysts have been revising ad forecasts downward and normally upbeat media execs are openly speculating about a down year on the ad front in 2009.

“We are living in a time of unprecedented economic challenges, and it is increasingly clear that the worldwide economic slowdown will continue into next year,” Zucker wrote. “The leadership team of the company agrees that we must take steps now to prepare for these new economic realities. As a result, all of our business leaders are being asked to cut their spending projections for 2009.”

Zucker’s memo came a day after NBC’s Spanish-language Telemundo division announced that it was cutting 5% of its workforce.

Memo also comes as NBC U division heads prepare to go over their 2009 plans in a meeting with Zucker. Chiefs will be given discretion to decide how to make their 3% cut. In his note, Zucker suggested a variety of ways, focused on three areas: discretionary spending, such as travel and entertainment; promotion expenses; and staffing. He also stressed the need for managers to go through NBC U’s sourcing department before making major purchases.

Unlike the 2006 NBC 2.0 initiative, in which the company slashed $750 million from its budget and eliminated 700 jobs, the company isn’t specifically planning a personnel reduction. It’s unclear, therefore, how many staffers might be impacted by the corporate-wide spending cut.

One area where Disney, Time Warner and Viacom have downsized in the past couple of years is in the number of movie releases per year. Paramount last week said it was trimming its projected tally by 20%, from 25 to 20. Universal Pictures, which has had its ups and downs during Zucker’s tenure, recently wrapped a long-awaited deal to distribute DreamWorks pics, so its annual tally will be somewhat in flux.

No matter which corners of media empires wind up directly affected, NBC U’s decision to implement cuts matches the mood of the country lately. And certainly no federal bailout package is in the offing.

“This kind of message is never easy, but it is the right step to make, and the right time to make it,” Zucker wrote.